Key Information
A.
Reserved
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
Risk
Factors Summary
Risks
Related to Our Business
● We are an initial launch-stage company with limited operating history. We expect to incur significant additional losses in the future and may never be able to effectuate our business plan or achieve significant revenues or reach profitability. Therefore, at this stage of our business, potential investors have a high probability of losing their entire investment.
● Management has concluded that there is substantial doubt about our ability to continue as a going concern, and the report of our independent registered public accounting firm contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern”, which could prevent us from obtaining new financing on reasonable terms or at all.
● We may need to obtain additional financing to fund our future operations. If we are unable to obtain such financing, we may be unable to complete the development and commercialization of our technology and our products and services
● We may not be able to successfully execute our business models.
● We have a limited operating history. If we successfully commercially launch the Nanox System, and it does not achieve widespread market acceptance, we will not be able to generate the revenue necessary to support our business.
● Although we received clearance from the FDA to market the Nanox.ARC and Nanox.ARC X (including the Nanox.CLOUD), and our Nanox AI software solutions have received FDA 510(k) clearances for specified indications, the products and services are not yet widely approved for third-party payor coverage or reimbursement.
1
● We expect to depend on third parties to manufacture the Nanox.ARC and the Nanox.ARC X and to supply certain component parts.
● In addition to our direct sales force, we rely on third-party distributors and partners to deploy and commercialize the Nanox.ARC and Nanox.ARC X, and any failure by distributors to perform their deployment, sales, or operational obligations, or any termination of or dispute under these arrangements, could materially delay our commercialization timelines, reduce our revenue, and adversely affect our business, financial condition, and results of operations.
● Defects, variability, or yield challenges in our proprietary digital X-ray source and tubes could impair product performance, trigger regulatory actions, and limit our ability to scale across our business models.
● If the Nanox.ARC or Nanox.ARC X exhibit instability or performance degradation over time or across units, including issues related to our MEMS-based X-ray source, we could face regulatory scrutiny, increased costs, reputational harm, and reduced revenues across our business models.
● Our efforts may never demonstrate the feasibility of our digital X-ray source technology, including both the micro-electro-mechanical systems (“MEMs”) X-ray chips and tubes, for commercial applications.
● Two of our business models depend on the successful commercial application of the Nanox.CLOUD, which is subject to numerous risks and uncertainties.
● Our ability to generate revenue from our teleradiology services and AI solutions, as well as the other imaging offerings that we are developing will depend in large part on referrals from physicians.
● Our industry is highly competitive and is subject to technological change, which may result in new products or solutions that are superior to our technology or other future products we may bring to market from time to time.
● We could become subject to product liability claims, product recalls, warranty claims and professional malpractice liability claims that could be expensive, divert management’s attention and harm our business reputation and financial results.
● We are highly dependent on key members of our executive management team.
● The mishandling or the perceived mishandling of sensitive information, or the occurrence of data security breaches, could harm our business.
● Our business may be impacted by changes in general economic conditions.
2
Risks
Related to Our Intellectual Property
● It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.
● Patent terms may be inadequate to protect our competitive position on our future products for an adequate amount of time.
● Claims that our technology or our future products or the sale or use of our future products infringe the patents or other intellectual property rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
Risks
Related to Government Regulation
● Our product candidates and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
● We may not receive, or may be delayed in receiving, the necessary clearances or approvals for our future products, and failure to timely obtain necessary clearances or approvals for our future products would adversely affect our ability to grow our business.
● Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market.
● Changes in laws or regulations relating to data protection, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could materially and adversely affect our business or could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
● If we do not obtain and maintain international regulatory registrations, clearances or approvals for our products, we will be unable to market and sell our products outside of the United States.
Risks
Related to Owning Our Ordinary Shares
● Our share price may be volatile, and you may lose all or part of your investment.
● As a foreign private issuer, we are exempt from certain requirements that apply to domestic issuers and we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to shareholders under rules applicable to domestic issuers.
● We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
● Shares eligible for future sale may adversely affect the market for our ordinary shares and the issuance of additional ordinary shares as a result of the exercise of our outstanding warrants and options will dilute the percentage ownership of our other shareholders.
● Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31, 2025. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
Risks
Related to Our Operations in Israel
● Conditions in Israel could materially and adversely affect our business.
3
Risks
Related to Our Business
We
are an initial launch-stage company with limited operating history. We expect to incur significant additional losses in the future and
may never be able to effectuate our business plan or achieve significant revenue or reach profitability. Therefore, at this stage of
our business, potential investors have a high probability of losing their entire investment.
We
are an initial launch-stage company, and are subject to all of the risks inherent in the establishment of a new business enterprise.
While we began to generate revenue in the year ended December 31, 2021 through the sale of teleradiology services and the sale of AI
solutions, following the completion of the acquisitions of Zebra Medical Vision Ltd. (“Zebra”) (and subsequently changed
its name to Nano-X AI Ltd (“Nanox AI”)), USARAD
Holdings, Inc., a Delaware corporation (“USARAD”) and the assets of MDWEB, LLC (“MDWEB”) in November 2021,
we have a limited operating history and an unproven business plan upon which investors may evaluate our prospects. Our ability to
scale these businesses depends on factors outside our control, including commercial adoption of AI decision-support tools by
providers and payors, and sustained access to qualified, credentialed radiologists to read studies across multiple jurisdictions. We
have obtained FDA clearances for the Nanox.ARC and Nanox.ARC X (including the Nanox.CLOUD), a multi-source 3D digital tomosynthesis
system, for certain specified uses, and have produced dozens of systems to date. We deployed the Nanox System at several medical
imaging and diagnostic testing centers across various states in the United States and in other countries, for demo, commercial, and
clinical use. As we are in the initial stages of the commercial deployment of the Nanox System, we are still assessing and
validating our Subscription Model, alongside the CapEx Model, both through direct and indirect sales. In addition, clinical
operations of the Nanox System are expected to begin in additional sites, subject to certifications from the requisite regulatory
authorities. We engaged Dagesh P.K. Ltd. (“Dagesh”) to manufacture these first Nanox.ARC units in Israel on a purchase
order basis, which are being used for the initial global deployment, among other purposes. Additionally, we have recently entered
into a multi-year Volume Supply Agreement with Fabrinet, a leading global electronics manufacturing services provider from
Singapore, to support the scalable manufacturing of Nanox.ARC X systems. Even if we are able to manufacture the Nanox.ARC and
Nanox.ARC X we may not be able to do so at the low costs needed to support our business models, including the Subscription Model. We
may not receive, or may be delayed in receiving, the necessary approval or clearance for our future products. We have a commercial
arrangement for the licensing of our X-ray source but we have not entered into any arrangement under the Licensing Model.
Furthermore, even if our technology becomes commercially viable, our
business models may not generate sufficient revenue necessary to support our business. We may never produce or deploy a sufficient number
of Nanox Systems to validate the MSaaS-based medical imaging market, which may cause our business to fail. The Subscription Model is based
on selling the Nanox System at low cost or no cost using a pay-per-scan pricing structure, which is pioneering for medical imaging companies
and is subject to numerous risks. The medical imaging industry is also highly competitive and our technology, products, services or business
models may not achieve widespread market acceptance. If we are unable to address any issues mentioned above, or encounter other problems,
expenses, difficulties, complications, and delays in connection with the starting and expansion of our business, our entire business may
fail, in which case you may lose your entire investment.
We
have a history of net losses and negative cash flow from operations since inception and we expect such losses and negative cash flows
from operations to continue in the foreseeable future. As of December 31, 2025, 2024, and 2023, we had working capital of approximately
$50.0 million, $64.7 million, and $73.1 million, respectively, and shareholders’ equity of approximately $139.7 million, $189.1
million and $195.5 million, respectively. For the years ended December 31, 2025, 2024, and 2023, we incurred net losses of approximately
$75.0 million, $53.5 million and $60.8 million, respectively. As of December 31, 2025, 2024 and 2023, we had an accumulated deficit of
approximately $448.8 million, $373.7 million and $320.2 million, respectively, and negative cash flow from operations of $40.8 million,
$36.6 million and $44.8 million for the years ended December 31, 2025, 2024, and 2023, respectively. We anticipate our losses
will continue to increase from current levels because we expect to incur additional costs related to developing our business, including
commercialization of our products, research and development costs, manufacturing costs, employee-related costs, costs related to acquisitions,
costs of complying with government regulations, intellectual property development and prosecution costs, service and training costs,
sales and marketing expenses, capital expenditures, general and administrative expenses (including litigation costs), and costs associated
with operating as a public company.
Our
ability to generate significant revenue from our operations and, ultimately, achieve profitability will depend on, among others, whether
we can complete the development and commercialization of our products and our services, including our X-ray source technology, the Nanox.ARC,
Nanox.ARC X, and the Nanox.CLOUD, whether we can manufacture the Nanox.ARC and Nanox.ARC X on a commercial scale in such amounts and
at such costs as we anticipate, and whether we can achieve market acceptance of our products, services and business models. We may never
generate significant revenue or operate on a profitable basis. Even if we achieve profitability, we may not be able to sustain it.
4
Management has
concluded that there is substantial doubt about our ability to continue as a going concern, and the report of our independent registered
public accounting firm contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going
concern”, which could prevent us from obtaining new financing on reasonable terms or at all.
Because we have had recurring
losses and negative cash flows from operating activities, substantial doubt exists regarding our ability to remain as a going concern
at the same level at which we are currently performing without taking reduction or efficiency steps. Accordingly, our independent auditors’
report on our financial statements that appear in this Annual Report includes an explanatory paragraph that expresses substantial doubt
about our ability to continue as a “going concern”. The doubts regarding our potential ability to continue as a going concern
may adversely affect our ability to obtain new financing on reasonable terms or at all. Further financial statements may include an explanatory
paragraph with respect to our ability to continue as a going concern. There can be no assurance that we will succeed in generating sufficient
revenues from our product sales to continue our operations as a going concern. If funds are not available to us, we may be required to
delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products.
This raises substantial doubts about our ability to continue as a going concern.
We may need to obtain additional financing
to fund our future operations. If we are unable to obtain such financing, we may be unable to complete the development and commercialization
of our technology and our products and services.
Our operations have consumed
substantial amounts of cash since inception. Our net losses were $75.0 million, $53.5 million and $60.8 million for the years ended December
31, 2025, 2024 and 2023, respectively. In addition, significant resources were invested in the development of our X-ray source technology
prior to us acquiring the technology. We anticipate that our future cash requirements will continue to be significant. While we generated
revenue in the years ended December 31, 2023, 2024 and 2025 we expect that we will need to obtain additional financing to implement our
business plan as described in this annual report on Form 20-F, such as the financings we consummated with a single institutional investor
in July of 2023, and with a separate institutional investor in November of 2025, and the utilization of our Controlled Equity OfferingSM Sales
Agreement, dated as of June 7, 2024 (the “Sales Agreement”) with Cantor Fitzgerald & Co. and Mizuho Securities USA LLC
relating to the issuance and sale from time to time of our ordinary shares, an aggregate offering price of up to $100 million from time
to time through the Agents pursuant to the sales agreement. As of December 31, 2025 we have raised $46.1 million under the Sales Agreement.
We will need to raise additional funds in order to complete the manufacture, shipping, installation and deployment of a significant number
of Nanox System units, as well as to support the ongoing development of the Nanox.ARC, the Nanox.ARC X, and the Nanox.CLOUD. Such financings
could include equity financing, which may be dilutive to shareholders, or debt financing, which would likely restrict our ability to borrow
from other sources. In addition, such securities may contain rights, preferences or privileges senior to those of the rights of our current
shareholders. Further, geopolitics tensions, inflation and rising interest rates across the global economy have resulted in, and may continue
to result in, significant disruption of global financial markets, which may reduce our ability to access capital and may result in increased
financing costs. Additional funds may not be available when we need them, on terms attractive to us, or at all. If adequate funds are
not available on a timely basis, we may be required to curtail the development of our technology, products or services, or materially
delay, curtail, reduce or terminate our research and development and commercialization activities. We could be forced to sell or dispose
of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on
our business, financial condition, results of operation and prospects, including the possibility that a lack of funds could cause our
business to fail and liquidate with little or no return to investors.
We operate in a capital intensive, high-cost industry that requires
significant amounts of capital to fund operations. We incur capital expenditures to, among other things, manufacture and commercially
deploy our Nanox Systems and products. To the extent we are unable to generate sufficient cash from our operations or we are unable to
structure or obtain financing, we may be unable to meet our capital expenditure requirements to support the maintenance and continued
growth of our operations.
We
may not be able to successfully execute the Nanox System business models.
We are pursuing three simultaneous business models to maximize the
commercial potential of our X-ray source technology, each of which requires significant time and resources. The three business models
we are pursuing are the Subscription Model, the CapEx Model, and the Licensing for OEM Model. We are a company with limited operating
history and we may not have the necessary resources, expertise and experience to successfully execute any of our business models on a
global scale, such as obtaining the necessary approvals or clearances from the regulatory agencies of our target markets. Our ability
to execute our models is dependent on a number of factors, including the ability of our senior management team to execute our models,
our ability to engage local operators and integrators in different geographic regions, our ability to begin or maintain our pace of product
development, manufacturing and commercialization, our ability to meet the changing needs of the medical imaging market, and the ability
of our employees to perform at a high-level. If we are unable to execute our models, if our models do not drive the growth that we anticipate,
or if our market opportunity is not as large as we have estimated, it could adversely affect our business and our prospects.
5
In addition, referrals for the use of the Nanox System are dependent
on the education of physicians for the use of our devices. We use a combination of pilot sites, training, and clinical education efforts
to help educate physicians and other customers, however these efforts may be unsuccessful and not result in additional uses of our devices.
These aspects of our business will require us to hire additional experienced healthcare business-development professionals who will be
charged with raising awareness of the Nanox System among physicians, hospitals, urgent care operators, and large health systems throughout
the U.S., and which may be costly, and if unsuccessful, may adversely affect our financial results.
We
have a limited operating history. If we successfully complete the commercial launch of the Nanox System, and it does not achieve widespread
market acceptance, we will not be able to generate the revenue necessary to support our business.
We
have a limited operating history and while we began the marketing of our AI solutions, teleradiology, and healthcare IT services, following
the acquisitions in November 2021, and November 2025, we have limited history of marketing our X-ray source technology and the Nanox
System. We may fail to generate significant interest in our X-ray source technology or the Nanox System or the imaging products using
our technology, or any other product we may develop. These and other factors, including the following, may affect the rate and level
of market acceptance:
● effectiveness of the service, training, sales and marketing efforts of us, and our partners such as the local partners;
● perception by medical professionals and patients of the convenience, safety, efficiency and benefits of the Nanox System or products using our technology, compared to competing methods of medical imaging, such as the time and skill required to read the tomographic images produced by the Nanox.ARC and Nanox.ARC X, and our X-ray source;
● opposition from certain industry leaders, which may limit our ability to promote the Nanox System and to penetrate into the medical imaging market in certain geographical areas;
● the existence of established medical imaging technology;
● willingness of market participants to accept the MSaaS model;
● the changing and volatile U.S. and global economic environments, including as a result of the war between Israel and Hamas, the ongoing military conflict between Russia and Ukraine, the global response to it and any negative impact on the global economy and capital markets resulting from the conflict or any other geopolitical tensions, tariffs imposed by the new U.S. administration and other countries, or inflation. In addition, there is current uncertainty about the future relationship between the United States and other countries with respect to trade policies, taxes, government regulations, and tariffs and we cannot predict whether, and to what extent, trade policies of the U.S. or other countries will change in the future;
6
● timing of market introduction of competing products, and the service, training, sales and marketing initiatives of such products;
● press and blog coverage, social media coverage, and other publicity and public relations factors by others;
● lack of financing or other resources to successfully develop and commercialize our technology and implement our business plan;
● the level of commitment and support that we receive from our partners, such as local operators, cloud storage providers and medical AI software providers, as well as medical professionals such as radiologists; and
● coverage determinations and reimbursement levels of third party payors.
In
addition, adoption of our AI solutions depends on successful integration with customers’ environments and clinical workflows, validation
of algorithm performance on local populations, and, in certain cases, use by clinicians subject to evolving institutional AI governance
policies. Our teleradiology services depend on customer retention and the availability and engagement of independent radiologists with
the appropriate subspecialty, state and, where applicable, country-specific credentials.
Depending
on the approved clinical indication, the Nanox System will be competing with existing and future imaging products and similar offerings.
The technology underlying our X-ray source and the Nanox System may be perceived as inferior or inaccurate and patients may be unwilling
to undergo medical screening using the Nanox.ARC or Nanox.ARC X, or other products using our technology. Moreover, patients and medical
professionals may be unwilling to depart from the current medical imaging technology, clinical workflow and current standard of care.
Medical professionals tend to be slow to change their medical diagnostic practices because of perceived liability risks arising from
the use of new technology or products, and they may not recommend medical imaging using the Nanox.ARC, or Nanox.ARC X, or other products
using our technology until there is long-term clinical evidence to convince them to alter or modify their existing imaging methods. Our
efforts to educate patients, radiologists and other members of the medical community on the benefits of our products require significant
resources and may not be successful. Our efforts to educate the market may require more resources than are required by conventional technologies
marketed by our competitors. In particular, gaining market acceptance for our products could be challenging. Moreover, in the event that
the Nanox System or other products using our technology are the subject of guidelines, clinical studies or scientific publications that
are unfavorable or damaging, or otherwise call into question their benefits, we may have difficulty in convincing market participants
to adopt our products. In addition, medical professionals, patients, providers of medical imaging services and third-party payors may
not adopt or reimburse the use of the Nanox System in the near term or at all. If we are unable to achieve or maintain an adequate level
of market acceptance, we may not generate significant revenue or become profitable and our business, financial condition, results of
operations and prospects would be significantly harmed.
Although
we received clearance from the FDA to market the Nanox.ARC and Nanox.ARC X (including the Nanox.CLOUD), and our Nanox AI software solutions
have received FDA 510(k) clearances for specified indications, the products and services are not yet widely approved for third-party
payor coverage or reimbursement. If in the future we are widely approved for and are otherwise able to commercialize it, but are unable
to obtain adequate reimbursement or insurance coverage from third-party payors, we may not be able to generate significant revenue, in
which case we may need to obtain additional financing.
Although
we received clearance from the FDA to market the Nanox.ARC and Nanox.ARC X (including the Nanox.CLOUD), the device is not yet widely
approved for third-party payor coverage or reimbursement. Coding and coverage determinations as well as reimbursement levels and conditions
are important to the commercial success of medical imaging hardware, AI-enabled software-as-a-medical-device and professional teleradiology
interpretation services. There is no assurance of favorable coverage determinations or consistent payment levels for AI-based software
tools, population-health deployments, or second-opinion reads, and payors may view AI outputs as non-reimbursable adjunctive services.
In teleradiology, downward pricing pressure from hospitals, imaging centers and large national providers could compress margins or result
in contract losses. The future availability of insurance coverage and reimbursement for newly approved medical devices is highly uncertain,
and our future business will be greatly impacted by the level of reimbursement provided by third-party payors. In the United States,
third-party payors decide which imaging products and services they will cover, how much they will pay and whether they will continue
reimbursement. Third-party payors may not cover or provide adequate reimbursement for the Nanox System or the imaging services using
the Nanox System, assuming we are able to fully develop and obtain all regulatory approvals and clearances to market it in geographies
in addition to the United States. To date, we have initiated discussions with third-party payors regarding the coding, coverage or reimbursement
for imaging services using the Nanox System. Accordingly, unless government and other third-party payors provide coverage and reimbursement
for our services, patients and healthcare providers may choose not to use them, which would cause investors to lose their entire investment.
A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and other third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and services. Reimbursement
may not be available, or continue to be available, for the Nanox System or the imaging services using the Nanox System, other products
or systems using our X-ray source technology, our AI solutions, teleradiology services, the Nanox.MARKETPLACE or any other products or
services we may develop or offer in the future, or even if reimbursement is available, such reimbursement may not be adequate. We also
will be subject to foreign reimbursement policies in the international markets we expect to enter. Decisions by health insurers or other
third-party payors in these markets not to cover, or to discontinue reimbursing, our products could materially and adversely affect our
business. If such decisions are made, they could also have a negative impact on our ability to generate revenues, in which case we may
need to obtain additional financing.
7
We expect to depend on third parties to
manufacture the Nanox.ARC and the Nanox.ARC X and to supply certain component parts. Because we rely on third-party manufacturers and
suppliers, any delays, disruptions or failures in their production or supply chain could delay the production of the Nanox.ARC and the
Nanox.ARC X, which could in turn delay our ability to commercialize and deliver such systems, result in increased costs, quality or compliance
issues, or otherwise materially harm our business.
We have continued to engage
third-party manufacturers and suppliers for the commercial production of our digital X-ray tubes for use in the Nanox.ARC and the Nanox.ARC
X, following receipt of clearance from the FDA in 2023, 2024, 2025, and 2026. We intend to continue engaging third-party manufacturers
and suppliers, following additional clearances and approvals by similar regulatory authorities in other jurisdictions, based on, among
other things, cost effectiveness. We are currently developing both ceramic and glass-based digital X-ray tubes for use in the Nanox.ARC
and the Nanox.ARC X. We are working with third parties as well as producing digital ceramic tubes at our Korean facility, which is currently
our primary manufacturer and supplier for our digital ceramic tubes. Recently we adopted a restructuring plan intended to better align
our manufacturing cost structure with our long-term financial model. As part of the restructuring, we will close our chip manufacturing
line in South Korea, downsize our fabrication facilities, and transfer certain production activities to third-party international manufacturing
partners. Following these changes, we intend to focus our operations in South Korea on research and development (R&D) and tube production
activities that support the Nanox.ARC platform. The restructuring is expected to be substantially completed during fiscal year of 2026.
As a result of the restructuring plan, we will be more dependent on our third-party manufacturers and suppliers.
We previously entered into
manufacturing agreement for the manufacturing and supply of certain components of the Nanox.ARC. We have recently entered into a multi-year
Volume Supply Agreement with Fabrinet, a leading global electronics manufacturing services provider from Singapore, to support the scalable
manufacturing of Nanox.ARC X systems.
In addition, in September
2023, we entered into a manufacture and supply agreement with Varex Imaging Corporation from Salt Lake City, Utah (“Varex”),
under which Varex will supply X-ray tubes utilizing the Nanox digital X-ray emitter for the Nanox.ARC. The agreement was entered into
after Varex completed a preliminary assessment of our digital X-ray emitter. Under the agreement, we may order X-ray tubes from Varex
for use in our Nanox.ARC units.
In December 2024, we entered
into a development and purchase agreement with SKAN-X Radiology Devices SRL (“CEI”), an Italian manufacturer of X-ray tubes.
Under the agreement, CEI will manufacture X-ray tubes using semiconductor chips provided by the Company.
We are in the final phase
of the development under our original Research and Development Agreement with CSEM (a Swiss technology innovation center with MEMS Foundry
Services). We intend to transition to a production supply agreement and going forward will issue CSEM Purchase Orders as needed to supplement
our chip supply needs.
As we further expand our
business in connection with the commercialization of our technology, we expect to seek to engage several additional manufacturers of the
Nanox.ARC and the Nanox.ARC X. If any of our current or future manufacturers or suppliers experience delays in production, breach their
agreements, are unable to meet their contractual or quality requirements, or become unwilling to perform for any reason, our own production
of the Nanox.ARC and the Nanox.ARC X may be delayed or interrupted. In addition, we may be unable, or may be unable in a timely manner,
to locate alternative acceptable manufacturers or suppliers and enter into favorable agreements with them.
Our dependence on third-party
manufacturers and suppliers involves a number of risks, including:
● insufficient capacity or delays in meeting our demand, which could in turn delay our ability to commercialize and deliver the Nanox Systems;
● inadequate manufacturing yields, inferior quality and excessive costs;
● inability to manufacture products that meet the agreed upon specifications;
● inability to obtain an adequate supply of materials or components;
● inability to comply with the relevant regulatory requirements for the manufacturing process;
● limited warranties on products supplied to us;
● inability or failure to comply with our contractual obligations;
● potential increases in prices; and
● increased exposure to potential misappropriation of our intellectual property.
8
In addition, we rely on third
parties to supply the raw materials and certain component parts. Disruptions of our relationships with such suppliers could negatively
impact our production for an extended period of time. Any inability to acquire sufficient quantities of any raw materials or components
in a timely manner from these third-party suppliers could have a material negative impact on our business. We may need to enhance or redesign
our MEMs X-ray chip to generate licensing revenue from it or for it to be functional for certain medical imaging applications.
In addition, if we change
the manufacturer of a critical component of our products, we will be required to verify that the new manufacturer maintains facilities,
procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability
to manufacture our products in a timely manner.
Transitioning to a new supplier
could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance
specifications of our products or could require that we modify the design of those systems. If the change in manufacturer results in a
significant change to any product, a new 510(k) clearance or approval from the FDA or similar international regulatory authorization may
be necessary before we implement the change, which could cause substantial delays. The occurrence of any of these events could harm our
ability to meet the demand for our products in a timely or cost-effective manner. See “—Risks Related to Government Regulation.”
We may experience development or manufacturing
problems and higher costs, or delays that could limit our revenue, if any, or increase our losses.
Developing manufacturing
procedures for new products requires developing specific production processes for those products. Developing such processes could be time
consuming, and any unexpected difficulty in doing so can delay the deployment of the Nanox System. Moreover, difficulties associated with
adapting our technology and product design to the proprietary process technology and design rules of outside manufacturers can lead to
reduced yields. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined
or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules
that are used. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems
may require cooperation between our manufacturers and us. This risk could be compounded by the offshore location of certain of our manufacturers,
increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that
we do not discover during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased costs
or delayed product delivery, which would harm our profitability and customer relationships. Furthermore, our, our manufacturers’
or our suppliers’ production processes and assembly methods may have to change to accommodate any significant, future expansion
of our manufacturing capacity, which may increase the manufacturing costs, delay production of our products, reduce our product margin,
require supplemental filings with the FDA or other regulatory authorities, any of which may adversely impact our business. If we are unable
to keep up with demand for our products by successfully manufacturing and shipping our products in a timely manner, our revenue could
be impaired, and market acceptance for our products could be adversely affected.
In addition to our direct sales force, we rely on third-party distributors
and partners to deploy and commercialize the Nanox.ARC and Nanox.ARC X, and any failure by distributors to perform their deployment, sales,
or operational obligations, or any termination of or dispute under these arrangements, could materially delay our commercialization timelines,
reduce our revenue, and adversely affect our business, financial condition, and results of operations.
Our
commercialization strategy for the Nanox.ARC and Nanox.ARC X depends significantly on the performance of third-party distributors, channel
partners, and collaborative counterparties. As of the date of this Annual Report, in the United States, we have executed distribution
agreements for approximately 360 CapEx systems in the U.S. over the next two to three years, with timing dependent on regulatory, operational,
and market factors. In Europe, we rely on local distributors, including in Romania, the Czech Republic, Greece, and France, who are responsible
for overseeing sales and market development, promoting the equipment, engaging with key opinion leaders, generating leads, handling local
regulatory approvals, importation, installation, and after-sales support. In addition, we have initiated the Nanox Imaging Network initiative,
a limited proof-of-concept under which currently our partner is responsible for site operations, personnel, regulatory permits, and local
engagement.
Most
of the Nanox.ARC systems currently deployed have not yet begun to generate revenues, and the timing and extent of revenue recognition
will depend on the progression of deployments, system activations, and the performance of our distribution partners.
We
face a number of specific risks related to our dependence on these third parties, including:
● Failure to meet deployment commitments. Our distributors and channel partners may fail to deploy or sell the number of Nanox.ARC or Nanox.ARC X systems specified under their respective agreements, whether due to insufficient demand generation, lack of sales resources, competing priorities, or inability to secure customer commitments. Many of our distribution agreements have not yet resulted in revenue, and the anticipated volumes reflect expected, rather than committed, commercial activity.
● Breach or non-performance. Our distributors or collaborative partners may default on their minimum purchase or payment obligations, or otherwise breach their contractual obligations, and it may be time-consuming and difficult to enforce such obligations in various jurisdictions.
9
● Limited control over third-party activities. We do not control, and have limited visibility into, the commercial activities, resource allocation, staffing, operational capabilities, or strategic priorities of our distributors and channel partners. A distributor may devote insufficient resources to the promotion and deployment of the Nanox System, may move forward with competing products, or may experience business combinations or changes in strategy that adversely affect its willingness or ability to perform.
● Regulatory and operational dependencies. In some markets, our distributors are responsible for obtaining local regulatory approvals, import licenses, facility certifications, and other permits. Delays or failures by distributors to secure such approvals could prevent or significantly delay commercial deployment of the Nanox.ARC and Nanox.ARC X in the affected markets.
● Termination or non-renewal. Our distribution and collaborative arrangements are subject to termination or expiration provisions. If a key distributor or partner terminates its agreement, declines to renew, or allows the agreement to expire, we may face significant gaps in market coverage, and we may be unable to find a replacement distributor on favorable terms or at all within the affected territory.
● Nanox Imaging Network NIN and network model risks. Our NIN proof-of-concept is at an early and limited deployment phase, and our partner’s performance in site operations, regulatory permits, and local engagement is critical to its success. If our partner or other third party we contract with fail to obtain or maintain required licenses or permits, or if we fail to structure the required framework for the NIN operation, or if site operations do not meet applicable standards, we could face delays, penalties, or forced changes to the model.
● Concentration risk. A significant portion of our near-term deployment pipeline in the United States is concentrated among a limited number of distribution partners. If any one of these partners underperforms or terminates its relationship with us, the impact on our commercialization efforts and expected revenue could be disproportionate.
The
occurrence of any of these risks could result in delays in the deployment and commercialization of the Nanox.ARC and Nanox.ARC X, reduced
scan volumes under our Subscription Model, loss of anticipated CapEx revenue, slower market penetration, diminished competitive positioning,
and an adverse effect on our reputation with customers, healthcare professionals, and third-party payors. Given that we are in the initial
stages of commercial deployment, with an unproven business plan and limited operating history, any significant disruption to our distribution
network could materially impair our ability to achieve the scale and market presence necessary to sustain our business. These consequences
could, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations,
and prospects.
Defects,
variability, or yield challenges in our proprietary digital X-ray source and tubes could impair product performance, trigger regulatory
actions, and limit our ability to scale across our business models.
Our X-ray source is a MEMS-based
semiconductor cathode packaged within a customized X-ray tube and differentiated from legacy thermionic tubes. Scaling production while
maintaining consistency in emission characteristics and long-term stability is technically complex and depends on robust process controls
and quality management. We manufacture MEMS X-ray chips in our Korean facility and are qualifying additional chip capacity with third
parties; we are also developing both ceramic and glass-based digital X-ray tubes and have entered into agreements with suppliers, to manufacture
tubes incorporating our emitter technology. Recently we adopted a restructuring plan intended to better align our manufacturing cost structure
with our long-term financial model. As part of the restructuring, we will close our chip manufacturing line in South Korea, downsize our
fabrication facilities, and transfer certain production activities to third-party international manufacturing partners. Following these
changes, we intend to focus our operations in South Korea on research and development (R&D) and tube production activities that support
the Nanox.ARC platform. The restructuring is expected to be substantially completed during fiscal year of 2026.
Variability in chip fabrication, tube assembly, or supplier processes
can reduce yields, degrade lifetime or image performance over time, and increase warranty and service costs. If production lots fail to
meet specifications, or if field units exhibit premature degradation, we could face shipment holds, rework, or replacements, which would
delay deployments and increase costs.
Our dependence on multiple suppliers and manufacturing partners for
critical MEMS X-ray chips and tube components increases our exposure to capacity, quality, and compliance risks. We rely on internal and
external manufacturing for chips and tubes, and we are working with additional third parties to secure capacity. Transitioning to or qualifying
new suppliers can be time-consuming and expensive and may require design modifications, renewed validation, or regulatory notifications.
Supplier shortfalls, quality escapes, or disruptions, whether due to process drift, equipment issues, geopolitical events, or workforce
limitations, could impair tube quality or consistency, constrain output, and delay installations. Because tubes are core to system performance
and uptime, any quality issues can have outsized commercial impact, particularly under our Subscription, CapEx, and prospective Licensing
(OEM) models where unit reliability influences scan volumes, customer satisfaction, and royalty realizations.
10
Tube
quality control failures could result in mandatory field actions, regulatory enforcement, or loss of marketing authorizations, and could
materially damage our reputation and financial results. The Nanox.ARC and the Nanox.ARC X and their tubes are subject to ongoing FDA
and international post-market requirements, including QSR and Electronic Product Radiation Control provisions, and our CE mark for the
Nanox.ARC depends on continued conformity with EU MDR and successful Notified Body audits of our technical documentation and quality
system. If tube defects or performance degradation lead to reportable events, we may be required to initiate field corrections or recalls
and could be subject to inspections, warning letters, import holds, or other enforcement. Significant or systemic issues could jeopardize
certifications or require costly remediation, redesign, or revalidation. Any such actions can erode customer confidence, increase warranty
and service liabilities, reduce system uptime, and impair our ability to scale deployments or to enter into and monetize OEM licensing
arrangements, thereby adversely affecting our revenue and margins across our business models.
If the Nanox.ARC and Nanox.ARC X fail to
integrate across diverse clinical settings or with existing healthcare IT infrastructure, our commercialization efforts could be delayed
or impaired.
The Nanox.ARC and Nanox.ARC
X are intended for use in professional healthcare facilities, hospitals, or radiological environments and have received FDA 510(k) clearances
for general use indications on adult patients, including musculoskeletal, pulmonary, intra-abdominal, and paranasal sinus indications,
adjunctive to conventional radiography. However, real-world integration can vary by site due to differences in facility infrastructure,
network conditions, and IT configurations, and because elements of our system rely on cloud-based software. These factors can affect workflow,
throughput and connectivity. Even where we have demonstrated compatibility, implementations can be complex, time-consuming, and costly
for customers and collaborators, and may require additional validation, site-specific testing, or workflow changes that slow adoption.
If the Nanox.ARC or Nanox.ARC X do not integrate consistently across deployment environments, or if we encounter extended validation cycles,
we could face delays in installations, lost sales opportunities, or pressure to discount pricing to offset perceived integration risk.
Integration with third-party
systems and legacy infrastructure presents interoperability, workflow, and cybersecurity risks that we do not fully control, including
site infrastructure, bandwidth and network conditions, security controls, and legacy system configurations. These differences can affect
image acquisition and routing, throughput, connectivity, and perceived image quality, and may necessitate site-specific validation, workflow
redesign, and extended change-management to satisfy local IT policies. Our offering includes cloud-based software integrated with the
Nanox.ARC and Nanox.ARC X, and our commercialization models contemplate working alongside customer IT networks and third-party systems.
Interoperability challenges or misconfigurations by third parties can impair system availability or performance and disrupt workflows,
imaging archive connectivity, or downstream reading and reporting processes. In some jurisdictions under our CapEx Model, customers may
contract directly with third-party cloud providers instead of using Nanox.CLOUD, which adds further variability and increases the risk
of misconfiguration or sub-optimal performance outside our direct control. Outages, security incidents, or improper implementation by
customers or third parties may be attributed to us, resulting in reputational harm, remediation costs, service credits or other concessions,
and could impede broader adoption of our systems. If implementations require greater-than-expected customer IT effort, prolonged testing,
or custom interfaces, installations may be delayed, support costs may increase, or customers may defer or cancel purchases. These outcomes
could negatively impact our commercialization timelines and margins.
Integrations with third-party
systems create interoperability, workflow, and cybersecurity exposures that we may be blamed for even when the root cause lies with others.
If outages, vulnerabilities, or integration failures occur, customers may attribute these problems to us, leading to dissatisfaction,
warranty claims, remediation expense, or lost sales, all of the above could have a material adverse effect on our business results, cash
flows, financial condition, or prospects
We are subject to ongoing
regulatory and data protection obligations; performance or integration issues could trigger post-market actions, threaten certifications,
or limit market access. Following FDA clearance and CE marking, we remain subject to pervasive post-market regulatory requirements, including
Quality System Regulation (QSR), medical device reporting, complaint handling, corrective and preventive actions, and, where required,
post-market surveillance. Our CE mark is conditioned on continued conformity assessment, including periodic review of our quality system
and manufacturing sites by our Notified Body. Integration or performance problems that lead to adverse events, reportable malfunctions,
or cybersecurity vulnerabilities may necessitate field corrective actions or recalls, could result in FDA or foreign enforcement, and
could jeopardize our CE mark or other country-specific authorizations. Additionally, data protection, localization, and electronic product
radiation control rules may impose obligations on both us and our ecosystem partners; failures by us or by third parties could restrict
deployments, increase compliance costs, or delay revenue. Any of these outcomes could harm our reputation, lead to customer dissatisfaction
or warranty claims, reduce sales, and adversely affect results of operations.
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If
the Nanox.ARC or Nanox.ARC X exhibit instability or performance degradation over time or across units, including issues related to our
MEMS-based X-ray source, we could face regulatory scrutiny, increased costs, reputational harm, and reduced revenues across our business
models.
The Nanox.ARC and Nanox.ARC X are multi-source, tomographic, digital
X-ray systems that integrate our proprietary MEMS-based semiconductor X-ray emitter packaged in a customized tube and operates together
with our cloud software, Nanox.CLOUD. Although we have obtained U.S. FDA 510(k) clearances for general use indications for the Nanox.ARC
and Nanox.ARC X, and subsequently received a CE mark for the multi-source Nanox.ARC (including Nanox.CLOUD), real-world stability can
vary across sites and over time. Our emitter technology and MEMS X-ray chips are novel and that scaling and maintaining consistency present
challenges. Variability in emission characteristics, drift, or other performance changes at the tube or system level could impair image
quality, throughput, and uptime. Our limited field deployment history increases the risk that long-term stability issues may not be fully
observable until we scale installations. Any such instability, whether intermittent, unit-specific, or cohort-wide, could delay deployments,
increase replacement and service costs, and erode customer confidence.
Because
the Nanox.ARC and Nanox.ARC X rely on software, firmware, and cloud connectivity, interactions between hardware and software can affect
perceived device stability. Software or firmware updates, changes in cloud services, or defects in our or third-party software could
alter timing, calibration, image processing, or connectivity behaviors in ways that appear as hardware faults, and vice versa. Major
imaging peers caution that ensuring the utility, compatibility, and performance of cloud and software solutions across devices depends
in part on the reliability of third-party vendors and networks; cloud-connected imaging companies have also disclosed that undetected
software errors or recalls can arise even after clearance and deployment. If software changes, cloud outages, or misconfigurations introduce
instability or require rollbacks, we may need to halt installations, push patches under compressed timelines, or dispatch field service,
incurring costs and reputational damage and potentially disrupting clinical operations.
Stability
failures can trigger significant post-market and enforcement exposure. Even after receiving 510(k) clearance and the CE mark, we remain
subject to ongoing regulatory obligations, including complaint handling, medical device reporting, field corrective actions and recalls,
and continued conformity assessments in the EU. Product instability or quality issues can lead to FDA-reportable corrections/removals,
recalls, inspections, warning letters, import holds, or changes to clearances. If regulators disagree with our assessment of whether
a change or failure is reportable or whether a modification requires a new 510(k), we could be required to cease marketing, implement
extensive remediation, or undergo revalidation. Such actions could delay our roadmap, increase costs, and jeopardize market access.
Commercial and financial consequences would be material across our
Subscription, CapEx, and Licensing (OEM) models. Under our Subscription and CapEx Models, instability that reduces system uptime or image
consistency could depress scan volumes, prompt service credits or warranty claims, extend acceptance testing, and lead to cancellations
or discounting. Under a prospective Licensing model, licensees may scale back adoption or delay launches if field performance variability
undermines their regulatory filings, quality metrics, or customer satisfaction; disputes could also arise over allocation of root-cause
responsibility when instability stems from interactions between our emitter technology and a licensee’s system or software stack.
Field failures and quality excursions can lead to recalls, warranty exposures, and reputational harm that depress future orders. Persistent
or systemic product stability issues could therefore reduce revenues, margins, and potential royalty streams.
Finally,
our limited installed base and the novel nature of our MEMS-based source make it difficult to predict long-term performance under diverse,
real-world conditions and workload profiles. As we expand indications, sites, and use cases, we may encounter stability behaviors not
seen in earlier testing or pilot deployments. If we cannot promptly detect, diagnose, and remediate emerging patterns at scale, including
through design changes, software updates, or supplier process controls, future instability could compound across cohorts and regions,
amplifying service costs, delaying revenue recognition, and harming our brand, and causing our business to fail.
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Our
efforts may never demonstrate the feasibility of our digital X-ray source technology, including both the MEMs X-ray chips and tubes,
for commercial applications.
We
have developed our X-ray source technology, including both the MEMs X-ray chips and tubes, and the Nanox System, which includes the Nanox.ARC,
the Nanox.ARC X, and the Nanox.CLOUD. Even though we believe our X-ray source, which we refer to as the Nanox.SOURCE, has achieved commercial
applicability, our technology has not been tested over extended periods of time and therefore no meaningful data exists regarding the
durability, safety and effectiveness of our X-ray source over extended periods. In addition, there is no precedent for commercialization
of technology like ours. The commercial scale production and deployment of the Nanox System will require significant additional service,
training, sales, and marketing efforts, and we may not be able to ensure the effectiveness, accuracy, consistency, stability, and safety
of the Nanox System in mass production and deployment. Any unanticipated technical or other problems and the possible insufficiency of
funds and other resources needed to continue the development and commercialization of our X-ray source, the Nanox.ARC, and the Nanox.ARC
X, or the Nanox.CLOUD may result in delays and cause us to incur additional expenses that would increase our losses. If our X-ray source
is not commercially feasible now or in the long term, our business may fail.
Two
of our business models depend on the successful commercial application of the Nanox.CLOUD, which is subject to numerous risks and uncertainties.
In
addition to the Nanox.ARC, and the Nanox.ARC X, we have also developed, and continue to improve, the Nanox.CLOUD, a companion cloud software
designed to deliver scans. The continued development and commercialization of the Nanox.CLOUD has a number of risks, including:
● the Nanox.CLOUD requires a considerable investment of technical, financial, and legal resources, which may not be available to us;
● it may not be technically viable to integrate the Nanox.CLOUD with the businesses of our potential customers and collaborators, such as local operators, radiologists, cloud storage providers, medical artificial intelligence (“AI”) software providers and others;
● market acceptance of the MSaaS model is affected by a variety of factors, including security, reliability, scalability, customization, performance, customer preference, patients’ concerns with entrusting a third party to store and manage their health data, public concerns regarding privacy and compliance with restrictive laws or regulations;
● our cloud-based service may raise concerns among our customer base, including concerns regarding changes to pricing over time, service availability, information security of a cloud-based solution and access to medical images while offline;
● the Nanox.CLOUD may be subject to computer system failures, infrastructure failures, cyber-attacks or other security breaches;
● incorrect or improper implementation or use of the Nanox.CLOUD by third-party cloud-service providers under our CapEx Model could result in customer dissatisfaction and harm our business and reputation;
● undetected software errors or flaws in the Nanox.CLOUD could harm our reputation or decrease market acceptance of our business models;
● we may incur higher costs than we expected as we expand our cloud-based services; and
● AI model hosting and deployment within the Nanox.CLOUD may be impaired by model drift, limitations on continuous learning in regulated environments, or customer requirements to operate on-premises, which could delay or prevent realization of expected benefits.
If
we are unable to successfully commercialize the Nanox.CLOUD, our business, financial condition, results of operations and prospects could
be negatively impacted.
13
Our
ability to generate revenue from our teleradiology services and AI solutions, as well as the other imaging offerings that we are developing,
will depend in large part on referrals from physicians.
Our
AI solutions present technical and clinical risks, including algorithmic errors, bias, lack of generalizability across demographics or
scanner protocols, and user over-reliance that could contribute to misdiagnosis or delayed diagnosis. Our safeguards, validation studies
and post-market monitoring may not fully prevent adverse outcomes, which could result in regulatory actions, product modifications, contractual
indemnity obligations, malpractice claims or reduced adoption. The use of AI in healthcare offerings poses certain clinical risks resulting
from potential misdiagnosis or misinformation provided from AI applications, diminishing critical judgment, or loss of interpersonal
care from clinicians. These deficiencies could undermine the decisions, predictions, or analysis AI applications produce, as well as
their adoption, subjecting us to competitive harm, legal liability, including under new proposed legislation regulating AI in jurisdictions
such as the EU or new applications of existing data protection, privacy, IP, and other laws; regulatory actions; and reputational harm.
In addition, emerging laws and standards for AI transparency, data governance and human oversight may increase compliance costs and constrain
product features.
In
addition, some AI scenarios, such as using AI applications to generate patient data, even if synthetic and non-identifiable, present
ethical, privacy, or other social issues, risking reputational harm and/or reduced market demand or acceptance of AI solutions. The safeguards
we have designed to promote the ethical implementation of AI may not be sufficient to protect us against negative outcomes.
We
also depend on referrals of patients from unaffiliated physicians and other third parties who have no contractual obligations to refer
patients to us for our teleradiology services, as well as the other imaging offerings that we are developing. If these physicians and
other third parties do not refer patients to us, our ability to generate revenue from our teleradiology services, as well as the other
imaging offerings that we are developing would be adversely affected. Further, we currently derive most of our revenue from our teleradiology
services from fees charged for the diagnostic imaging services performed by radiologists. If physicians and other third parties were
to discontinue referring patients to our radiologists, our revenue from our teleradiology services would decrease and our financial results
could be adversely affected.
In
our teleradiology services, any shortage, turnover, suspension, loss of licensure or credentialing, or reduced availability of our independent
radiologists could impair service levels, delay reads, increase costs to recruit replacements, or require curtailment of services to
customers across facilities.
All
of these risks are amplified by the critical nature of healthcare decisions and the sensitivity of health-related information, and the
occurrence of any of the above could have a material adverse effect on our business results, cash flows, financial condition, or prospects.
We
are highly dependent on the successful manufacturing, service, training, marketing and sale of our X-ray source technology and the related
products and services.
Our
core digital X-ray source technology is the basis of our Nanox System. As a result, the success of our business plan is highly dependent
on our ability to manufacture and commercialize our X-ray source technology and related products and services, and our failure to do
so could cause our business to fail. Successful commercialization of medical imaging devices is a complex and uncertain process, dependent
on the efforts of management, manufacturers, local operators, integrators, medical professionals, third-party payors, as well as general
economic conditions, among other factors. Any factor that adversely impacts the manufacture and commercialization of our X-ray source
technology or related products and services will have a negative impact on our business, financial condition, results of operations and
prospects. Some potential factors include:
● our ability to achieve sufficient market acceptance by hospitals and clinics, providers of medical imaging services, medical professionals such as radiologists, third-party payors and others in the medical community;
● our ability to compete with existing medical imaging technology companies;
● our ability to establish, maintain and expand our service, training, sales, marketing and distribution networks;
● our ability to obtain and/or maintain necessary regulatory approvals; and
● our ability to effectively protect our intellectual property.
14
Our
inability to successfully obtain applicable approval for and subsequently commercialize our X-ray source technology or related products
and services, and/or successfully develop and commercialize additional products or any enhancements to the products which we may develop
would have a material adverse effect on our business, financial condition, results of operations and prospects.
Products
utilizing our technology may need to be approved or cleared by the FDA and similar regulatory agencies worldwide and local regulations
by state and country. We may not receive, or may be delayed in receiving, the necessary approval or clearance for our future products,
which would adversely affect business, financial condition, results of operations and prospects.
On April 28, 2023, we received a 510(k) clearance from the FDA to market
the Nanox.ARC (including the Nanox.CLOUD), a multi-source 3D digital tomosynthesis system, as a stationary X-ray system intended to produce
tomographic images of the human musculoskeletal system adjunctive to conventional radiography, on adult patients. On December 4, 2024,
we received 510(k) clearance from the FDA for the Nanox.ARC, for general use including human musculoskeletal system, pulmonary, intra-abdominal,
and paranasal sinus indications, adjunctive to conventional radiography, on adult patients. This device is intended to be used in professional
healthcare facilities or radiological environments, such as hospitals, clinics, imaging centers and other medical practices by trained
radiographers, radiologists and physicians. In the U.S., each state requires regulatory approvals for these uses. The Company received
regulatory approvals in some states and intends to pursue the requisite approvals in additional states. On February 25, 2025, we received
the CE mark certification to market the multi-source Nanox.ARC system, including the Nanox.CLOUD, its accompanying cloud-based infrastructure.
In April 2025, we received a 510(k) clearance from the FDA for the Nanox.ARC X, an AI-ready, multi-source digital tomosynthesis system
that makes advanced 3D imaging possible in more places at significantly lower radiation dose than CT, which clearance covers the production
of tomographic images for general use, including the human musculoskeletal system and pulmonary, intra-abdominal and paranasal sinus indications,
adjunctive to conventional radiography on adult patients. In February 2026, we received a 510(k) clearance from the FDA for TAP2D, a new
cloud enabled image enhancement capability for the Nanox.ARC and Nanox.ARC X. In the future, we plan to seek additional clearances or
approvals from the FDA for additional uses of the currently cleared Nanox System, or for future versions of the Nanox System.
We
are still in the early stages of commercializing the FDA-cleared Nanox.ARC, Nanox.ARC X, and the Nanox.CLOUD as the Nanox System, and
we may also commercialize more future versions of our Nanox System, once cleared or approved. We may need to seek approval from foreign
regulatory authorities and local approvals. We believe the digital X-ray source falls within a category of radiology vacuum tubes converting
electrical input power into X-rays that utilize the same energy levels, radiation types and throughputs as already existing and approved
X-ray tubes applied in a wide range of radiology medical procedures. As a result, we expect that there will be no novel claim or methodology
related to the X-ray radiation produced by the digital X-ray source; however, regulatory agencies may not agree. Although we have received
FDA clearance for the Nanox.ARC and Nanox.ARC X, efforts to achieve additional governmental clearances and approvals could be costly
and time consuming, and we may not be able to obtain any such required clearances or approvals in accordance with our anticipated timeline
or in a cost-efficient manner. Any delay or failure to obtain necessary regulatory clearances or approvals could have a material negative
impact on our ability to generate revenues. Even if the products containing our technology receive the required regulatory clearance
or approval, such products will remain subject to extensive regulatory requirements. If we fail to comply with the regulatory requirements
of the FDA and other applicable U.S. and foreign regulatory authorities, or previously unknown problems with any approved commercial
products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions.
In
addition, the cost of compliance with new laws or regulations governing our technology or future products could adversely affect our
business, financial condition, results of operations and prospects. New laws or regulations may impose restrictions or obligations on
us that could force us to redesign our technology or other future products or services, and may impose restrictions that are not possible
or practicable to comply with, which could cause our business to fail. See “—Risks Related to Government Regulation.”
15
The success of our business models is subject to numerous risks and
uncertainties.
The
success of the CapEx model and the Subscription Model will depend on various factors, including:
● the process of manufacturing and deploying the Nanox System is a complex, multi-step process that depends on factors outside our control, and could cause us to expend significant time and resources prior to earning associated revenues;
● the manufacturing cost of the Nanox.ARC and the Nanox.ARC X may be higher than we expect, may increase significantly, or may increase at a higher rate than anticipated, and we may not be able to set or timely adjust our pay-per-scan pricing to compensate for any increased costs;
● the manufacturing of the Nanox.ARC and the Nanox.ARC X may take longer than we expected, and we may have insufficient manufacturing capacity and experience delays in the manufacturing and deployment of the Nanox System, which would have a negative impact on the timing of our revenues;
● deployment and full utilization of the Nanox System may not be fully achieved or may take substantially longer than we expect, and we may not be able to deploy a sufficient number of units of the Nanox System to support our business or to effectively stimulate market interest;
● the conditions precedent under our MSaaS agreements may not be met;
● we may not be able to negotiate or renegotiate any MSaaS agreement on terms attractive to us or to the agreement counterparty;
● agreement counterparties may fail to perform their obligations under such agreements;
● a Nanox System may perform fewer scans per day than our estimates due to a number of factors, including low market acceptance rate, technical failures and downtime, service disruptions, outages or other performance problems, which would have a negative impact on our revenues and our ability to recover costs;
● the implementation, integration and testing of the Nanox System with our potential customers and collaborators can be complex, time-consuming and expensive for them, which may have a negative impact on the timing of our revenues;
● the inability or unwillingness of potential customers to invest in the required safety infrastructure, including customary X-ray shielding, to allow the Nanox.ARC and the Nanox.ARC X to be safety operated;
● as part of the Subscription Model, we will be responsible for maintenance of the Nanox System units we deploy, which may be more costly and time-consuming than we expect;
● our customers may not be able to find or retain a sufficient number of radiologists to review the images generated by the Nanox System, especially as we deploy additional Nanox Systems and the volume of scans increases;
● the portion of our pay-per-scan pricing allocated to our collaborators may not be acceptable to them, either now or in the future, and pricing negotiations with such collaborators may be a complex and time-consuming process;
● the availability of insurance coverage and the level of reimbursement for the Nanox.ARC and the Nanox.ARC X provided by third-party payors may not be sufficient for our customers;
● our pay-per-scan pricing may not be sufficient to recover our costs and may not be adjusted in a timely manner, which could negatively affect our revenues or cause our revenues and results of operations to vary significantly from period to period;
● we may be unsuccessful in maintaining our target price per scan because we do not control the price charged by local operators and higher prices may adversely affect market acceptance of the Nanox System; and
● regulatory authorities may challenge our business models altogether, and impose significant civil, criminal, and administrative penalties, damages, fines, and/or exclusion from government funded healthcare programs, which could adversely affect our revenues and results of operations.
16
Any
of the above factors may negatively affect the implementation of our business models, or cause their failure.
Adoption
of our system in a traditional capital-equipment procurement cycle may be slower or more limited than we expect, which could adversely
affect revenue, margins and utilization.
Hospital
and imaging-center purchases of capital equipment are often cyclical, require extended budgeting, and depend on factors such as macroeconomic
conditions, competing priorities, and third-party reimbursement dynamics. Even at a price point we expect to be lower than many existing
imaging systems, prospective customers may defer or reduce purchases, select competing products from entrenched incumbents, or demand
discounts that compress margins. If we cannot demonstrate compelling clinical utility, workflow integration and total cost of ownership,
or if we face extended evaluation and tender cycles, our sales velocity, pricing and gross margins in the CapEx Model could be materially
and adversely affected.
Our
reliance on third-party cloud vendors and third-party service providers in CapEx deployments introduces operational, security, compliance,
cost and reputational risks we cannot fully control.
Under
the CapEx Model, in certain jurisdictions owner-operators may contract directly with third-party cloud vendors for services that would
otherwise be delivered through Nanox.CLOUD, and third-party service providers for installation and maintenance. We would have limited
control over those third parties, which may be subject to outages, performance issues, cybersecurity incidents, misconfiguration, or
non-compliance with healthcare data protection and localization requirements. If a cloud or service partner fails to meet availability,
security or regulatory obligations, or incorrectly implements our system, customers may attribute the problem to us. We could face warranty
claims, contractual disputes, reputational harm, remediation costs, or lost sales, even where we are not the contracting party, adversely
affecting our business.
We
may face intensified competition from established imaging companies and emerging technologies; pricing pressure and feature parity could
erode our value proposition.
Large,
established imaging OEMs have broad portfolios, service organizations, and purchasing relationships. They may reduce prices, enhance
features, bundle service or financing, or use their installed base and ecosystem advantages to displace or delay our system sales. Emerging
imaging modalities or AI-enabled enhancements to existing systems could also diminish our differentiation. If we cannot sustain clinical
performance, reliability, interoperability, and economic benefits versus alternative solutions, our CapEx win rates and realized pricing
could decline.
Cross-border sales expose us to localization,
import/export, installation, and receivables risks that may be difficult and costly to mitigate.
International
shipments of medical imaging systems often require country-specific certifications, localization (including language, electrical standards,
and data-handling practices), and coordination with local distributors, installers, and service teams. Delays in import permits or customs
clearance, evolving trade and tariff regimes, and complexities in foreign contracting, receivables collection and enforcement could impact
timing of revenue recognition and cash conversion. Where owner-operators select local service providers, variable quality and uneven
regulatory familiarity may increase post-installation risks, adversely affecting our business operations.
We
may incur product performance, warranty and post-market obligations that could be heightened where third parties provide services we
do not control.
Even
if our system meets specifications, performance issues stemming from third-party cloud environments or third-party maintenance (including
spare parts quality, calibration, and software updates) may result in downtime, image quality complaints, or safety events. We may be
required or expected to support remediation or participate in investigations, field corrective actions or recalls, potentially at our
cost or with reputational impact. In serious cases, regulators may impose conditions on continued marketing or usage. These risks could
adversely affect our business operations and financial results.
Our Nanox Imaging Network (NIN) proof-of-concept
is early stage, unproven and dependent on third parties; regulatory, reimbursement and operational complexities—particularly in
workers’ compensation and other specialized care settings—may prevent us from scaling the model or realizing meaningful revenue.
We have initiated the Nanox
Imaging Network (NIN), a limited proof-of-concept (POC) initiative to evaluate a network-based imaging services model in the United States
focused on workers’ compensation and other specialized care segments. The POC is at an early and limited deployment phase, with
a small number of sites in various stages of setup. We have not committed to a broader rollout, and there is no assurance that the POC
will be expanded, successfully implemented, or result in material revenues. Early pilots may not reflect the operational, regulatory,
technology integration or economic outcomes of a larger network, and any favorable or unfavorable site-level results may not be indicative
of broader scalability or commercial viability. If the POC underperforms on utilization, throughput, quality, or economics, or if we encounter
delays in site readiness, payer onboarding, or IT integration, we may discontinue or materially alter NIN without achieving our objectives.
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The NIN model divides operational
responsibilities between us and third parties we contract with: we are responsible for certain technical and operational elements (including
deploying and maintaining Nanox.ARC systems and providing connectivity and service support), while the third parties are responsible for
site operations, personnel, regulatory permits and local engagement. We may be adversely affected by third parties’ performance
or by factors outside our control, including staffing, credentialing, site workflow, local compliance, payer enrollment, or billing practices.
Network-based healthcare services frequently rely on affiliated or contracted entities to deliver care while complying with state-by-state
corporate practice of medicine, licensure, and facility rules; telehealth peers disclose that evolving, differing state requirements and
interpretations can complicate operations and require continuous compliance monitoring. If we or the third parties we contract with fail
to obtain or maintain required licenses or permits, if arrangements are found to violate state restrictions (including corporate practice
or fee-splitting prohibitions), or if site operations do not meet applicable standards, we could face delays, penalties, or forced changes
to the model. We may also be blamed for service issues beyond our control, damaging our reputation and limiting expansion.
NIN targets sensitive and
specialized care settings, including post-accident and occupational health clinics, nursing homes, and correctional healthcare, each of
which presents heightened regulatory and reputational exposure. State and payer rules for these settings can involve additional licensing,
facility certification, background checks, security protocols, and documentation standards; telehealth and services companies caution
that state-level requirements vary widely and are subject to evolving interpretation by medical boards and attorneys general. Adverse
events, security incidents, or operational breakdowns in these environments can attract outsized scrutiny and media attention, harming
our brand and relationships with providers and payers. Moreover, our existing obligations as a medical device manufacturer continue post-market,
performance or integration issues involving Nanox.ARC in NIN sites could trigger reportable events, field actions, or other regulatory
follow-ups, increasing cost and delaying deployments.
Reimbursement dynamics for
NIN are uncertain. While certain workers’ compensation arrangements may allow higher per-scan pricing than standard reimbursement
frameworks, results depend on state-specific fee schedules, payer policies, and contract terms, all of which vary and can change. Radiology
services peers disclose that reimbursement is influenced by state workers’ compensation rules, broader commercial payer trends,
and increased enforcement of billing and documentation standards; reductions, denials, post-payment audits, or retroactive adjustments
could materially impact revenue and cash flow. If expected pricing advantages do not materialize, or if payer mix, authorization hurdles,
or dispute rates are less favorable than anticipated, NIN may not achieve target returns, and site economics may not justify expansion.
Even if the POC achieves
technical connectivity and initial reimbursement, scaling a network service requires consistent image quality, uptime, data security,
and seamless integration with site workflows, all while meeting data protection and privacy obligations.
Any combination of these
factors could cause us to terminate the POC or decide not to scale the model, which would limit our growth opportunities and increase
costs without corresponding revenues.
Our
Licensing (OEM) Model depends on identifying, contracting with, and retaining qualified licensees; delays or failures to secure licensees
would limit our ability to generate upfront fees and royalty revenue.
Under
the Licensing Model, we may license our X-ray source technology to medical imaging device and other X-ray manufacturers, either tailored
to their existing systems or for new imaging systems, with an upfront one-time license fee and recurring per-unit royalties. We have
not yet entered into licensing agreements. If we cannot timely attract suitable OEM partners on acceptable terms, negotiate appropriate
economics and protections, or align on development roadmaps, we may be unable to generate anticipated license fees or establish a recurring
royalty base, which would adversely affect our results.
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We
may not be successful in tailoring our X-ray source to the specific systems of other medical or non medical imaging companies under our
Licensing Model, and/or entering into licensing agreements on terms favorable to us.
Under
our proposed Licensing Model, we expect to be engaged to tailor our X-ray source to other medical or non medical imaging companies’
or manufacturers’ of other X-ray devices specific systems to replace the legacy X-ray source or to license our X-ray source technology
to them to develop new types of imaging systems, and we expect to receive a one-time, non-recurring licensing fee upfront, as well as
recurring royalty payments for each imaging system sold by such companies. We expect customization to be a complex and multi-step process
that varies for each project, which will require significant research and testing activities. We may also not be able to demonstrate
the feasibility, functionality or safety of our technology in other medical imaging systems, meet the potential licensees’ design
and manufacturing requirements, or satisfy their marketing and product needs. In addition, we may not be successful in entering into
licensing agreements with favorable terms as a result of a numbers of factors, many of which are outside of our control, including willingness
of, and the resources available to, other medical and non-medical imaging companies to in-license our novel X-ray source technology,
our ability to agree with a potential partner on the value of our technology, or on the related terms, as well as the availability of
other technologies at lower cost or other alternative technologies at the time. We have not entered into any licensing agreements to
date. Any of the above factors may negatively affect the implementation of our Licensing Model, or cause our Licensing Model to fail.
Our
ability to accurately calculate, audit, and collect royalties depends on licensee reporting and contract enforceability, particularly
across multiple jurisdictions.
Royalty
revenues under the Licensing Model will depend on complete and timely reporting by licensees of units shipped, transfer prices and other
contractually defined royalty bases. Disputes may arise over definitions, exclusions, or set-offs; licensees may under-report, delay
payments, or challenge audit findings. Cross-border operations add complexity for tax, currency, data-access, and enforcement. Where
necessary, audit and enforcement actions may be costly, time-consuming, and uncertain, and collections in some jurisdictions may be difficult.
Persistent reporting or collection issues could reduce, delay or impair our royalty revenues, and adversely affect our results of operations.
To the extent that we license our X-ray
source technology to other medical imaging companies, the products integrating our technology may need to be approved or cleared by the
FDA or similar regulatory agencies.
The FDA or similar regulatory
agencies may require products developed by other medical imaging companies under the Licensing Model to go through lengthier or more rigorous
processes than we expected. These products may also be subject to regulations by governmental agencies in other jurisdictions, or regulation
by other federal, state and local agencies. In addition, we may not have control with respect to any such further regulatory approval
strategies or process. If such products do not receive, or are delayed in receiving, the necessary clearances or approvals, or if the
performance of one or more clinical trials are required in connection with such clearances or approvals, the prospects of our Licensing
Model may be materially affected, which could have a material adverse impact on our business and our revenues.
We
may experience operational and financial risks in connection with acquisitions.
In November 2021, we completed
the acquisitions of Zebra (and subsequently changed its name to Nanox AI), a deep-learning machine analytics company;
USARAD, a leading provider of teleradiology services; and the assets of MDWEB, a decentralized marketplace connecting imaging facilities
with radiologists. Following these acquisitions, we integrated the operations of these businesses and began generating revenue through
the sale of teleradiology services and AI solutions by the end of 2021. In November 2025, we completed the acquisition of Vaso Healthcare
IT Corp. (and subsequently changed its name to Nanox Health IT Inc.), a healthcare information technology provider serving hospitals and
healthcare providers across the United States. The integration of Nanox Health IT is expected to serve the Company’s AI business
in the U.S., enhancing customer experience. Despite our efforts, we may never realize the expected synergies, business opportunities,
and growth prospects from future acquisitions or joint ventures. We might not capitalize on anticipated business opportunities, and assumptions
about expected cost savings could be inaccurate. Additionally, general industry and business conditions may deteriorate. Integrating operations
can require significant effort and expense, and personnel may leave or be terminated due to an acquisition. Our management’s attention
might be diverted during the integration process. If these factors hinder or limit our ability to integrate future acquisitions successfully
or on time, our expectations for future operational results, including cost savings and synergies, may not be met. Failure to manage these
risks effectively in future acquisitions and new business lines could materially and adversely affect our business, financial condition,
and results of operations.
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Our
industry is highly competitive and is subject to technological change, which may result in new products or solutions that are superior
to our technology or other future products we may bring to market from time to time. If we are unable to anticipate or keep pace with
changes in the marketplace and the direction of technological innovation and customer demands, our technology may become less useful
or obsolete and our operating results will suffer.
The
medical imaging industry is rapidly evolving and subject to intense and increasing competition. To compete successfully and to be able
to establish and maintain a competitive position in current and future technologies, we will need to demonstrate the advantages of our
technology over well-established alternative solutions, products and technologies, such as computed tomography, as well as newer methods
of medical imaging and early detection. To achieve this, we will need to raise or develop financial resources, technical expertise, marketing,
distribution or support capabilities and we may not be successful in doing so.
Also,
companies offering traditional medical imaging systems, such as GE Healthcare, Siemens, Philips, Hologic, Varian, Fuji, Toshiba and Hitachi,
may be better established in the market than we are, have greater corporate, financial, operational, service, training, sales and marketing
resources than we do, or have more experience in research and development than we have. In particular, the field emission technology
has been used by a wide range of leading market players in an attempt to create an alternative digital source of X-ray, the most well-known
attempt being the use of carbon nano tubes as the base materials for a potential field emission-based solution. In addition, early-detection
technologies developed by other companies, such as blood testing and DNA screening, may also reduce the attractiveness of our technology
for early detection or render it obsolete. Successful developments of these or other technologies by competitors resulting in new approaches
for medical imaging, including technologies, products or services that are more effective or commercially attractive, could make our
technology less useful or obsolete. We may also face opposition from certain industry leaders, who may have political influence and the
ability to delay deployment of the Nanox System in certain geographical areas.
Furthermore,
as the market expands, we expect the entry of additional competitors, such as cloud computing companies or leading IT companies, who
may have longer operating histories, more extensive international operations, greater name recognition, and/or substantially greater
technical, marketing and financial resources.
Our
competitive position also depends on our ability to:
● generate widespread awareness, acceptance and adoption of our technology and future products or services;
● develop new or enhanced technologies or features that improve the convenience, efficiency, safety or perceived safety, and productivity of our technology and future products or services;
● properly identify customer needs and deliver new products or services or product enhancements to address those needs;
● limit the time required for development until commercial production;
● limit the timing and cost of regulatory approvals;
● attract and retain qualified personnel and collaborators;
● protect our inventions with patents or otherwise develop proprietary products and processes; and
● secure sufficient capital resources to expand both our continued research and development, and service, training, sales, and marketing efforts.
With respect to our AI imaging solutions, this field has significantly
progressed in the last few years and there are currently over 700 FDA cleared AI products in the imaging field. There are many companies,
offering various solutions which are typically categorized at triage solutions to identify acute time sensitive diagnosis, productivity
solutions to facilitate the work of the radiologist or radiology technician or population health solutions to identify disease states
not typically highlighted by the radiologist. We compete with established imaging OEMs and specialized AI developers that may have larger
annotated datasets, broader distribution, established reimbursement pathways, and the resources to conduct multi-site validation and post-market
studies required by health systems.
Development,
validation and lifecycle maintenance of our AI solutions require access to diverse, representative imaging studies and clinical labels.
We rely on data obtained from customers, partners and third parties, often under agreements that restrict scope, duration, de-identification
methods, permitted uses and model training. Evolving privacy laws, guidance on re-identification risk, patient consent requirements,
and data localization rules may further limit data availability. If we cannot obtain, use or retain sufficient data, our model performance
may stagnate or deteriorate, delaying product enhancements, regulatory submissions and commercial adoption.
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With
respect to our teleradiology services, the teleradiology market is highly competitive, rapidly evolving and fragmented, and is subject
to changing technology and market dynamics. The market has recently experienced and is expected to continue to experience competitive
pricing pressure and radiologist compensation pressure. We compete directly with both large and small-scale service providers who offer
local, regional and national coverage operations. We believe that our principal competitors are StatRad, ONRAD and Radiology Partners.
We compete to attract and retain relationships with customers and radiologists in different ways.
If our technology is not,
or our future products or services are not, competitive based on these or other factors, our business would be harmed.
We
plan to do business globally, including in certain countries where we might have limited resources and would be subject to additional
regulatory burdens and other risks and uncertainties.
We
expect to do business globally, including in North America and certain countries in Asia, Europe, Africa, Latin America and Australia.
Commercialization of our X-ray source technology, the Nanox.ARC and the Nanox.ARC X, or the Nanox System in foreign markets, either directly
or through third parties, is subject to additional risks and uncertainties, including:
● reimbursement and insurance coverage;
● divergent approval and conformity assessment regimes for AI-enabled medical devices (e.g., CE marking under the EU MDR and evolving AI-specific requirements), which may necessitate additional technical documentation, post-market clinical follow-up and algorithm transparency measures;
● cross-border data transfer and localization restrictions affecting AI model training, validation and teleradiology workflows;
● our inability to find agencies, dealers or distributors in specific countries, states or regions;
● our inability to directly control commercial activities of third parties;
● limited resources to be deployed to a specific jurisdiction;
● the burden of complying with complex and changing regulatory, tax, accounting and legal requirements;
● different medical imaging practice and customs in foreign countries affecting acceptance in the marketplace;
● import or export licensing and other requirements;
● longer accounts receivable collection times;
● longer lead times for shipping;
● language barriers for technical training;
● reduced protection of intellectual property rights in some foreign countries;
● foreign currency exchange rate fluctuations; and
● interpretations of contractual provisions governed by foreign laws in the event of a contract dispute.
Specifically,
we are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C.
§ 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act 2010, the Proceeds of Crime Act 2002, Chapter 9
(sub-chapter 5) of the Israeli Penal Law, 1977, the Israeli Prohibition on Money Laundering Law–2000 and possibly other anti-bribery
and anti-money laundering laws in countries outside of the United States in which we conduct our activities. As we engage finders to
obtain MSaaS agreements in certain countries, we and our finders may have direct or indirect interactions with officials and employees
of government agencies or state-owned or affiliated entities. We may be held liable for the corrupt or other illegal activities of these
third-party business partners and intermediaries, our employees, representatives, contractors, partners and agents, even if we do not
explicitly authorize such activities. As we expand our international business, our risks under these laws may increase.
We
also may sell the Nanox System to government entities, which are subject to a number of challenges and risks. Any actual or perceived
privacy, data protection, or data security incident, or even any perceived defect with regard to our practices or measures in these areas,
may negatively impact public sector demand for our products. Government entities may also have statutory, contractual or other legal
rights to terminate contracts with us for convenience or due to a default, and any such termination may adversely affect our future results
of operations. Governments and other global organizations (such as the UN) routinely investigate and audit government contractors’
administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscriptions, a reduction
of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities. We have been subject to such
inspection in the past and are currently not aware of any administrative findings. In addition, sales of the Nanox System in foreign
markets could also be adversely affected by the imposition of governmental controls, political and economic instability, war, conflicts,
civil unrest and other hostilities, trade restrictions and changes in tariffs, any of which may adversely affect our business, financial
condition, results of operations and prospects.
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Recent
changes in the United States related to payment policies for imaging procedures could have a negative impact on the utilization of our
imaging services.
In
the United States, over the past several years, the Centers for Medicare & Medicaid Services (“CMS”), the federal agency
responsible for administering the Medicare program, has implemented numerous changes to payment policies for imaging procedures in both
the hospital setting and non-hospital settings, which include physician offices and freestanding imaging facilities. Some of these changes
have had a negative impact on utilization of imaging services. Examples of these changes include:
● limiting payments for imaging services in physician offices and free-standing imaging facility settings based upon rates paid to hospital outpatient departments;
● reducing payments for certain imaging procedures when performed together with other imaging procedures in the same family of procedures on the same patient on the same day in the physician office and free-standing imaging facility setting;
● making significant revisions to the methodology for determining the practice expense component of the Medicare payment applicable to the physician office and free-standing imaging facility setting which results in a reduction in payment;
● revising payment policies and reducing payment amounts for imaging procedures performed in the hospital outpatient setting; and
● additional reimbursement cuts for radiology services in the Medicare 2024 Physician Fee Schedule.
Increased
regulation and oversight of advanced diagnostic testing may also occur. One provision in the Protecting Access to Medicare Act requires
CMS to develop appropriate use criteria (“AUC”) that professionals must consult when ordering advanced diagnostic imaging
services (which include magnetic resonance imaging (“MRI”), CT, nuclear medicine (including position emission tomography)
and other advanced diagnostic imaging services that the Secretary of the Department of Health and Human Services (“HHS”)
may specify). Under this provision, payment was to be made to the furnishing professional for an applicable advanced diagnostic imaging
service only if the claim indicated that the ordering professional consulted a qualified clinical decision support mechanism, as identified
by HHS, as to whether the ordered service adhered to the applicable AUC. To the extent these types of changes have the effect of reducing
the aggregate number of diagnostic medical imaging procedures performed in the United States, our business, results of operations, financial
condition and cash flows would be adversely affected. However, in the 2024 Physician Fee Schedule, CMS announced that, effective January
1, 2024, it paused efforts to implement the AUC program for reevaluation and rescinded its AUC regulations. It is unclear whether or
how the AUC program might be reinstated or changed under the current Trump administration or the degree of impact that any such changes
would ultimately have upon our business.
The
regulation of imaging procedures and medical device products by government authorities can be affected by a variety of factors, including
government budget, funding and staffing levels, payment of user fees and reauthorization of user fee programs, ability to hire and retain
key personnel, as well as statutory, regulatory and policy changes. HHS, CMS and other U.S. government agencies have been or may be subject
to reductions in funding and downsizing of agency staffing levels, which could materially impact our business and operations. Further,
a budget resolution passed by the House of Representatives in February 2025 proposed significant spending reductions for Medicaid and
other federal programs, which, if enacted as part of a future U.S. federal budget, could impact our future business prospects.
In
past years, we have recognized impairments in the carrying value of goodwill and long-lived assets. Significant impairment charges could
negatively affect our results of operations and shareholders’ equity.
In
the past we have had a substantial amount of goodwill on our consolidated balance sheet as a result of historical acquisitions. The carrying
value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition
date. Goodwill that is expected to contribute indefinitely to our cash flows is not amortized but must be evaluated for impairment at
least annually. If the carrying value exceeds current fair value as determined based on the discounted future cash flows of the related
business, the goodwill or intangible asset is considered impaired and is reduced to fair value via a non-cash charge to earnings. Events
and conditions that could result in impairment include adverse changes in the regulatory environment, a reduced market capitalization
or other factors leading to reduction in expected long-term growth or profitability. Goodwill impairment analysis and measurement is
a process that requires significant judgment. Our share price and any control premium are factors affecting the assessment of the fair
value of our underlying reporting units for purposes of performing any goodwill impairment assessment. For the year ended December 31,
2023, we recorded goodwill impairment in an amount of $7.4 million, related to the Radiology services and Nanox AI reporting units. For
the year ended December 31, 2025, we recorded an impairment of $17.5 million that was recorded as a result of an impairment related to the
machinery and equipment of our Korean Fab chip line. Significant impairment charges could negatively affect our results of operations
and shareholders’ equity.
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Billing
complexities associated with obtaining payment or reimbursement may negatively affect our revenue, cash flow and profitability.
Payment
for our imaging-based offerings is, and is expected to be, provided by individual patients and from a variety of payors, such as commercial
insurance carriers, managed care organizations and governmental programs. Each payor typically has different billing requirements, and
the billing requirements of many payors have become increasingly stringent.
Among
the factors complicating our customers’ ability to bill and receive reimbursement from third-party payors are:
● disputes among payors as to which party is responsible for payment;
● disparity in coverage among various payors;
● disparity in information and billing requirements among payors; and
● incorrect or missing billing information, which is required to be provided by the ordering physician.
In
addition, we may be required to seek new billing codes for imaging services using the Nanox System or any other imaging-based offering
that we may provide, and regulatory authorities may not approve the creation of separate codes. Additionally, even if we are successful,
existing or future billing codes or the payment amounts associated with such codes may change in the future.
These
billing complexities, and the related uncertainty in obtaining payment for our imaging-based offerings, could negatively affect our revenue,
cash flow and profitability.
Any
collaborative and MSaaS arrangements that we have established or may establish in the future may not be successful or we may otherwise
not realize the anticipated benefits from these collaborations. We do not control third parties with whom we have or may have collaborative
or MSaaS arrangements, and we will rely on them to achieve results which may be significant to us. In addition, any current or future
collaborative and MSaaS arrangements may place the development and commercialization of our technology outside our control, may require
us to relinquish important rights or may otherwise be on terms unfavorable to us.
We
have entered into certain, and expect to enter into additional, collaborative arrangements and MSaaS agreements with respect to the research,
development, manufacture and commercialization of our technology with different relevant industry participants, including, among others,
local operators, integrators, radiologists, cloud storage providers and medical AI software providers and third-party payors. See “Item
4. Information on the Company—B. Business Overview—MSaaS Agreements” and “Item 4. Information on the Company—B.
Business Overview—Collaboration Agreements.” Any future potential collaborative or MSaaS arrangements may require us to rely
on external consultants, advisors and experts for assistance in several key functions, including research and development, manufacturing,
regulatory, intellectual property, commercialization and distribution. We cannot and will not control these third parties, but we may
rely on them to achieve results, which may be significant to us. Relying upon these collaborative arrangements subjects us to a number
of risks, including:
● we may not be able to control the amount and timing of resources that our collaborators may devote to our technology;
● should a collaborator fail to comply with applicable laws, rules or regulations when performing services for us, we could be held liable for such violations;
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● inability to gather sufficient further clinical evidence to support our technology and its usage;
● our collaborators may have a shortage of qualified personnel, particularly radiologists who can review the medical images generated by the Nanox System, especially as we deploy additional Nanox Systems and the volume of scans increases;
● we may be required to relinquish important rights, such as marketing and distribution rights;
● business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
● our collaborators may default on their payments to us or fail to deliver standby letters of credit or financial guarantees, and it may be time consuming and difficult to enforce such payment obligations and obligations to provide standby letters of credit and financial guarantees in various jurisdictions, and we may be unsuccessful in enforcing such obligations;
● our collaborative arrangements are subject to conditionality, including receipt of regulatory clearance and material compliance with acceptance test protocol, among other things, for the Nanox.ARC and the Nanox.ARC X;
● under certain circumstances, a collaborator could move forward with a competing product developed either independently or in collaboration with others, including our competitors;
● our current or future collaborators may utilize our proprietary information in a way that could expose us to competitive harm;
● our collaborators could obtain ownership or other control over intellectual property that is material to our business; and
● collaborative arrangements are often terminated or allowed to expire or remain unformalized by a written agreement, which could delay the ability to commercialize our technology.
In
addition, if disputes arise between us and any of our collaborators, it could result in the delay or termination of the development,
manufacturing or commercialization of products containing our technology, lead to protracted and costly legal proceedings, or cause collaborators
to act in their own interest, which may not be in our interest. As a result, the collaborative arrangements that we may enter into, may
not achieve their intended goals.
If
any of these scenarios materialize, they could have a material adverse effect on our business, financial condition, results of operations
and prospects.
We
also may have other future products where it is desirable or essential to enter into agreements with a collaborator who has greater financial
resources or different expertise than us, but for which we are unable to find an appropriate collaborator or are unable to do so on favorable
terms. If we fail to enter into such collaborative agreements on favorable terms, it could materially delay or impair our ability to
develop and commercialize, and increase the costs of development and commercialization of, our technology.
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In
deploying our MSaaS products, we rely upon third-party providers of cloud-based infrastructure, such as Microsoft. Any disruption in
the operations of cloud service providers or interference with our use of cloud service providers would adversely affect our business,
financial condition, and results of operations.
We
outsource substantially all of the infrastructure relating to our cloud offerings to cloud service providers, such as Azure, Microsoft.
Our customers need to be able to access our products and services at any time, without interruption or degradation of performance. Our
cloud-based MSaaS products depend on protecting the virtual cloud infrastructure hosted by cloud service providers by maintaining its
configuration, architecture, features and interconnection specifications, as well as maintaining the information stored in these virtual
data centers and transmitted by third-party internet service providers. While our cloud service providers typically have robust backup
and disaster recovery plans and processes in place, any incident affecting our cloud service providers’ infrastructure that may
be caused by fire, flood, severe storm, earthquake or other natural disasters, viruses, cyberattacks, terrorist or other attacks, and
other similar events beyond our control could negatively affect our cloud-based SaaS products. A prolonged service disruption affecting
our cloud-based offerings for any of the foregoing reasons would negatively impact our ability to serve our customers and could damage
our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise have an adverse
effect on our business, financial condition, and results of operations. We may also incur significant costs for using alternative equipment
or taking other actions in preparation for, or in reaction to, events that damage the cloud service providers services we use.
In
the event that our service agreements with our cloud service providers are terminated, or there is a lapse of service, elimination of
services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience
interruptions in access to our MSaaS offering as well as significant delays and additional expenses in arranging or creating new facilities
and services and/or re-architecting our cloud offering for deployment on a different cloud infrastructure service provider, which may
adversely affect our business, financial condition and results of operations.
Any
control weakness or failure in cloud-based software could adversely affect our business.
We
use cloud-based third-party software to host applications for key financial and operational systems and we expect to expand their use
in the future. We will increasingly rely on third-party software providers to maintain appropriate controls and safeguards to protect
the integrity of our data and any information we transmit, including personal, personally identifiable, sensitive, confidential or proprietary
information. While we conduct due diligence on these cloud providers with respect to their security and business controls, we may not
have the visibility to effectively monitor the implementation and efficacy of these controls. If these controls do not operate effectively,
we may not be able to rely on their software and cyber attackers may be able to exploit vulnerabilities, resulting in operational disruption,
data loss, defects or a cybersecurity event. Having our software on the cloud increases the risk of operational disruption should internet
service be interrupted. While we have implemented business contingency and other plans to facilitate continuous access, sustained or
concurrent service denials or similar failures could limit our ability to write and process new and renewal business, provide customer
service, pay claims in a timely manner, maintain our accounting function, or otherwise operate our business. Any such event or failure
could have a material adverse effect on our business, financial condition and results of operations.
We
could become subject to product liability claims, product recalls, warranty claims and professional malpractice liability claims that
could be expensive, divert management’s attention and harm our business reputation and financial results.
Our
business exposes us to potential liability risks that are inherent in the marketing and sale of products used in patient care. We may
be held liable if the Nanox System or if any other product that integrates our X-ray source technology causes injury or death or is found
otherwise unsuitable during usage. The Nanox System incorporates sophisticated components and computer software. Complex software can
contain errors, particularly when first introduced. In addition, new products or enhancements may contain undetected errors or performance
problems that, despite testing, are discovered only after installation. Patients and end-users of the Nanox System could allege or possibly
prove defects of our products or other products that integrate our technology.
Healthcare providers may
use our products in a manner that is inconsistent with the products’ labeling and that differs from the manner in which they were
used in clinical studies and authorized for marketing by the FDA. Off-label use of products by healthcare providers is common, and any
such off-label use of our products could subject us to additional liability, or require design changes to limit this potential off-label
use once discovered. Defending a suit, regardless of merit, could be costly, could divert management attention, and might result in adverse
publicity, which could result in the withdrawal of, or result in reduced acceptance of, our products in the market.
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A product liability claim, regardless of its merit or eventual outcome,
could result in significant legal defense costs and divert management’s attention. Regardless of merit or eventual outcome, liability
claims may result in:
● decreased demand for the Nanox System;
● injury to our reputation;
● costs of related litigation;
● substantial monetary awards to patients and others;
● loss of revenue; and
● the inability to commercialize future products.
In
addition, we may be subject to professional liability claims, including, without limitation, for improper use or malfunction of our diagnostic
imaging software.
Further,
the radiologists that provide our teleradiology services may occasionally subject us to malpractice claims. For example, on November
29, 2023, a claim was asserted in Edgar County, Illinois against several defendants, including USARAD and a USARAD radiologist, alleging
medical negligence relating to the failure to timely diagnose and treat a cervical spinal cord injury following a fall, including allegations
that the radiologist misinterpreted a cervical CT and failed to recommend additional emergent diagnostic imaging. The matter remains
in litigation and is proceeding through depositions. In addition, on February 7, 2025, a claim was filed in Saint Lawrence County, New
York against several defendants, including USARAD and another USARAD radiologist, alleging medical negligence arising from the alleged
misinterpretation of a CT scan and an alleged failure to diagnose a perforation of the sigmoid colon, which purportedly resulted in sepsis
and the need for surgical intervention. The matter is in discovery pursuant to a Preliminary Conference Order, with depositions to be
completed by October 30, 2026. Additional claims, suits or complaints relating to services provided by these radiologists or other radiologists
have been, and may be asserted against us in the future. Any of these outcomes may have an adverse effect on our business, financial
condition and results of operations, and may increase the volatility of our share price.
The
coverage limits of our insurance policies we may choose to purchase to cover related risks may not be sufficient to cover future claims.
If sales of the Nanox System or other products integrating our technology increase or we suffer future product liability claims or malpractice
claims, we may be unable to maintain product liability insurance or malpractice insurance at satisfactory rates or with adequate amounts
or at all. A product liability claim, any product recalls or excessive warranty claims, whether arising from defects in design or manufacture
or otherwise, could negatively affect our sales or require a change in the design or manufacturing process, any of which could harm our
relationship with our customers and partners, and have a material adverse impact on our reputation and business, financial condition,
results of operations and prospects. Claims may arise from alleged misreads or delays in teleradiology interpretations, or from alleged
defects or failures of our AI solutions, including claims asserting that use of our software contributed to a missed or delayed diagnosis;
such claims may not be fully covered by product liability, errors and omissions or medical malpractice insurance. For example, a technical
issue in a commercial engagement resulted in a mismatch between the country of origin of certain scans and their system labeling, leading
to interpretation by radiologists licensed in different jurisdictions. Although the issue was identified and remediated, and corrective
actions were implemented, similar incidents could result in regulatory, legal, or reputational risks.
In
addition, if the Nanox System or other products integrating our technology are defective, we, our future customers or partners may be
required to notify regulatory authorities and/or to recall the products. See “—Risks Related to Government Regulation—Our
products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to
the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and
results of operations. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at
the direction of the FDA or another governmental authority, could have a negative impact on us.” Any recall would divert management’s
attention and financial resources and harm our reputation with customers, patients, medical professionals and third-party payors. A recall
involving the Nanox System would be particularly harmful to our business. The adverse publicity resulting from any of these actions could
adversely affect the perception of our customers or partners. These investigations or recalls, especially if accompanied by unfavorable
publicity, could result in our incurring substantial costs, losing revenues and damaging our reputation, each of which would harm our
business, financial condition, results of operations and prospects.
26
Provision of teleradiology services is subject
to extensive state licensure, facility credentialing, privileging and supervision requirements, as well as corporate practice of medicine
and fee-splitting restrictions.
Our radiologists must maintain
appropriate, often multi-state, medical licenses and hospital privileges, and any lapse, delay or adverse action could disrupt service
delivery. Changes in state telehealth rules, cross-border practice restrictions, or payor policies could require us to modify or limit
our service footprint. Any failure to comply with these licensure, credentialing, privileging, supervision, corporate practice of medicine
or fee-splitting requirements, or any inability to adapt to evolving state telehealth rules, cross-border practice restrictions or payor
policies, could result in fines, penalties, loss of licensure, denial or revocation of hospital privileges, disgorgement of fees, civil
or criminal liability, the unenforceability of our service or compensation arrangements, reputational harm, or our inability to provide
teleradiology services in one or more jurisdictions, any of which could materially and adversely affect our business, financial condition,
results of operations and prospects.
If we lose a significant number of our radiologists,
our revenue from our teleradiology services and financial results could be adversely affected.
There is a shortage of qualified
radiologists in some of the regional markets that we serve. In addition, competition in recruiting radiologists may make it difficult
for us to maintain adequate levels of radiologists. If a significant number of radiologists terminate their relationships with us and
we cannot recruit sufficient qualified radiologists, our ability to generate revenue from teleradiology services and our financial results
could be adversely affected.
Our
reseller business depends on a limited number of third-party technology vendors and distributors whose authorizations and commercial
programs may be changed or terminated, which could materially reduce our product offerings, margins, and revenue.
Our
subsidiary, Nanox Health IT Inc. (formerly: Vaso Healthcare IT Corp.) (“Nanox Health IT”), a healthcare information technology
provider serving hospitals and healthcare providers across the United States, resells and supports third-party healthcare IT infrastructure,
cybersecurity, compliance, and imaging and clinical systems solutions for U.S. healthcare organizations. We rely on non-exclusive reseller
agreements with the vendors we partner with. These arrangements are typically terminable on short notice. If we are unable to maintain
or renew key vendor relationships, we could lose access to products and services that our customers demand, experience deterioration
in pricing and incentives, and face delays in obtaining required support and licenses. Any such developments could impair Nanox Health
IT’s growth and profitability and, by reducing our channel access and installed-base relationships, hinder adoption of our FDA-cleared
AI imaging solutions where they are intended to be integrated with customer infrastructure.
If
we fail to collect amounts owed to us by our customers, we may nevertheless remain obligated to pay third-party vendors and other service
providers for the products and services we resell or procure on our customers’ behalf, which could adversely affect our liquidity,
cash flows, financial condition, and results of operations.
Nanox
Health IT provides healthcare information technology solutions and services to hospitals and other healthcare organizations in the United
States and, as part of that business, resells and supports third-party healthcare IT infrastructure, cybersecurity, compliance, and imaging
and clinical systems solutions. In these arrangements, we may act as an intermediary between our customers and the third-party technology
vendors, software publishers, distributors, cloud providers, and service partners whose products and services we resell, integrate, support,
or procure.
To
the extent our customer contracts and vendor arrangements are structured on a “back-to-back” or similar basis, we may become
contractually obligated to pay vendors (including for software licenses, subscriptions, hardware, support, professional services, cloud
hosting, maintenance, or other third-party charges) on timelines that do not match, and may be independent of, our ability to collect
payment from our customers. For example, we may be required to remit vendor payments even if a customer disputes an invoice, delays payment,
is unable to pay, or defaults. In addition, our customers may withhold payment or seek offsets or credits based on allegations relating
to performance, delays, service levels, cybersecurity incidents, or integration and interoperability issues, including where the underlying
issue is attributable in whole or in part to a third-party vendor or product. At the same time, our ability to recover corresponding
amounts from vendors may be limited by contract, subject to caps or exclusions, delayed, or disputed. As a result, we could incur material
working capital needs and credit losses, and our operating cash flows could be adversely affected, including in periods when customer
payment cycles lengthen, hospital budgets tighten, or macroeconomic conditions or healthcare reimbursement dynamics negatively affect
customer liquidity. If we are required to make payments to vendors or other third parties without timely collection from customers, we
may need to use cash on hand, draw on any available financing arrangements, or seek additional financing on unfavorable terms, and we
may be required to reduce spending on growth initiatives, personnel, or other strategic priorities. Any of the foregoing could increase
our expenses, reduce margins, and adversely affect our financial condition and results of operations.
Intense
competition, including from original vendors that sell directly to end customers, may compress our margins and reduce our market share.
In
our healthcare IT business, managed by our subsidiary, Nanox Health IT, we compete with other value-added resellers, systems integrators,
and managed service providers, as well as with original equipment manufacturers and software publishers that increasingly sell directly
to healthcare providers. Because the reseller market is characterized by price-based competition and structurally low gross margins,
small shifts in vendor incentives or competitive pricing can significantly affect profitability. Competitive pressures may require us
to match or beat aggressive pricing, expand pre-sales engineering and post-deployment support at our own expense, or accept less favorable
terms. If we cannot maintain differentiation through healthcare-grade services and integration expertise, our margins and market share
may decline. Reduced reseller profitability or lost deals would also lessen opportunities to deploy and scale our AI imaging platform
in the United States.
27
We
have limited control over the quality, availability, and support of third-party products and services we resell, which exposes us to
operational, contractual, and reputational risk.
Our
ability to deliver outcomes for customers of Nanox Health IT depends on third-party vendors’ product quality, security posture,
regulatory readiness, release schedules, and technical support. Vendors may modify product features, pricing, licensing, support models,
or end-of-life timelines without our consent. Product defects, cybersecurity vulnerabilities, delayed releases, supply constraints, or
service degradations at our vendors can lead to project delays, increased remediation costs, customer dissatisfaction, credits or penalties
under our contracts, and reputational harm to Nanox Health IT. Because we cannot control vendor roadmaps or manufacturing capacity, we
may be unable to source functionally equivalent alternatives on acceptable terms or timelines. These issues may also impede integrations
required for our AI imaging solutions to interoperate with customer systems and thereby delay our commercialization strategy.
Changes
to vendor pricing models, or certification requirements could reduce our gross profit and require additional investments in personnel
and training.
A meaningful portion of our reseller economics may depend on the pricing
models we obtain from Nanox Health IT’s contracted vendors. Vendors may change their pricing models or require higher levels of
sales specialization and technical certifications. Failure to obtain favorable pricing models or changes in required certification could
lower our margins and require increased investment in sales engineering and compliance training, which may not be fully recoverable in
pricing. Margin erosion at Nanox Health IT could constrain resources available to support the deployment and support of our AI imaging
platform in customer environments.
Operating
within U.S. healthcare environments subjects our reseller and managed services activities to complex and evolving regulations, including
HIPAA and state privacy laws, and any non-compliance or security incident could result in significant penalties and loss of customer
trust.
Nanox
Health IT provides services and support within highly regulated clinical settings. In the course of delivering infrastructure, cybersecurity,
compliance solutions, and imaging/clinical systems support, we may access or process protected health information, other sensitive data,
or customer systems subject to the Health Insurance Portability and Accountability Act (HIPAA), state privacy and security laws, and
contractual requirements. Compliance requires technical safeguards, administrative controls, workforce training, vendor diligence, and
incident response capabilities. Actual or perceived non-compliance, a data breach, ransomware event, or security vulnerability, whether
arising in our operations or those of our third-party vendors, could lead to regulatory investigations, contractual liability, indemnity
claims, remediation costs, business interruption, reputational harm, and loss of customer relationships. Such events could also slow
or prevent integration of our AI imaging solutions into customer workflows and hinder their clinical adoption.
We
may face liability or reputational harm for third-party products or services we resell, integrate, or support, including in connection
with clinical systems and cybersecurity solutions.
Customers
may attribute system outages, performance issues, or security incidents to us when the underlying root cause lies with a third-party
product, cloud service, update, or integration dependency. Our contracts may include service-level commitments, indemnification obligations,
or limitations on our ability to disclaim responsibility for vendor performance. In healthcare environments, service disruptions or security
incidents may carry heightened patient safety, operational, and regulatory implications. Even where we have contractual recourse against
a vendor, recovery may be limited, delayed, or disputed. Reputational damage from such incidents could adversely affect both Nanox Health
IT’s services pipeline and confidence in our AI imaging platform’s reliability and security posture.
Our
U.S. healthcare customer base may be concentrated, and purchasing cycles can be lengthy and influenced by budgetary, reimbursement, and
compliance considerations, resulting in revenue variability and forecasting challenges.
Hospital
systems, imaging centers, radiology groups, and healthcare networks often undertake complex procurement processes, require extensive
due diligence (including security, privacy, and compliance reviews), and coordinate across clinical, IT, and administrative stakeholders.
As a result, sales cycles can be long, and order timing may be uneven or deferred due to budget constraints, capital allocation priorities,
or regulatory considerations. If a limited number of key accounts reduce or delay purchases, or if we fail to expand within existing
customers, our revenue and profitability could be adversely affected. Concentration and timing risks within Nanox Health IT’s business
may also affect the pace at which we can pilot, integrate, and scale our AI imaging solutions with those customers.
28
Integrating
Nanox Health IT into our operations and aligning third-party solutions with our FDA-cleared AI imaging platform may require significant
resources and entails execution risk.
We
intend to leverage Nanox Health IT’s infrastructure, cybersecurity, and clinical systems expertise to support the deployment and
scaling of our AI imaging solutions across U.S. healthcare providers. Achieving this strategy requires coordinated product roadmaps with
third-party vendors, development of validated interfaces and workflows, adherence to healthcare data and security controls, and expansion
of our field engineering and customer success capabilities. Integration activities may divert management attention, increase operating
expenses, or encounter unforeseen technical, regulatory, or contractual constraints. Delays or additional costs in integrating systems
and services could slow commercial adoption of our AI imaging solutions and negatively impact our financial results.
Supply
chain constraints, product allocation, or licensing changes by third-party vendors could delay customer projects and hinder deployments
that are prerequisites for our AI imaging adoption.
Healthcare
IT infrastructure and security projects frequently depend on specific hardware, cloud capacity, or software licenses. Vendor supply constraints,
allocation priorities, changes in licensing models, or end-of-sale/end-of-support announcements can delay implementations or necessitate
redesigns. Because our ability to deploy and support our AI imaging solutions often depends on the timely availability of compatible
third-party components and environments, such disruptions could defer revenue, increase costs, or cause customers to reconsider platform
standardization decisions in ways that disadvantage our offerings.
Our
managed and professional services increase our exposure to project performance, staffing, and subcontractor risks that can affect customer
outcomes and profitability.
Delivering
design, deployment, migration, and ongoing managed services requires specialized personnel, stringent quality controls, and, in some
cases, subcontractors or independent contractors. We may face challenges recruiting and retaining healthcare-grade security, compliance,
and imaging systems expertise at scale, and labor cost inflation could pressure margins. Project scope changes, delays in customer readiness,
or underestimation of effort may result in cost overruns, credits, or disputes. Where we rely on subcontractors or vendor professional
services, their performance and availability may be outside our control. Any of these factors could reduce Nanox Health IT’s profitability
and diminish our ability to deliver integrated environments that support our AI imaging platform.
Evolving
vendor channel strategies, including shifts toward direct sales or consumption-based cloud marketplaces, may reduce our role or economics
in customer transactions.
Some
technology vendors and cloud providers increasingly transact directly with healthcare customers or through digital marketplaces, changing
the value capture and role of resellers and systems integrators. If vendors reduce channel protections, limit partner margins, require
direct contracts for certain services, or prioritize their own professional services, our ability to participate in, influence, and support
customer solutions could diminish. Reduced involvement in customer environments would also limit opportunities to introduce, integrate,
and expand our AI imaging solutions.
Any
inability to maintain robust compliance, certifications, and partner designations across multiple vendors and regulatory frameworks could
restrict our access to opportunities in U.S. healthcare.
Healthcare
customers frequently require proof of security posture, privacy compliance, workforce training, background checks, and vendor-specific
technical certifications. Maintaining these qualifications is resource-intensive and subject to periodic audit. If we fail to obtain
or maintain required certifications, attestations, or partner designations, we may be excluded from bids or advanced support tiers, lose
access to incentive programs, or face contractual penalties. These outcomes could materially limit Nanox Health IT’s growth and
reduce the breadth of environments where our AI imaging solutions can be deployed.
29
We
are highly dependent on key members of our executive management team. Our inability to retain these individuals could impede our business
plan and growth strategies, which could have a negative impact on our business and the value of your investment.
Our
ability to implement our business plan depends on the continued services of key members of our senior management. In particular, and
to a critical extent, we are dependent on the continued efforts and services of the members of management named under “Item 6.
Directors, Senior Management and Employees,” as well as the senior management of our significant subsidiaries. If we lose the services
of such key members of our management team, we would likely be forced to expend significant time and money in the pursuit of replacement
individuals, which may result in a delay in the implementation of our business plan and plan of operations. We may not be able to find
satisfactory replacements on terms that would not be unduly expensive or burdensome to us. We do not currently carry a key-man life insurance
policy that would assist us in recouping our costs in the event of the death or disability of a member of our management team. The loss
of members of our management team, or our inability to attract or retain other qualified individuals, could have a material adverse effect
on our business, results of operations and financial condition.
The
mishandling or the perceived mishandling of sensitive information, or the occurrence of data security breaches, could harm our business.
We
expect that our business operations will enable us to accumulate a significant amount of highly sensitive and/or confidential information,
including medical images and other medical and personal information. While employee contracts generally contain standard confidentiality
provisions, our employees, customers or collaborators may not properly handle or process sensitive or confidential data. The improper
handling of sensitive or confidential data, or even the perception of such mishandling (whether or not valid), or other security lapses
by us, our customers or collaborators, could reduce demand for our offerings or otherwise expose us to financial or reputational harm
or legal liability.
In
addition, any security breach, including personal data breaches, or incident, including cybersecurity incidents, that we experience could
result in unauthorized access to, misuse of or unauthorized acquisition of the sensitive or confidential information and data (including
medical information), the loss, corruption, or alteration of this data, interruptions in our operations, or damage to our systems. Any
such incidents, or any failure to make adequate or timely disclosures to the public, regulators or law enforcement agencies following
any such incident, could subject us or our service providers to substantial system downtimes, operational delays, other detrimental impacts
on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected
information, including personal data, the destruction or corruption of data, other manipulation or improper use of our systems and networks,
violations of applicable privacy, data collection and protection and cybersecurity laws and regulations or notification obligations,
legal claims, regulatory scrutiny or enforcement actions, financial losses from remedial actions, loss of business or potential liability
and/or damage to our reputation, any of which could have a material adverse effect on our business operations, cash flows, competitive
position, financial condition and results of operations.
An
increasing number of digital platforms have disclosed breaches of their security, some of which have involved sophisticated and highly
targeted attacks on portions of their services. Because the techniques used to obtain unauthorized access, disable or degrade service,
or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs,
public perception of the effectiveness of our security measures and brand could be harmed and our results of operations could be negatively
affected. Data security breaches and other incidents may also result from non-technical means (e.g., actions by employees or contractors).
Any compromise of our security could result in a violation of applicable security, privacy or data protection, consumer and other laws,
regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual
liability. Any such compromise could also result in damage to our reputation and a loss of confidence in our security and privacy or
data protection measures. Any of these effects could materially and adversely affect our business, financial condition and results of
operations.
30
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
Our ability to execute our business strategy depends, in part, on the
continued and uninterrupted performance of our information technology systems, which support our operations. Despite the implementation
of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from, among
others, computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions
over the internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization or
similar disruptive problems. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including
by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of
attempted attacks and intrusions from around the world have increased and could be enhanced or facilitated by AI. Our systems are also
subject to compromise from internal threats such as improper action by employees, including phishing attacks or malicious insiders, or
by vendors, counterparties and other third parties with otherwise legitimate access to our systems. Our policies, employee training, procedures
and technical safeguards may not prevent all improper access to our network or proprietary or confidential information by employees, vendors,
counterparties or other third parties. For example, in March 2026, we became aware that we were subject to what we believe was an attempted
cybersecurity breach. Although to our best knowledge, the attempted cybersecurity breach did not have a material adverse effect on our
business, a similar event in the future could have a material adverse effect on our business operations, cash flows and financial condition.
If any other similar event were to occur and cause interruptions in our operations, it could result in a material disruption of our product
development programs. We may not be able to anticipate data breaches, cyber-attacks or other similar incidents, detect or react to such
incidents in a timely manner, implement effective preventive measures against such incidents, or adequately remediate any such incident.
In addition, we cannot be certain that our insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance
will continue to be available to us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any
future claim.
Any
such security breach may compromise information stored on our networks and may result in significant data losses or theft of personally
identifiable information. A cybersecurity breach could also hurt our reputation by adversely affecting the patients’ perception
of the security of their information. A number of proposed and enacted federal, state and international laws and regulations obligate
companies to notify individuals of security breaches involving particular personally identifiable information, which could result from
breaches experienced by us or by third parties, including collaborators, vendors, contractors or other organizations with which we expect
to form strategic relationships. In addition, a cybersecurity attack could result in other negative consequences, including disruption
of our internal operations, increased cyber security protection costs, lost revenue, regulatory actions or litigations.
31
We
may not receive payment from some of our customers for our AI solutions as a result of financial hardship.
We
contract with hospitals, imaging centers, urgent care and other facilities to provide reading, teleradiology services and AI solutions.
Some of our customers may not have significant financial resources, liquidity or access to capital. If these customers experience financial
difficulties, they may be unable to pay us for the services that we provide. A significant deterioration in industry conditions could
have a material adverse effect on the financial health of some of our customers. If our customers suffer financial hardship, they could
delay or default on their payment obligations to us, negatively impacting our operations.
Exchange
rate fluctuations between the U.S. dollar, the New Israeli Shekel and the KRW and inflation may negatively affect our results of operations,
and we may not be able to hedge our currency exchange risks successfully.
The
U.S. dollar is our functional and reporting currency. However, a portion of our operating expenses, including personnel and facilities
related expenses, are incurred in NIS or KRW. As a result, we are exposed to the risks that the NIS and KRW may appreciate relative to
the U.S. dollar, or, if the NIS and KRW instead devalues relative to the U.S. dollar, that the inflation rate in Israel or Korea may
exceed such rate of devaluation of the NIS or KRW, or that the timing of such devaluation may lag behind inflation in Israel or Korea.
In any such event, the dollar cost of our operations in Israel or Korea would increase and our dollar-denominated results of operations
would be adversely affected. Given our general lack of currency hedging arrangements to protect us from fluctuations in the exchange
rates of the NIS and KRW and other foreign currencies in relation to the U.S. dollar (and/or from inflation of such foreign currencies),
we may be exposed to adverse effects from such movements. Our exchange rate exposure may change over time as our business evolves and
could result in increased costs or reduced revenue and could affect our actual cash flow. Changes in the relative values of currencies
occur regularly and, in some instances, may have a significant impact on our operating results. The rate of inflation in Israel or Korea
or in currency exchange rates may materially change and we might not be able to effectively mitigate these risks.
We
may be subject to claims, litigation and investigations in the future, all of which will require significant management attention, could
result in significant legal expenses and may result in unfavorable outcomes, all or any of which could have a material adverse impact
on our financial condition and results of operations, harm our reputation or otherwise negatively impact our business.
We
have been, and may in the future become, subject to litigation, investigations, or claims arising in or outside the ordinary course of
business that could negatively affect our business operations and financial condition, including securities class actions and shareholder
derivative actions, both of which are typically expensive to defend. Such claims and litigation proceedings may be brought by third parties,
including our customers, competitors, advisors, service providers, partners or collaborators, employees, and governmental or regulatory
bodies.
For
example, as previously disclosed, we had two securities class action complaints against us and certain former officers and a director,
asserting violations of federal securities laws and seeking unspecified damages. On June 2, 2023, the Company entered into a formal settlement
agreement to settle those actions for $8 million. On May 7, 2024, the settlement was approved by the court. In addition, the Division
of Enforcement of the SEC previously conducted an investigation to determine whether there had been any violations of the federal securities
laws, relating to the development cost of the Company’s Nanox.ARC prototypes, as well as the Company’s estimate for the cost
of assembling the final Nanox.ARC product at scale, among other things. The Company and Ran Poliakine, former Chairman of the Board of
Directors of the Company who passed away in January 2024, reached final agreements with the SEC staff to settle this matter, which agreements
were approved by the United States District Court for the Southern District of New York in October 2023. The Company paid a civil penalty
in the amount of $650,000 and is permanently enjoined from violating Section 17(a)(2) of the Securities Act and Section 13(a) of the
Securities Exchange and Rules 12b-20 and 13a-1 thereunder. Mr. Poliakine paid disgorgement of $240,000, together with prejudgment interest
of $26,836.39, a civil penalty of $150,000, and was permanently enjoined from violating Section 17(a)(2) of the Securities Act and aiding
and abetting any violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
32
Further, USARAD and the radiologists that provide our teleradiology
services may occasionally subject us to malpractice claims. For example, on November 29, 2023, a claim was asserted in Edgar County, Illinois
against several defendants, including USARAD and a USARAD radiologist, alleging medical negligence relating to the failure to timely diagnose
and treat a cervical spinal cord injury following a fall, including allegations that the radiologist misinterpreted a cervical CT and
failed to recommend additional emergent diagnostic imaging. The matter remains in litigation and is proceeding through depositions. In
addition, on February 7, 2025, a claim was filed in Saint Lawrence County, New York against several defendants, including USARAD and another
USARAD radiologist, alleging medical negligence arising from the alleged misinterpretation of a CT scan and an alleged failure to diagnose
a perforation of the sigmoid colon, which purportedly resulted in sepsis and the need for surgical intervention. The matter is in discovery
pursuant to a Preliminary Conference Order, with depositions to be completed by October 30, 2026.
In
addition, a claim was filed in Israel against the Company, Nanox Imaging PLC (“Nanox Gibraltar”) and the deceased Mr. Ran
Poliakine, the Company’s previous Chairman, alleging a breach of a consulting agreement between the plaintiff and Nanox Gibraltar.
See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.”
On December 11, 2025, we
received a letter from a shareholder detailing certain purported concerns and allegations relating to representations made during negotiations
regarding a certain asset transaction. On April 19, 2026, we entered into a settlement agreement with said shareholder, pursuant to which
the alleging shareholder, on its own behalf and on behalf of its shareholders, fully released us from any and all claims, including those
mentioned in the shareholder’s letter, claims relating to the asset transaction, and claims relating to our relationship with the
shareholder and its affiliates and shareholders. In return for the release, and without admission of any liability, we agreed to issue
to the shareholder 450,000 ordinary shares.
The
outcome of any litigation and SEC investigation, regardless of its merits, is inherently uncertain and may differ substantially from
our expectations. Any claims and lawsuits, and the disposition of such claims and lawsuits, or SEC investigation could be time-consuming
and expensive to resolve, divert management attention and resources, and lead to attempts on the part of other parties to pursue similar
claims. We may not be able to determine the amount of any potential losses and other costs we may incur due to the inherent uncertainties
of litigation and settlement negotiations. In the event we are required or decide to pay amounts in connection with any claims, lawsuits
or SEC investigation, such amounts could be significant and could have a material adverse impact on our liquidity, business, financial
condition and results of operations. In addition, the outcome of any litigation and SEC investigation, including the collateral effects
of the Company’s recent settlement with the SEC as described above, may increase the likelihood of us being subject to potential
claims, litigations and investigations, and could have a material adverse impact on our business, liquidity and financing. In addition,
depending on the nature and timing of any such dispute, a resolution of a legal matter could materially affect our future operating results,
our cash flows or both.
Significant tariffs or other restrictions
related to “trade wars” placed on foreign nations’ imports or any related counter-measures taken by such countries
may materially harm our revenue and results of operations.
The Nanox.ARC and the Nanox.ARC X production process involves manufacturers
and/or suppliers in foreign nations for the production of certain components of the Nanox.ARC and the Nanox.ARC X. There have been significant
changes and proposed changes in recent years to U.S. trade policies, tariffs and treaties affecting imports. The U.S. administration has
announced additional tariffs on imports from a number of countries, including China. In response, China and other countries have imposed
or proposed additional tariffs on certain imports from the United States, as well as additional trade restrictions. Such tariffs and any
further legislation or actions taken by the United States or other countries that restrict trade, such as additional tariffs, trade barriers,
tax policies related to international commerce, export controls, sanctions and investment restrictions, renegotiation of existing trade
agreements with U.S. trading partners, and other protectionist or retaliatory measures taken by such governments, could adversely impact
our business, financial condition and results of operations. If any forms of duties or tariffs are imposed on the Nanox.ARC or the Nanox.ARC
X, or their components, we may be required to charge higher prices in the United States than we expect, which may result in fewer customers
and harm our operating performance. Alternatively, we or our contractors may seek manufacturers and/or suppliers in countries not affected,
or less affected by the tariffs, resulting in significant costs and disruption to our operations and business. Our business could also
be impacted by retaliatory trade measures taken by other countries in response to existing or future tariffs, causing us to raise prices
or make changes to our operations, any of which could materially harm our business, financial condition and results of operations. Escalating
trade tensions between the U.S. and other countries may also disrupt global supply chains and could materially disrupt the manufacturing
or deployment of the Nanox.ARC or result in significant price increases. The imposition of tariffs or other similar trade restrictions
may also be inflationary, which could cause the cost of inputs to increase. Volatile trade relations have also caused and may continue
to cause significant volatility in the global financial market. Further, political tensions as a result of trade policies could reduce
trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a
material adverse effect on global economic conditions. Any of these developments could have a material adverse effect on our business,
financial condition and results of operations.
33
Our
business may be impacted by changes in general economic conditions.
Our
business is subject to risks arising from changes in domestic and global economic conditions, including adverse economic conditions in
markets in which we operate, which may harm our business. For example, the existence of inflation in the economy has resulted in, and
may continue to result in, high interest rates and capital costs, limited availability of credit, liquidity shortages and constrained
capital spending, increased costs of labor, fluctuations in foreign currency exchange rates, challenging and delayed sales cycles, slower
adoption of new technologies, increased price competition and other similar effects. A failure to adequately respond to these risks could
have a material adverse impact on our financial condition, results of operations or cash flows.
If
our future customers significantly reduce spending in areas in which our technology and products are utilized, or prioritize other expenditures
over our technology and products, our business, financial condition, results of operations and prospects would be materially adversely
affected.
Disruption
to the global economy could also result in a number of follow-on effects on our business, including a possible slow-down resulting from
lower customer expenditures; inability of customers to pay for products, solutions or services on time, if at all; an increase in the
amount of accounts receivable we are required to write off; more restrictive export regulations which could limit our potential customer
base; negative impact on our liquidity, financial condition and share price, which may impact our ability to raise capital in the market,
obtain financing and secure other sources of funding in the future on terms favorable to us.
In
addition, the occurrence of catastrophic events, such as hurricanes, storms, earthquakes, tsunamis, floods, medical epidemics and other
catastrophes that adversely affect the business climate in any of our markets could have a material adverse effect on our business, financial
condition and results of operations. Some of our operations are located in areas that have been in the past, and may be in the future,
susceptible to such occurrences.
Our
business, financial condition and results of operations may be materially adversely affected by adverse developments with respect to
geopolitical disputes and financial institutions and associated liquidity risk.
Geopolitical
risks, including those arising from trade tension and/or the imposition of trade tariffs, terrorist activity or acts of civil or international
hostility, are increasing. Similarly, the ongoing military conflicts in the Middle East and between Russia and Ukraine has had negative
impacts on the global economy, including by contributing to rapidly rising costs of living (driven largely by higher energy prices) and
created uncertainty in the global capital markets and is expected to have further global economic consequences, including disruptions
of the global supply chain and energy markets. The Russian military actions and the resulting sanctions have had a negative impact on
supply chains, our MSaaS agreements relating to Russia and Belarus or the region and adversely affect the global economy and financial
markets. While we have not experienced any material disruption to our operations as a result of the current geopolitical developments,
and our business continues to operate as planned across its global operations, there can be no assurance that the ongoing geopolitical
developments will not have an impact on our operations, financial condition, or results of operations in the future. Any of the abovementioned
factors could affect our business, prospects, financial condition and operating results. The extent and duration of the military action,
sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify
the impact of other risks described in this Annual Report on Form 20-F.
We
do not expect to carry any business interruption insurance or any other insurance (except for director and officer, property, product
and professional liability, malpractice, clinical trials and cyber security insurance). As a result, we may incur uninsured losses, increasing
the possibility that you would lose your entire investment in our company.
Our
products and services are in the medical imaging field and so may be subject to claims. We are not immune from product liability or other
product claim risks, and we may not be able to maintain insurance on acceptable terms against such risks or that such insurance will
be sufficient to protect us against potential claims or that insurance will be available in the future in amounts sufficient to protect
us. A product liability claim, malpractice or other claim, as well as any claims for uninsured liabilities or in excess of insured liabilities,
could have a material adverse effect on our business, financial condition, results of operations and prospects.
34
Certain
of our directors and/or officers may have interests that may differ from ours.
Certain
of our directors currently own, operate and manage other entities, which may have similar or different objectives than ours. Such activities
could detract from the time these people have to allocate to our affairs.
Our
management team has limited experience managing a public company.
Most members of our management team have limited experience managing
a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public
companies in the United States. Our management team may not successfully or efficiently manage our operations as a public company subject
to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities
analysts and investors. These obligations and constituents require significant attention from our senior management and could divert their
attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, results
of operations and prospects.
Environmental,
social and corporate governance (“ESG”) issues, including those related to climate change and sustainability, may have an
adverse effect on our business, financial condition and results of operations and damage our reputation.
There
is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally,
public interest and legislative pressure related to public companies’ ESG practices continue to grow. If our ESG practices fail
to meet regulatory requirements or investor, employee or other stakeholders’ evolving expectations and standards for responsible
corporate citizenship in areas including environmental stewardship, support for local communities, Board of Directors and employee diversity,
human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency,
our reputation and employee retention may be negatively impacted, and our suppliers may be unwilling to continue to do business with
us.
Investors
and other stakeholders are increasingly focusing on environmental issues, including climate change, energy and water use, plastic waste
and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory requirements to reduce
or mitigate impacts to the environment. Increased regulatory requirements may result in increased demands or requirements regarding components
of our products and their environmental impact on sustainability. Complying with these demands or requirements could cause us to incur
additional manufacturing, operating or product development costs.
Additionally,
we may become subject to new compliance requirements and/or new costs or taxes associated with natural resource or energy usage and related
emissions (such as a “carbon tax”), which could increase our operating costs. All of these factors could result in additional
costs and devoting additional resources to monitor, report and implement various corporate responsibility practices.
If
we do not adapt to or comply with new regulations, or fail to meet evolving investor, industry or stakeholder expectations and concerns
regarding ESG issues, investors may reconsider their capital investment in our Company, which could have a material adverse effect on
our business or financial condition.
Risks
Related to Our Intellectual Property
It
is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their
protection.
We
rely upon a combination of patents and trade secrets to protect the intellectual property related to our proprietary technologies. Our
success depends significantly on our ability to obtain and maintain intellectual property protection with respect to our technology and
products. Patents and other proprietary rights provide uncertain protections, and we may be unable to protect our intellectual property
for reasons including those that result from complex factual and legal issues such as those that create uncertainty as to the validity,
scope and enforceability of any particular patent that we hold or for which we have applied. As a result, we may be unsuccessful in defending
our patents and other proprietary rights against third-party challenges, which could have a material adverse effect on our business.
35
We
generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements
with parties with whom we conduct business, in order to limit access to, and the disclosure and use of, our proprietary information.
However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes
to the development of our intellectual property. In addition, those agreements that we do execute may be breached, and we may not have
adequate remedies for any such breach. Further, these contractual arrangements would not prevent independent development of similar intellectual
property by others.
Although
we are attempting to obtain patent coverage for our technology where available and where we believe appropriate, there are aspects of
the technology for which patent coverage may never be sought or received. Additionally, we have obtained, and may in the future obtain,
certain intellectual property related to our technology from third parties, and we cannot be certain that such third parties took the
necessary actions to maintain such rights or that the transfer of such rights to us was proper and effective. We may, as a result, be
subject to claims challenging the ownership or enforceability of such rights. Furthermore, we may not possess the resources to, or for
other reasons may not choose to, pursue patent protection on every invention or in any or every country where we may eventually decide
to sell our future products. Our ability to prevent others from making or selling duplicate or similar technologies will be impaired
for those technologies with respect to which, and in those countries where, we have no patent protection. In addition, there is no assurance
that all potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from
issuing from a pending patent application or later invalidate or narrow the scope of an issued patent. Even if patents do successfully
issue and even if such patents cover our technology, third parties may challenge their validity, enforceability or scope, which may result
in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to these patents or any other patents owned
by or licensed to us could deprive us of rights necessary for the successful commercialization of our technology.
In
addition, for patents that we do issue based on our applications or future applications, any issued patents may not provide us with any
competitive advantages. Competitors may be able to design around our patents and develop products that provide outcomes comparable or
superior to ours. Any changes we make to our product or any future products, including designs that may be required for commercialization
or that cause them to have what we view as more advantageous properties, may not be covered by patents and patent applications we have
licensed or own, and we may be required to file new applications and/or seek other forms of protection for any such altered products
if any such protection is available. In addition, the patent prosecution process is expensive, time-consuming and complicated, and we
and our current or future licensors, licensees or collaborators may not be able to prepare, file, prosecute and maintain all necessary
or desirable patents or patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current or
future licensors, licensees or collaborators will fail to identify patentable aspects of inventions before it is too late to obtain patent
protection for them. In addition, if we choose to and are able to secure patent protection in countries outside the U.S., the laws of
some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. For instance,
the legal systems of some countries, including India, China and other developing countries, do not favor the enforcement of patents and
other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation
of our other intellectual property rights.
Some
countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent
owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to
grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired.
Changes
in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions
and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. Our efforts to
seek patent protection for our technology could be negatively impacted by any such changes, which could have a material adverse effect
on our existing patent rights and our ability to protect and enforce our intellectual property in the future. In particular, our ability
to stop third parties from making, using, selling, offering to sell or importing products that infringe our intellectual property will
depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions and improvements.
We
may come to believe that third parties are infringing on, or otherwise violating, our patents or other proprietary rights. To prevent
infringement or unauthorized use, we may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming,
could result in meritorious counterclaims against us and would distract management’s attention. Also, in an infringement or misappropriation
proceeding, a court may decide that one or more of our patents is invalid, unenforceable, or both, in which case third parties may be
able to use our technology without paying license fees or royalties. Even if the validity of our patents is upheld, a court may refuse
to stop the other party from using the technology at issue on the grounds that the other party’s activities are not covered by
our patents.
36
In
addition to patents, we rely on trade secrets to protect our technology; however, the policies we use to protect our trade secrets may
not be effective in preventing misappropriation of our trade secrets by others. In addition, confidentiality agreements executed by our
employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary
information in the event of unauthorized use or disclosure. Litigating a trade secret claim is expensive and time consuming, and the
outcome may be unexpected. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover,
our competitors may independently develop knowledge, methods and know-how that allow them to create substantially similar products or
services without misappropriating our trade secrets. If we are unable to protect our trade secrets, we may be unable to prevent competitors
from using our own inventions and intellectual property to compete against us, and our business may be harmed.
Patent
terms may be inadequate to protect our competitive position on our future products for an adequate amount of time.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and
the protection it affords, is limited. Even if patents covering our future products are obtained, once the patent life has expired, we
may be open to competition from competitive products.
Given
the amount of time required for the development, testing and regulatory review of new products, patents protecting our future products
might expire before or shortly after we or our future partners commercialize those products. As a result, our owned and licensed patent
portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours for
a sufficient amount of time, and, as a result, we may not be able to obtain adequate protection from our patent portfolio against competition,
in spite of the time and effort invested in the commercialization of our future products.
Claims
that our technology or our future products or the sale or use of our future products infringe the patents or other intellectual property
rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation
is avoided.
Because
our industry is characterized by competing intellectual property, we may be subject to legal actions for violating the intellectual property
rights of others, including claims that former employees, collaborators or third parties have an interest in our patents, trade secrets
or other intellectual property. For example, we may have inventorship or ownership disputes arising from conflicting obligations of employees,
consultants or others who are involved in developing our technology or our products.
We
also may be required to participate in interference, derivation or opposition proceedings that concern disputes regarding priority of
inventions disclosed in our patents. Determining whether a product infringes a patent, as well as priority of inventions and other patent-related
disputes, involves complex legal and factual issues and the outcome is often uncertain. We have not conducted any significant search
of patents issued to third parties, and third-party patents containing claims covering our technology or methods that predate our patents
may exist. Because of the number of patents issued and patent applications filed in our technical areas or fields (including some pertaining
specifically to medical imaging technologies), our competitors or other third parties may assert that our technology and the methods
we employ in the use of products incorporating our technology are covered by United States or foreign patents held by them. In addition,
because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction,
there may be applications now pending of which we are unaware, and which may result in issued patents that our technology or other future
products would infringe. Also, because the claims of published patent applications can change between publication and patent grant, there
may be published patent applications that may ultimately issue with claims that we infringe.
As
the number of competitors in the market for medical imaging technologies increases, and as the number of patents issued in this area
grows, the possibility of patent infringement claims against us increases. Some of our competitors may be able to sustain the costs of
complex patent litigation more effectively than we can, including if they have substantially greater resources. Defending against such
litigation is costly and time consuming, and would distract our management from our business. In addition, any uncertainties resulting
from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary
to continue our operations.
In
the event that we become subject to a patent infringement or other intellectual property lawsuit and if the relevant patents or other
intellectual property were upheld as valid and enforceable and we were found to infringe or violate those rights or the terms of a license
to which we are a party, we could be prevented from selling any infringing products of ours unless we could obtain a license or were
able to redesign the product to avoid infringement. If we were unable to obtain a license or successfully redesign, we might be prevented
from selling our technology or other future products. If we are able to redesign, we may need to invest substantial resources in the
redesign process. If there is an allegation or determination that we have infringed the intellectual property rights of a competitor
or other person, we may be required to pay damages, or a settlement or ongoing royalties, or we may be required to enter into cross-licenses
with our competitors. In any of these circumstances, we may be unable to sell our products at competitive prices or at all, and our business,
financial condition, results of operations and prospects could be harmed.
37
In
addition, we may be required to indemnify our customers and distributors against claims relating to the infringement of intellectual
property rights of third parties related to our products. Third parties may assert infringement claims against our customers or distributors.
These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless
of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or distributors,
or may be required to obtain licenses for the products or services they use. If we cannot obtain all necessary licenses on commercially
reasonable terms, our distributors may be forced to stop distributing our products or services, and our customers may be forced to stop
using our products or services.
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 discovery. There could also be public announcements of the
results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of
our ordinary shares. 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.
Obtaining
and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we or our future licensors do not
comply with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other government fees on a patent and patent application are due to be paid
to the patent offices and agencies in several stages over the lifetime of the patent and patent application. The U.S. Patent and Trademark
Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other similar provisions during the patent application process. In certain circumstances, we may be required to rely on our licensing
partners to take the necessary action to comply with these requirements with respect to patents or other intellectual property they have
licensed to us. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the
applicable rules, there are situations in which noncompliance, which could include failure to respond to official actions within prescribed
time limits, non-payment of fees and failure to properly legalize and submit formal documents, can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,
our competitors may be able to enter the market and compete with our products, which would have a material adverse effect on our business.
We
may be subject to claims that our employees, consultants or advisers have wrongfully used or disclosed alleged trade secrets of their
former employers or claims asserting ownership of what we regard as our own intellectual property.
Many
of our employees, consultants and advisers, including our senior management, were previously employed at other companies that may have
proprietary rights related to our business. Some of these employees, consultants and advisers, including members of our senior management,
executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try
to ensure that such individuals 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 these employees have used or disclosed intellectual property, including trade secrets or other proprietary information,
of any such individual’s former employer. We are not aware of any such disclosures, or threatened or pending claims related to
these matters, but in the future, litigation may be necessary to defend against such claims. If we fail in defending any such claims,
we may lose valuable intellectual property rights or personnel, in addition to possibly paying monetary damages and being enjoined from
conducting our business as contemplated. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management.
Additionally,
a licensor, collaborator, employee, consultant, adviser or other third party may dispute our or our licensor’s ownership of certain
intellectual property rights. We seek to address these concerns in our contractual agreements; however, we may not have contractual arrangements
with the party in question and/or such provisions may not be effective. If these provisions prove to be ineffective, we may not be able
to achieve our business objectives. If we or our licensors fail in defending any such claims, we may have to pay monetary damages and
may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property, which could adversely
impact our business, financial condition and results of operations.
38
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest
and our business may be adversely affected.
Our registered and unregistered trademarks or trade names are valuable
assets and may be challenged, infringed, circumvented, declared generic, or determined to infringe third-party marks. We may not be able
to protect our rights to these trademarks and trade names, which are necessary to build name recognition among potential collaborators
or customers in our markets of interest. Competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability
to build brand identity and possibly leading to market confusion. For example, the Sheba Fund for Health Services and Research filed four
trademark applications for the word “ARC” and three additional logos; Intel Corporation filed a trademark application for
the word “ARC” with the Israeli Patent Office; and Arcreal Inc. filed a trademark application for the word “ARC SCAN”
with the Israeli Patent Office. These applications were published for possible opposition, and the Company filed oppositions, claiming
that the marks are confusingly similar to its own trademark. The Company has signed co-existence agreements with each of them. In addition,
there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate
variations of our unregistered trademarks or trade names. We have not conducted any registrability studies for possible future trademarks
to assess whether such marks would be successfully registered. Over the long term, if we are unable to establish name recognition based
on our trademarks and trade names, we may not be able to compete effectively, and our business may be adversely affected. Furthermore,
we may license our trademarks and trade names to third parties, such as distributors. Although these license agreements may provide guidelines
for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and trade names by our licensees
may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect
our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights, or other intellectual property may
be ineffective and could result in substantial costs and diversion of resources, adversely affecting our competitive position, business,
financial condition, results of operations, and prospects.
Our
rights to develop and commercialize our products may be subject to the terms and conditions of licenses and sublicenses granted to us
by third parties.
We
rely on licenses and sublicenses to certain patent rights and other intellectual property from third parties that are important or necessary
to the development of our products, including the software modules that we expect to integrate into the Nanox.CLOUD. These and other
licenses may not provide exclusive rights to use such intellectual property in all relevant fields of use and in all territories in which
we may wish to develop or commercialize our products and the underlying patents may fail to provide the intended exclusivity. As a result,
we may not be able to prevent competitors from developing and commercializing competitive products in the markets that we hope to address.
Moreover, we would not own at least some of the underlying intellectual property rights related to these products, and as a result our
rights would be subject to the continuation and compliance with the terms of those agreements. If such in-licenses were terminated, competitors
would have the freedom to develop, seek regulatory approval of, and to market, products similar or identical to ours.
In
addition, these license agreements may not grant us the right to control the preparation, filing, prosecution or maintenance of patents
and patent applications covering our products. Therefore, we cannot be certain that these patents and patent applications will be prepared,
filed, prosecuted or maintained in a manner consistent with the best interests of our business. If our current or future licensing partners
fail to file, prosecute or maintain such patents, including the payment of applicable fees, or otherwise lose rights to those patents
or patent applications, the intellectual property we have licensed or exclusivity we have been granted may be reduced or eliminated,
and our right to develop and commercialize any of our future products that are subject of such licensed rights, and our ability to prevent
competitors from developing or commercializing such products, could be adversely affected. In addition, even where we have the right
to control patent prosecution and maintenance of patents and patent applications we have licensed from third parties, we may still be
adversely affected or prejudiced by actions or inactions of our licensees, our licensors and their counsel that took place prior to the
date upon which we assumed control over patent prosecution.
Pursuant
to the terms of such license agreements, the licensors may also have the right to control enforcement of our licensed patents or defense
of any claims asserting the invalidity or unenforceability of these patents. Even if we are permitted to pursue the enforcement or defense
of our licensed patents, we may require the cooperation of our future licensors or collaboration partners and any other applicable patent
owners and we cannot be certain that such cooperation will be provided to us. We also cannot be certain that our licensors will allocate
sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the
licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent
us from continuing to license intellectual property that we may need to operate our business. If we lose any of our licensed intellectual
property, our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected.
39
In addition, our future licensors
may rely on third-party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive
owners of the patents we in-license. If other third parties have ownership rights to our in-licensed patents, they may be able to license
such patents to our competitors, and our competitors could market competing products and technologies. In addition, if our licensors have
not obtained adequate rights from these third parties, we may need to obtain additional rights from these third parties or we could be
prevented from developing and commercializing the related products. This could have a material adverse effect on our competitive position,
business, financial conditions, results of operations and prospects.
In spite of our best efforts,
our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements,
in which event we may have to cease developing, manufacturing or marketing any product covered by these agreements and we may face other
additional penalties or be required to grant our licensors additional rights. In addition, we may seek to obtain additional licenses from
our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more
favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to
receive licenses to a portion of the intellectual property that is subject to our existing licenses. Any of these events could have a
material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
We may be required to pay certain milestones
and royalties and fulfill other obligations under our license agreements with third-party licensors.
We may be required to pay
milestones and royalties related to our development or commercialization activities of our products utilizing the technologies licensed
or sublicensed from third parties under license agreements we may enter into with them. These payments could adversely affect our overall
profitability related to any future products that we may seek to develop or commercialize. In order to maintain our license rights under
our license agreements, we may need to meet certain specified milestones or fulfill certain obligations, including to devote a certain
amount of resources, in the development of our products. In addition, we may be required to pay certain percentages of our revenues, relating
to certain supply agreements we are party to. Failure to satisfy such obligations could result in the termination of our rights under
such agreements.
If we choose to license our technology to
third parties, this could result in disputes or otherwise limit our future operations.
We may also in the future,
as one of our strategies, deploy our technology into the market and license patents and other intellectual proprietary rights to third
parties. Disputes with our licensees may arise, including regarding the scope and content of these licenses. Additionally, a licensee
may use our intellectual property without our permission, dispute our ownership of certain intellectual property rights or argue that
our intellectual property does not cover our product. Regardless of whether we pursue legal action to enforce any such dispute, a dispute
with a licensee or customer over intellectual property rights may damage our relationship with that licensee or customer and may also
harm our reputation in the industry. Our ability to expand into additional fields with our technologies also may be restricted by licenses
or other rights we may grant to third parties in the future, including if the licenses are exclusive, the licensee is assigned ownership
of intellectual property that we develop or rights of first negotiation or refusal are granted.
40
We may become subject to claims for remuneration
or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of
our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law,
5727-1967 (the “Patent Law”), inventions conceived by an employee in the course and as a result of, or arising from, his or
her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement
between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such
agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”), a body
constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. An employee
may waive the right to receive consideration for “service inventions” and case law has held that in certain circumstances,
such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework
between the parties in accordance with general Israeli contract law. Further, there is no specific formula for calculating this remuneration.
Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us
all rights to any inventions created in the scope of their employment or engagement with us, we may still face claims demanding remuneration
in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties
to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
Risks Related to Government Regulation
Our product candidates and operations are
subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable
requirements could harm our business.
Generally, our manufacturing operations for medical devices, and those
of our third-party manufacturers, are required to comply with federal and state regulations for medical devices and radiation-emitting
products, which includes the requirement to conduct tests in each state in order to obtain regulatory approvals for use of our devices
in such state. The Nanox.ARC and the Nanox.ARC X (including the Nanox.CLOUD) and other future products we develop are regulated by the
FDA as medical devices. Our product candidate is subject to extensive regulation in the United States and elsewhere, including by the
FDA and its foreign counterparts, the U.S. Department of Justice (the “DOJ”) and the U.S. Department of Health and Human Services-Office
of the Inspector General. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices: design,
development and manufacturing; testing, labeling, content and language of instructions for use and storage; clinical trials; product safety;
establishment registration and device listing; marketing, sales and distribution; pre-market clearance and approval; conformity assessment
procedures; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance,
including reporting of deaths or serious injuries and malfunctions that, if they were to occur, could lead to death or serious injury;
post-market approval studies; and product import and export.
Our AI imaging solutions
are regulated as software as a medical device. Modifications to indications, algorithms, inputs, training data or performance claims may
require new regulatory submissions, and authorities may disagree with our assessment of whether a change is “significant.”
We may be required to produce additional clinical evidence, including site-specific validation or post-market performance monitoring.
Limitations on adaptive or continuously learning algorithms may constrain product updates or require burdensome change-control processes.
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The regulations our product
candidate is subject to are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions
on or additional requirements affecting our ability to develop our products, carry on or expand our operations, higher than anticipated
costs or lower than anticipated sales for any approved product. Failure to comply with applicable regulations could jeopardize our ability
to sell our future products, following receipt of clearance from the FDA, and if cleared or approved in other jurisdictions, and result
in enforcement actions such as: warning or untitled letters; fines; injunctions; consent decrees; civil penalties; customer notifications;
termination of distribution; recalls or seizures of products; administrative detention of medical devices believed to be adulterated or
misbranded; delays in the introduction of products into the market; operating restrictions; total or partial suspension of production;
refusal to grant future clearances or approvals for new products, new intended uses or modifications to our products; withdrawals or suspensions
of current approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal prosecution or penalties.
The occurrence of any of these events would have a material adverse effect on our business, financial condition and results of operations
and could result in shareholders losing their entire investment.
Our business and products are subject to
extensive, evolving and sometimes inconsistent regulatory requirements across multiple jurisdictions, and our failure to obtain, maintain
or comply with required approvals, certifications, licenses, permits and other regulatory obligations could materially harm our business,
financial condition and results of operations.
We develop, market and operate
medical imaging hardware and radiation-emitting products, cloud-connected software and AI-enabled solutions, and we provide related services
in the United States and internationally. As a result, we and our products, our manufacturing and quality systems, and certain aspects
of our commercial and service activities are subject to complex and stringent requirements administered by the FDA and other U.S. federal
and state authorities, the Israeli Ministry of Health and other Israeli authorities, and regulatory bodies in the EU and other jurisdictions,
as well as additional country, region and, in certain cases, state or province-specific rules. These requirements apply to, among other
things, premarket submissions and clearances/approvals, labeling and promotion, radiation safety, quality systems and manufacturing controls,
post-market surveillance and adverse event reporting, field corrective actions and recalls, cybersecurity and software change control,
clinical evidence generation, import/export controls, and facility and personnel licensure and permits. Regulatory frameworks applicable
to medical devices, software as a medical device and AI-enabled healthcare technologies are evolving rapidly, subject to differing interpretations,
and may diverge across jurisdictions over time. In addition, certain jurisdictions may impose requirements that are more burdensome than
those in the United States (including additional clinical evidence, conformity assessment steps, local representation or data localization
requirements), and regulatory actions, delays or denials in one jurisdiction may negatively affect regulatory pathways, business plans,
timelines or market access in other jurisdictions.
Even where we have obtained regulatory clearances, approvals or certifications
for certain products or product features in particular jurisdictions, we may not be able to obtain, maintain, expand or renew required
authorizations in the same or other jurisdictions on a timely basis or at all. For example, in the United States we may be required to
obtain and maintain FDA clearance or approval (including, depending on the product and indication, 510(k) clearance, De Novo classification
or premarket approval) for new products, new uses, enhancements or other changes, and regulators may disagree with our assessment of whether
a modification is “significant” and requires a new submission, additional testing or new clinical evidence. We also may be
required to obtain and maintain additional licenses, registrations, permits or approvals at the state level for the installation, operation,
servicing or use of imaging systems and radiation-emitting products, and these requirements can vary and change over time. Similarly,
in the EU and other international markets, we may be required to obtain and maintain CE marking or other country-specific registrations,
approvals or certifications, and such authorizations may be conditioned on ongoing compliance obligations (including audits, surveillance
activities and technical documentation updates) and may be affected by changes in the applicable regulatory regime or the position of
the applicable regulatory body or conformity assessment organization. Continued CE marking, in particular, is contingent on successful
periodic surveillance audits of our quality system by our Notified Body or registrar, and any loss, suspension or non-renewal of such
certification would prevent us from selling the affected products in the European Economic Area. In addition, certain non-U.S. jurisdictions
require costly and time-consuming product re-registration whenever a device is modified, which may delay our ability to deploy product
improvements internationally and could cause customers in those markets to shift to competitors whose products are not subject to the
same re-registration process. If we are unable to obtain or maintain required approvals or clearances, or if we experience delays in doing
so, we could be unable to commercialize products or features, expand into targeted markets, or continue offering certain products or services,
and our growth strategy could be materially adversely affected.
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Regulatory requirements in
our industry also tend to become more stringent over time, and legislative or regulatory reforms, new guidance, enhanced enforcement approaches,
geopolitical developments, or changes in governmental funding or policy priorities may increase compliance costs, extend review timelines,
require costly operational or product changes, or restrict the manner in which we may market, sell, service, deploy or update our products.
In particular, evolving requirements applicable to connected devices, software, cybersecurity, data protection, cross-border data transfers,
and AI governance may require us to modify our products, data practices, documentation, validation methods, quality systems and post-market
monitoring programs, and may limit our ability to iterate and deploy product improvements on timelines that support our commercial objectives.
Regulatory divergence across jurisdictions may require us to design, maintain and support multiple product configurations, labeling sets,
quality and documentation packages, monitoring workflows and contracting approaches simultaneously, which can increase complexity and
cost and heighten the risk of non-compliance.
If we, our contract manufacturers, suppliers, distributors or other
partners fail to comply with applicable laws, regulations or authorizations, or if regulators determine that our products, manufacturing
processes, quality systems, marketing practices or post-market activities do not satisfy applicable requirements, we could be subject
to significant adverse consequences. Because compliance by our contract manufacturers and component suppliers with the FDA’s Quality
System Regulation and equivalent international standards (including ISO 13485) is a prerequisite to obtaining and maintaining our clearances,
approvals and certifications, non-compliance by these third parties could independently jeopardize our authorizations and result in production
shutdowns, denial of U.S. importation rights for products manufactured outside the United States, and denial of export rights for products
manufactured in the United States. These consequences may include warning letters or other enforcement communications, fines and civil
penalties, injunctions or consent decrees, increased monitoring or reporting obligations, product holds, import/export restrictions, withdrawal,
suspension or non-renewal of clearances, approvals or certifications, mandated or voluntary field corrective actions or product recalls,
restrictions on manufacturing or distribution, suspension of operations in one or more jurisdictions, and, in the most serious cases,
criminal sanctions. Any such enforcement action, or even the perceived risk of regulatory non-compliance, could result in reputational
harm, increased operating and compliance costs, delayed product introductions, reduced sales, contractual disputes, increased insurance
and warranty exposure, and diversion of management attention, any of which could materially harm our business, financial condition and
results of operations.
We may not receive, or may be delayed in
receiving, the necessary clearances or approvals for our future products, and failure to timely obtain necessary clearances or approvals
for our future products would adversely affect our ability to grow our business.
In the United States, before
we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive
either clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (the “FDCA”) or approval of a pre-market
approval application (a “PMA”) from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device
may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate”
device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior
to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified,
or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate
device, and either have the same technological characteristics as the predicate device or have different technological characteristics
and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support
substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective
for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing
and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices.
Modifications to products
that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared
through a 510(k) may require a new 510(k) clearance. Both the PMA approval and the 510(k) clearance process can be expensive, lengthy
and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining
a PMA is generally much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years,
or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or
more clinical trials. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain
necessary regulatory clearances or approvals could harm our business. Furthermore, even if we are granted regulatory clearances or approvals,
they may include significant limitations on the indicated uses for the device or other restrictions or requirements, which may limit the
market for the device.
We continue to implement a multi-step approach to the regulatory clearance
process. On April 28, 2023, we received a 510(k) clearance from the FDA to market the Nanox.ARC (including the Nanox.CLOUD), a multi-source
Nanox.ARC 3D digital tomosynthesis system, as a stationary X-ray system intended to produce tomographic images of the human musculoskeletal
system adjunctive to conventional radiography, on adult patients. This device is intended to be used in professional healthcare facilities
or radiological environments, such as hospitals, clinics, imaging centers and other medical practices by trained radiographers, radiologists
and physicians. In April 2025, we received a 510(k) clearance from the FDA for the Nanox.ARC X, an AI-ready, multi-source digital tomosynthesis
system that makes advanced 3D imaging possible in more places at significantly lower radiation dose than CT, which clearance covers the
production of tomographic images for general use, including the human musculoskeletal system and pulmonary, intra-abdominal and paranasal
sinus indications, adjunctive to conventional radiography on adult patients. In February 2026, we received a 510(k) clearance from the
FDA for TAP2D, a new cloud enabled image enhancement capability for the Nanox.ARC and Nanox.ARC X. In the future, we plan to seek additional
clearances or approvals from the FDA for additional uses of the currently cleared Nanox System, or for future versions of the Nanox System.
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We are in the early stages
of commercializing the FDA-cleared Nanox.ARC, the Nanox.ARC X, and the Nanox.CLOUD as the Nanox System, and we may also commercialize
one or more future versions of our Nanox System, once cleared or approved. Any modification to these systems that has not been previously
cleared may require us to submit a new 510(k) premarket notification and obtain clearance, or submit De-novo or PMA and obtain FDA approval
prior to implementing the change. Specifically, any modification to a 510(k)-cleared device that could significantly affect its safety
or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance
or, possibly, approval of De-novo or a PMA. The FDA requires every manufacturer to make this determination in the first instance, but
the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals
are necessary. We may make modifications or add additional features in the future that we believe do not require a new 510(k) clearance
or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications
for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we
may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant
regulatory fines or penalties. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications
to existing products than we had expected, including new or additional clinical trial requirements, product introductions or modifications
could be delayed or canceled, which could adversely affect our ability to grow our business.
The FDA can delay, limit
or deny clearance or approval of a medical device for many reasons, including:
● our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or Notified Body that our product candidates are safe or effective for their intended uses or are substantially equivalent to a predicate device;
● the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials or the interpretation of data from pre-clinical studies or clinical trials;
● serious and unexpected adverse effects experienced by participants in our clinical trials;
● the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;
● our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
● the manufacturing process or facilities we use may not meet applicable requirements; and
● the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
The ability of the FDA to
review and approve new products can be affected by a variety of factors, including government budget and funding levels such as those
implemented or proposed by the current Trump administration, payment of user fees and reauthorization of user fee programs and ability
to hire and retain key personnel, as well as statutory, regulatory and policy changes, and average review times at the FDA have fluctuated
in recent years as a result.
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In order to sell our products
in member countries of the European Economic Area (“EEA”), our products must comply with the essential requirements of the
EU Medical Devices Regulation (EU) 2017/745. Compliance with these requirements is a prerequisite to be able to affix the Conformité
Européene (“CE”) mark to our products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance
with the essential requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device
and its classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer
can issue a European Community (“EC”) Declaration of Conformity based on a self-assessment of the conformity of its products
with the essential requirements of the EU Medical Devices Directive, a conformity assessment procedure requires the intervention of an
organization accredited by a member state of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant
conformity assessment procedure, the Notified Body would typically audit and examine the technical file and audit the quality system of
the manufacturer and manufacturing sites of our devices. The Notified Body issues a certificate of conformity following successful completion
of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential
requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed
a related EC Declaration of Conformity. On February 25, 2025, we received the CE mark certification to market the multi-source Nanox.ARC
system, including the Nanox.CLOUD, its accompanying cloud-based infrastructure. Nanox.ARC is a stationary X-ray system, intended to generate
tomographic images of human anatomy from a single tomographic sweep performed in recumbent positions of adult patients.
As a general rule, demonstration
of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation
of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must
demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and
any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made
about the performance and safety of the device are supported by suitable evidence. If we fail to remain in compliance with applicable
European laws and directives, we would be unable to affix the CE mark, which would prevent us from selling them within the EEA.
Failure to comply with post-marketing regulatory
requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product
from the market.
Even though we received clearances
from the FDA and CE mark to market the Nanox.ARC (including the Nanox.CLOUD), and clearances from the FDA to market the Nanox.ARC X (including
the Nanox.CLOUD), and if we receive regulatory clearance or approval of other future products, we remain subject to ongoing and pervasive
regulatory requirements governing, among other things, the manufacture, marketing, advertising, medical device reporting, sale, promotion,
import, export, registration, and listing of devices. For example, we are required to submit periodic reports to the FDA as a condition
of 510(k) clearance. These reports include information about failures and certain adverse events associated with the device after its
clearance. Failure to submit such reports, or failure to submit the reports in a timely manner, could result in enforcement action by
the FDA. Following its review of the periodic reports, the FDA might ask for additional information or initiate further investigation.
The regulations to which
we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to
continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Even after we have obtained the proper
regulatory clearance or approval to market a device, we have ongoing responsibilities under FDA regulations and applicable foreign laws
and regulations. The FDA, state and foreign regulatory authorities have broad surveillance and enforcement powers. Our failure to comply
with applicable regulatory requirements could result in enforcement action by the FDA, state or foreign regulatory authorities, which
may include any of the following sanctions:
● untitled letters or warning letters;
● fines, injunctions, consent decrees and civil penalties;
● recalls, termination of distribution, administrative detention, or seizure of our products;
● customer notifications or repair, replacement or refunds;
● operating restrictions or partial suspension or total shutdown of production;
● delays in or refusal to grant our requests for future clearances or approvals or foreign marketing authorizations of new products, new intended uses, or modifications to existing products;
● withdrawals or suspensions of product clearances or approvals, resulting in prohibitions on sales of our products;
● FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; and
● criminal prosecution.
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Any of these sanctions could
result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business,
financial condition and results of operations.
In addition, the FDA or state
or foreign authorities may change their clearance and approval policies, adopt additional regulations or revise existing regulations,
or take other actions, which may prevent or delay clearance or approval of our future products under development on a timely basis. Such
policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new clearances or approvals,
increase the costs of compliance or restrict our ability to maintain any approvals we are able to obtain. For example, the FDA has announced
steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. For more information,
see “—Legislative or regulatory reforms in the United States or the EU may make it more difficult and costly for us to obtain
regulatory clearances or approvals for our products or to manufacture, market or distribute our products after clearance or approval is
obtained.”
Our products must be manufactured in accordance
with federal, state and foreign regulations, and we could be forced to recall our devices or terminate production if we fail to comply
with these regulations.
The methods used in, and
the facilities used for, the manufacture of our products must comply with the Quality System Regulation (“QSR”), which is
a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality
assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. As manufacturers
of electron radiation-emitting products, we are also responsible for compliance with the radiological health regulations and certain radiation
safety performance standards.
Furthermore, we are required
to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory
requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities,
which may include the facilities of subcontractors. Our products are also subject to similar state regulations and various laws and regulations
of foreign countries governing manufacturing.
Our third-party manufacturers
may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. In addition,
failure to comply with applicable FDA or state or foreign requirements or later discovery of previously unknown problems with our products
or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties;
suspension or withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution;
administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products;
clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us, our suppliers or our employees.
Any of these actions could
significantly and negatively affect supply of our products. If any of these events occurs, our reputation could be harmed, we could be
exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.
Changes in laws or regulations relating
to data protection, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could materially
and adversely affect our business or could lead to government enforcement actions and significant penalties against us, and adversely
impact our operating results.
Compliance with continuously
evolving privacy laws and regulations, including laws and regulations governing processing of personal information, and our actual or
perceived failure to comply with such laws and regulations may result in significant liability, negative publicity, and/or erosion of
trust and could have an adverse effect on our revenues, our results of operations and financial condition.
We receive health information and other highly sensitive or confidential
information and data of patients and other third parties (e.g., healthcare providers who refer patients for scans), which we compile and
analyze. While we have adopted measures to ensure that any such data will be transferred to us, to the extent possible, in a de-identified
or anonymized manner, collection and use of this data may still raise privacy and data protection concerns, which could negatively impact
our business. There are numerous federal, state and international laws and regulations regarding privacy, data protection, information
security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other
data. These laws and regulations are becoming more complex and/or prevalent in the United States, Europe, Israel, and elsewhere. The regulatory
framework for privacy and data protection worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and
this or other actual or alleged obligations may be interpreted and applied in a manner that we may not anticipate or that is inconsistent
from one jurisdiction to another and may conflict with other rules or practices including ours. Further, any significant change to applicable
laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of data, or their interpretation,
or any changes regarding the manner in which the consent of relevant users for the collection, use, retention, or disclosure of such data
must be obtained, could increase our costs and require us to modify our services and products, possibly in a material manner, which we
may be unable to complete, and may limit our ability to store and process patients’ data or develop new services and features.
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In particular, there have
been laws and regulations adopted throughout the United States and in Israel that impose new obligations in areas such as privacy. In
the United States, privacy and data security laws are also complex and changing rapidly. Further, laws in all 50 states require businesses
to provide notice to consumers whose personal information has been disclosed as a result of a data breach, under certain circumstances,
and compliance with them in the event of a widespread data breach is complex and costly. Both federal and state legislation, U.S. Congress
and individual states also govern the collection, use and other processing of personal data. For example, the California Consumer Privacy
Act (CCPA), which took effect on January 1, 2020, and was further expanded by the California Privacy Rights Act (CPRA), which took effect
on January 1, 2023, is one of the broadest U.S. state privacy laws. It imposes heightened transparency obligations about data collection,
use, and sharing practices, adds restrictions on the transfer of personal information to third parties including for advertising or analytics
purposes and grants data privacy rights to consumers. Following the Californian example, various U.S. states have passed, or are in the
process of passing, similar state privacy laws. Non-compliance with state privacy laws could result in regulatory investigations and enforcement
actions, private litigation (including class actions), significant fines and remediation costs, operational restrictions, and reputational
harm. Furthermore, on December 27, 2024, the Department of Justice issued a “Final Rule” to implement the Executive Order
(E.O.) 14117 “Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries
of Concern” (“Rule”). This Rule came into effect on April 8, 2025, with certain affirmative due diligence, reporting,
and auditing requirements having taken effect on October 6, 2025. The Justice Department established and implemented a new regulatory
program to address the urgent and extraordinary national security threat posed by the continuing efforts of countries of concern (and
covered persons that they can leverage) to access and exploit Americans’ bulk sensitive personal data (such as health data) and
certain U.S. Government-related data. This presents new risks for companies operating globally, including potential requirements to implement
additional compliance measures and controls, modify certain business practices and contractual arrangements, and devote additional management
time and resources to due diligence, reporting and auditing obligations; failure to comply could result in regulatory action and increased
compliance costs.
Most of the new U.S. regulations
(including privacy state laws) exempt personal information which is subject to the HIPAA and HITECH regulations. Nonetheless, new legislation
may affect our operations and business conduct, as it applies to our general conduct, marketing efforts and where we process data that
is not health-related by nature (and, therefore, not subject to HIPAA), and may increase our compliance costs and potential liability.
In addition, we obtain health information that is subject to privacy
and security requirements under HIPAA and HITECH and its implementing regulations. The Privacy Standards and Security Standards under
HIPAA establish a set of standards for the protection of individually identifiable health information by health plans, health care clearinghouses
and certain health care providers, referred to as Covered Entities, and the business associates with whom Covered Entities enter into
service relationships pursuant to which individually identifiable health information may be exchanged. As part of our normal operations,
we collect, process and retain personal identifying information regarding patients, including as a Business Associate of Covered Entities
under HIPAA. Therefore, we are subject to HIPAA, including changes implemented through HITECH, and we could be subject to criminal penalties
if we knowingly obtain or disclose individually identifiable health information in a manner that is not authorized or permitted by HIPAA.
A data breach affecting sensitive personal information, including health information, also could result in significant legal and financial
exposure and reputational damages that could potentially have an adverse effect on our business.
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HIPAA requires Covered Entities
(like many of our potential customers) and Business Associates, like us, to develop and maintain policies and procedures with respect
to protected health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards
to protect such information. HITECH expands the notification requirement for breaches of patient-identifiable health information, restricts
certain disclosures and sales of patient-identifiable health information and provides for civil monetary penalties for HIPAA violations.
HITECH also increased the civil and criminal penalties that may be imposed against Covered Entities and business associates and gave state
attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and its implementing
regulations and seek attorney’s fees and costs associated with pursuing federal civil actions. Additionally, certain states have
adopted comparable privacy and security laws and regulations, some of which may be more stringent or broader in scope than HIPAA. This
includes the Washington State My Health My Data law (“My Health My Data Act”) effective as of March 31, 2024, with small business
regulations effective as of June 30, 2024, as well as Nevada’s Consumer Health Data Privacy Law effective as of March 31, 2024.
Another example of recent
U.S. data security requirements is the Food and Drug Omnibus Reform Act (“FDORA”), enacted in December 2022, which, among
other provisions, requires developers of certain “cyber devices” to design and implement plans to monitor, identify and address
cybersecurity vulnerabilities of those devices and to submit those plans to the FDA as part of every new product application for a cyber
device. “Cyber devices” are defined as devices that include software, connect to the internet, and contain any technological
features that could be vulnerable to cybersecurity threats. This provision entered into effect on March 29, 2023, and the FDA expects
sponsors of cyber devices to comply with these requirements as of October 1, 2023.
Internationally, many jurisdictions
have or are considering enacting privacy or data protection laws or regulations relating to the collection, use, storage, transfer, disclosure
and/or other processing of personal data, as well as additional requirements for the hosting of health data specifically. For example,
the European Union’s General Data Protection Regulation (2016/679) (“EU GDPR”) governs certain collection and other
processing activities involving personal data about data subjects in the European Economic Area (“EEA”). The EU GDPR, supplemented
by national laws and further implemented through binding guidance from the European Data Protection Board, imposes stringent European
Union data protection requirements and provides for significant penalties for noncompliance, ranging from €10 million to €20
million or 2% to 4% of our annual global revenue, whichever is higher. In the UK, we are subject to the UK General Data Protection Regulation
and the United Kingdom’s Data Protection Act 2018 (the “UK GDPR”), under which penalties for noncompliance range from
£8.7 million to £17.5 million or 2% to 4% of our annual global revenue, whichever is higher. Our UK and EEA operations are
exposed to two parallel regimes, each of which may subject us to increased compliance risk based on differing, and potentially inconsistent
or conflicting, interpretation and enforcement by regulators and authorities. Given the EU GDPR and UK GDPR are separate regimes, fines
could arise under each in respect of a single incident, to the extent it affects European Economic Area (EEA) and UK personal data.
Under the EU GDPR and the
UK GDPR, our processing of health data and other highly sensitive data (referred to as “special category data” in those regulations)
exposes us to further compliance risk. In certain cases we may be required to carry out records or processing activity mapping (“ROPA”)
and prior to processing personal sensitive data from EEA or UK individuals, as well as to conduct a data protection impact assessment
(“DPIA”) in connection with our high-risk processing activities and implement appropriate safeguards and mechanisms to ensure
adequate protection of the personal data, in order to comply with GDPR/UK GDPR.
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Additionally, the EU GDPR
and the UK GDPR (collectively, the “GDPR”) includes restrictions on cross-border data transfers of personal data outside of
the EEA and the UK (as applicable) to third countries. To ensure compliance with such restrictions, we rely on adequacy decisions by the
European Commission, certifications under the EU-U.S. Data Privacy Framework (DPF) and its UK Extension, or the implementation of Standard
Contractual Clauses (SCCs) and the UK Addendum, as applicable. However, each of these mechanisms carries legal uncertainty and operational
risk. The DPF is already subject to legal challenges from privacy advocates, and there can be no assurance that it will not be invalidated
in the future. The invalidation of the DPF would eliminate a key transfer mechanism we rely on and create legal and operational uncertainty.
SCCs require us to conduct case-by-case “transfer impact assessments” to determine whether the laws in the recipient country
(particularly regarding government surveillance) undermine the protections of the SCCs, and to implement supplementary technical and organizational
measures where necessary. This process may be resource-intensive, and our assessments may be subject to challenge by European data protection
authorities. Lastly, adequacy decisions are subject to regular review and may also be invalidated. Overall, the cross-border data transfer
landscape in the EEA and UK is continually developing, and we are monitoring these developments. We may, in addition to other impacts,
experience additional costs associated with increased compliance burdens and be required to engage in new contract negotiations with third
parties that aid in processing data on our behalf or localize certain data.
The e-Privacy Directive (i.e.
Directive 2002/58/EC) and national laws transposing it, as well as the GDPR in certain contexts impose conditions on obtaining valid consent
for cookies, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie
or similar technology. Recent European court decisions and regulators’ recent guidance are driving increased attention to cookies
and tracking technologies and the online behavioral advertising ecosystem. This could lead to substantial costs, require significant systems
changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins,
increase costs and subject us to additional liabilities. In addition, regulation of cookies and similar technologies, and any decline
of cookies or similar online tracking technologies as a means to identify and potentially target users, may lead to broader restrictions
and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users. Finally, the
current national laws that implement the e-Privacy Directive are likely to be replaced across the EU (but not the UK) with a EU regulation
known as the e-Privacy Regulation which, though still in development, will if adopted, impose new obligations on the use of personal data
in the context of electronic communications, particularly in relation to online tracking technologies, and significantly increase regulators’
ability to impose fines for non-compliance. Additionally, the U.S. has recently seen an increase in claims and litigation based on the
California Invasion of Privacy Act (CIPA) and the Electronic Communications Privacy Act (ECPA) in regard to tracking tools such as cookies
and similar technologies. This trend exposes companies to potential statutory damages, class action lawsuits, and reputational harm.
Virtually every jurisdiction
in which we expect to operate has established its own data security and privacy legal framework with which we must, and our target customers
will need to, comply, including the rules and regulation mentioned above. We may also need to comply with varying and possibly conflicting
privacy laws and regulations in other jurisdictions. As a result, we could face regulatory actions, including significant fines or penalties,
adverse publicity and possible loss of business. Our teleradiology operations transmit and store cross-border imaging data for reads in
the U.S. and six additional countries; inconsistent requirements for data minimization, patient consent, data localization, and secondary
use for AI training may increase operational complexity, limit data availability needed to maintain and improve algorithm performance,
and expose us to regulatory investigations and penalties in multiple jurisdictions.
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The Israeli Privacy Protection
Law, 1981 (“PPL”), and its regulations, including but not limited to the Israeli Privacy Protection Regulations (Data Security),
2017 (“Security Regulations”), as well as the guidelines of the Israeli Privacy Protection Authority (“PPA”), impose
obligations regarding the processing, maintenance, disclosure, transfer, and security of personal data. In addition, the Privacy Protection
Regulations (Provisions Regarding Information Transferred to Israel from the European Economic Area), 2023 (“EU Regulations”),
may, in certain cases, provide additional rights to data subjects from the EEA whose personal data is stored in databases located in Israel
or whose personal data is stored together with such data.
Material amendment to the
PPL were approved by the Israeli Parliament in August 2024 and took effect on August 14, 2025 (“Amendment 13”). Among other
things, Amendment 13 expands the Privacy Protection Authority investigation authority and the monetary sanctions that can be imposed for
breach of the PPL and its regulations, that are significantly higher than those previously available and introduces additional obligations
relating to the processing of personal data, including without suspicion of a breach of the PPL, and if it identifies irregularities in
our compliance, may require the company to take remedial actions, which could increase our costs.
Therefore, significant changes
to the PPL, its regulations, and the PPA guidelines may necessitate adjustments to our data protection and security practices.
In addition, the Privacy
Protection Regulations (Transfer of Data to Databases Outside the State Borders), 5761-2001 (the “Cross-Border Transfer Regulations”),
restrict and impose conditions on the transfer of personal information from databases in Israel to locations outside Israel. These regulations
may require us to implement additional contractual, technical, and organizational measures to enable such transfers and maintain compliance,
which could increase our costs.
Additionally, our use of
AI tools in connection with the processing of personal information is subject to the PPL and may present unique privacy and information
security challenges. We conduct ongoing compliance assessments and apply legal, technical, and operational controls designed to help ensure
that our use of AI remains compliant with applicable laws and regulatory expectations.
Lack of compliance with the
PPL, its regulations, and the PPA guidelines (including in connection with our AI-enabled solutions) could expose us to enforcement actions,
litigation (including class actions), fines, and penalties (which, in some cases, may reach millions of NIS), and, in certain cases, criminal
liability.
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While we are preparing to
implement various measures intended to enable us to comply with applicable privacy or data protection laws, regulations and contractual
obligations, these measures may not always be effective and do not guarantee compliance. Any failure or perceived failure by us to comply
with our contractual or legal obligations or regulatory requirements relating to privacy, data protection, or information security may
result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy
groups or others and could result in significant liability, cause our customers, partners or patients to lose trust in us, and otherwise
materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by,
the laws, regulations, and policies that are applicable to the businesses of our customers or partners may limit the adoption and use
of, and reduce the overall demand for, our products and services. Additionally, if third parties we work with violate applicable laws,
regulations, or agreements, such violations may put the data we have received at risk, could result in governmental investigations or
enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result
in significant liability, cause our customers, partners or patients to lose trust in us, and otherwise materially and adversely affect
our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection
practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including
us, and may cause government agencies to enact additional regulatory measures, or to modify their enforcement or investigation activities,
which may increase our costs and risks.
The misuse or off-label use of our products
may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations,
fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly
to our business.
Advertising and promotion
of our future products that obtains approval in the United States may be heavily scrutinized by the FDA, the DOJ, HHS, state attorneys
general, members of Congress, and the public. In addition, advertising and promotion of any future product that obtains approval outside
of the United States will be heavily scrutinized by comparable foreign regulatory authorities.
Our existing products are, and we expect our future products will be,
cleared by the requisite regulatory authorities for specific indications. For example, on April 28, 2023, we received a 510(k) clearance
from the FDA to market the Nanox.ARC (including the Nanox.CLOUD) as a stationary X-ray system intended to produce tomographic images of
the human musculoskeletal system adjunctive to conventional radiography, on adult patients. This device is intended to be used in professional
healthcare facilities or radiological environments, such as hospitals, clinics, imaging centers, and other medical practices by trained
radiographers, radiologists, and physicians. In April 2025, we received a 510(k) clearance from the FDA for the Nanox.ARC X, an AI-ready,
multi-source digital tomosynthesis system that makes advanced 3D imaging possible in more places at significantly lower radiation dose
than CT, which clearance covers the production of tomographic images for general use, including the human musculoskeletal system and pulmonary,
intra-abdominal and paranasal sinus indications, adjunctive to conventional radiography on adult patients. In February 2026, we received
a 510(k) clearance from the FDA for TAP2D, a new cloud enabled image enhancement capability for the Nanox.ARC and Nanox.ARC X. We train
our marketing personnel and direct sales force to not promote our devices for uses outside of the FDA-approved indications for use, known
as “off-label uses.” We cannot, however, prevent a physician from using our devices off-label, when in the physician’s
independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians
attempt to use our devices off-label. Furthermore, the use of our devices for indications other than those approved by the FDA or approved
by any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among healthcare
providers and patients.
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If the FDA or any state or
foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request
that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition
of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal
penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority,
such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in
significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion
from participation in government healthcare programs and the curtailment of our operations. We may become subject to such actions and,
if we are not successful in defending against such actions, those actions may have a material adverse effect on our business, financial
condition and results of operations. Equivalent laws and potential consequences exist in foreign jurisdictions.
In addition, if our products
are cleared or approved, healthcare providers may misuse our products or use improper techniques if they are not adequately trained, potentially
leading to injury and an increased risk of product liability. If our devices are misused or used with improper technique, we may become
subject to costly litigation by our customers or their patients. As described above, product liability claims could divert management’s
attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.
Our products may cause or contribute to
adverse medical events or be subject to failures or malfunctions that we are required to report to the FDA, and if we fail to do so, we
would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of
serious safety issues with our products, or a recall of our products either voluntarily or at the direction of the FDA or another governmental
authority, could have a negative impact on us.
Because the Nanox.ARC and
the Nanox.ARC X (including the Nanox.CLOUD) received clearance from the FDA, we are subject to the FDA’s medical device reporting
regulations and similar foreign regulations, which require us to report to the FDA when we receive or become aware of information that
reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a
way that, if the malfunction were to recur, could cause or contribute to a death or serious injury. The timing of our obligation to report
is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events
of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse
event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from
the use of the product. If we fail to comply with our reporting obligations, the FDA or other regulatory bodies could take action, including
warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of
our device clearance or approval, seizure of our products or delay in clearance or approval of future products.
The FDA and foreign regulatory
bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design
or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require
a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also
choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur
as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies,
packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in
the future.
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Depending on the corrective
action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain
new clearances or approvals for the device before we may market or distribute the corrected device. Seeking such clearances or approvals
may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated
with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative
penalties or civil or criminal fines.
Companies are required to
maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals
or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our
determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement
could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales. Any
corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time
and capital, distract management from operating our business and may harm our reputation and financial results.
Our relationships with customers and third-party
payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Physicians, other healthcare
providers, and third-party payors will play a primary role with respect to any future products for which we obtain marketing approval.
Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our
product. Restrictions under applicable federal and state healthcare laws and regulations include the following:
● The U.S. federal healthcare program Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration to those who prescribe, purchase, or recommend medical devices, including certain discounts, or engaging consultants as speakers or consultants, may be subject to scrutiny if they do not fit squarely within the exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices, such as educational and research grants. Liability may be established without a person or entity having actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it. In addition, 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 civil False Claims Act. Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws, including, without limitation, our proposed Subscription Model, and our advisory, consulting and royalty agreements with certain physicians who receive compensation, in part, in the form of stock or stock options.
● The federal civil False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds, or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. In recent years, several healthcare companies have faced enforcement actions under the federal False Claims Act for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product or causing false claims to be submitted because of the company’s marketing the product for unapproved, and thus non-reimbursable, uses. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of tens of thousands of dollars per false claim or statement. Healthcare companies also are subject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.
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● The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), imposes criminal and civil liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. In addition, HIPAA, as amended by HITECH, and their respective implementing regulations impose obligations, including mandatory contractual terms, on covered healthcare providers, health plans, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
● The Physician Payment Sunshine Act, implemented as the Open Payments program, requires manufacturers of certain products reimbursed by Medicare, Medicaid, or the Children’s Health Insurance Program to track and report to the federal government payments and transfers of value that they make to physicians and teaching hospitals, certain other healthcare professionals, group purchasing organizations, and ownership interests held by physicians and their families, and provides for public disclosures of these data. Manufacturers are required to submit annual reports to the government and failure to do so may result in civil monetary penalties for all payments, transfers of value and ownership or investment interests not reported in an annual submission, and may result in liability under other federal laws and regulations.
● Federal law prohibiting certain physician self-referrals, known as the Stark Law, prohibits a physician from referring Medicare or Medicaid patients to an entity for certain “designated health services” if the physician has a prohibited financial relationship with that entity, unless an exception applies. Certain radiology services are considered “designated health services” under the Stark Law.
● Many states have adopted laws and regulations analogous to the federal laws cited above, including state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the payer. Several states have enacted legislation requiring medical device companies to, among other things, establish marketing compliance programs; file periodic reports with the state, including reports on gifts and payments to individual health care providers; make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities; and/or register their sales representatives. Some states prohibit specified sales and marketing practices, including the provision of gifts, meals, or other items to certain health care providers.
Efforts to ensure that our
business arrangements with third parties will comply with applicable healthcare laws and regulations involve substantial costs. Additionally,
it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to
be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid,
and the curtailment or restructuring of our operations. Exclusion, suspension and debarment from government funded healthcare programs
would significantly impact our ability to commercialize, sell or distribute any product. If any of the physicians or other providers or
entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil
or administrative sanctions, including exclusions from government funded healthcare programs.
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Risks associated with regulation of new
and emerging technologies such as artificial intelligence.
There have also been privacy
bills enacted in other countries around the world which have introduced new or expanded privacy, security, cyber-security and AI requirements
and we expect that legislation will continue to evolve in the coming years. For example, the rising adoption of AI and Generative AI in
daily operations and products poses additional and new risks, including, without limitation, data privacy and security risks, intellectual
property infringement, ownership issues and/or confidentiality issues. Threats include potential data leaks, social engineering attacks,
and decision-making based on manipulated information. Growing regulatory requirements for information security and data protection add
to the challenge. Therefore, it is difficult to determine whether and how such existing laws and regulations will apply to and impact
the internet and our business. As a company that provides AI-based solutions and utilizes AI in our products and services, we are subject
to regulatory and legal risks related to the use of AI. For example, we offer FDA cleared AI-based software imaging solutions to hospitals,
health maintenance organizations, integrated delivery networks, marketplaces, pharmaceutical companies and insurers that are designed
to identify or predict undiagnosed or underdiagnosed medical conditions, through the mining of data of existing CT scans. We have entered
into collaboration agreements with marketplaces for access and distribution of our Nanox AI solutions, and agreements with IDNs and hospitals
with respect to our AI imaging solutions. We currently offer AI imaging population health solutions aimed at identifying underlying findings,
which are correlated to osteoporosis, cardiovascular disease and fatty liver to help detect patients at risk for more advanced liver disease
such as NASH. In addition, we have begun to develop AI-based features to enhance the images generated by the Nanox System, with the goal
of improving diagnostic capabilities for the Nanox System in chest and musculoskeletal imaging. Ultimately, we expect to integrate these
AI imaging capabilities into the Nanox System. Subject to completion of the development and receipt of requisite regulatory approvals,
we plan to offer these AI imaging solutions as an optional service to our MSaaS partners.
The development, deployment
and use of AI technologies are subject to a variety of evolving laws and regulations, which may differ across jurisdictions and may evolve
over time. Our failure to comply with these laws and regulations could result in legal liability, regulatory enforcement actions, negative
publicity and damage to our reputation. For example, the EU Artificial Intelligence Act (the “EU AI Act”), has entered into
force on August 1, 2024. While the majority of its obligations are expected to take effect by 2026, provisions regulating prohibited AI
practices and AI literacy came into effect on February 2, 2025, and provisions pertaining to general purpose AI models on 2 August 2025.
The EU AI Act contains a list of prohibited practices, classifies certain AI systems as high risk, depending on the level of risk they
pose, includes transparency obligations for providers and deployers of certain AI systems, and includes obligations on general purpose
AI models. Fines for noncompliance range from (i) the higher of €35,000,000 or up to 7 percent of a company’s total worldwide
annual turnover for non-compliance with prohibited AI practices, to (ii) the higher of €7,500,000 or up to 1 percent of a company’s
total worldwide annual turnover for the supply of incorrect, incomplete, or misleading information to notified bodies and national competent
authorities. Additionally, the AI Liability Directive and AI-specific amendments to the existing EU product liability regime will develop
the liability regime for harm caused by the use of AI. Among other things, the EU AI Act may require us to implement additional quality
assurance controls and measures to be reviewed and approved by regulatory submissions of our products. The cost to comply with such laws
or regulations could be significant and could increase our operating expenses, require technical changes, development and implementations,
which could adversely affect our business, financial condition and results of operations.
In the UK, government ministers
are also planning to introduce a comprehensive AI bill in 2026, aiming, among others, at establishing an AI authority to oversee the regulatory
approach to AI and regulating safety and copyright issues related to AI. Any additional costs and penalties associated with increased
compliance, enforcement and risk reduction could make certain offerings less profitable or increase the difficulty of bringing certain
offerings to market or maintaining certain offerings. This is equally true for the US, where on May 17, 2024, Colorado enacted the Colorado
AI Act. The Colorado AI Act creates duties for developers and for those that deploy AI. There is a specific focus on bias and discrimination.
The Act will go into effect on February 1, 2026.
Furthermore, the EU Data
Act, adopted on November 27, 2023, establishes rules for data sharing and reuse in the European Union, with most obligations effective
from September 2025. It aims to enhance the EU’s data economy by improving data accessibility and usability, fostering innovation,
and ensuring equitable value distribution among data economy participants. The EU Data Act empowers users of connected products—whether
owned, leased, or rented—with greater control over the data they generate, while maintaining incentives for investments in data
technologies. It also sets general conditions for data sharing between businesses and imposes measures to boost fairness and competition
in the European cloud market such as requirements for cloud and edge computing services to facilitate interoperability and enable switching.
Additionally, the EU Data Act safeguards companies from unfair contractual terms related to data sharing imposed by dominant market players.
Compliance may require us to implement new data management protocols, technological development and changes of our semiconductors and
review contractual practices, potentially increasing operational costs.
The European Commission’s
Digital Omnibus Proposal, published in November 2025, includes proposed amendments to certain EU laws and regulations, including (among
others) the EU AI Act and the GDPR. However, the proposal remains at an early stage of the EU legislative process.
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If we do not obtain and maintain international
regulatory registrations, clearances or approvals for our products, we will be unable to market and sell our products outside of the United
States.
Sales of our products outside
of the United States are subject to foreign regulatory requirements that vary widely from country to country. Approval procedures vary
among countries and can involve additional testing. The time required to obtain approval outside of the United States may differ substantially
from that required to obtain FDA approval. In addition, the FDA regulates exports of medical devices from the United States. While the
regulations of some countries may not impose barriers to marketing and selling our products or only require notification, others require
that we obtain the clearance or approval of a specified regulatory body. Complying with foreign regulatory requirements, including obtaining
registrations, clearances or approvals, can be expensive and time-consuming, and we may not receive regulatory clearances or approvals
in each country in which we plan to market our products or we may be unable to do so on a timely basis. The time required to obtain registrations,
clearances or approvals, if required by other countries, may be longer than that required for FDA clearance or approval, and requirements
for such registrations, clearances or approvals may significantly differ from FDA requirements. If we modify our products, we may need
to apply for additional regulatory clearances or approvals before we are permitted to sell the modified product. In addition, we may not
continue to meet the quality and safety standards required to maintain the authorizations that we have received. If we are unable to maintain
our authorizations in a particular country, we will no longer be able to sell the applicable product in that country.
Regulatory clearance or approval
by the FDA does not ensure registration, clearance or approval by regulatory authorities in other countries, and registration, clearance
or approval by one or more foreign regulatory authorities does not ensure registration, clearance or approval by regulatory authorities
in other foreign countries or by the FDA. However, a failure or delay in obtaining registration or regulatory clearance or approval in
one country may have a negative effect on the regulatory process in others.
In addition, we are also
subject to varying product standards, packaging requirements, labeling requirements, tariff regulations, duties and tax requirements.
In Europe, we are required to have all medical device products “CE” marked, an international symbol, affixed to all our medical
device products demonstrating compliance with the European Medical Device Directives and/or Medical Device Regulations (“MDR”)
and all applicable standards. While currently the multi-source Nanox.ARC system, including the Nanox.CLOUD, is CE marked, continued certification
is based on the successful review of our quality system by our European Registrar during their periodic audits. Any loss of certification
would have a material adverse effect on our business, results of operations and financial condition. There are several major regulatory
changes occurring in the regulation of medical devices in the European Union (the “EU”). The revision of the quality system
regulation (ISO 13485:2016) has been released that substantially increased the requirements for a medical device quality system. The
MDR has replaced the medical device directives (93/42/EEC), and it substantially changes the way that medical devices are brought to market
in the EU and how they maintain compliance throughout the product’s life cycle. Due to the UK’s exit from EU (“Brexit”),
different rules are applied in Great Britain (England, Wales and Scotland), Northern Ireland and the EU after the Brexit transition period,
which began January 1, 2021. Similarly, Switzerland has changed its relationship with the EU and since May 2022, medical device manufacturers
are required, including us, to contract with a Swiss authorized representative. Additionally, the new revision 4 of the clinical evaluation
report guidance document (MEDDEV 2.7.1) and the Medical Device Coordination Group (MDCG) guidance regarding clinical evidence (MDCG 2020-6)
severely restricts the use of substantial equivalence for new products, resulting in the need for formal clinical trial data for many
products. These and future changes will increase the cost for compliance and for product development, and they lengthen product introduction
cycles. Failure to comply with these changes and any future changes can have an adverse effect on our ability to release new products
in a timely manner.
Moreover, new intended uses of CE marked medical devices falling outside
the scope of the current CE Certificate require a completely new conformity assessment before the device can be CE marked and marketed
in the EU for the new intended use. The process required to gather necessary information and draw up documentation in order to obtain
CE Certification of a medical device in the EU can be expensive and lengthy and its outcome can be uncertain. On February 25, 2025, we
received the CE mark certification to market the multi-source Nanox.ARC system, including the Nanox.CLOUD. We may make modifications to
our products in the future that we believe do not or will not require notifications to our Notified Body or new conformity assessments
to permit the maintenance of our current CE Certificate. If the competent authorities of the EU member states or our Notified Body disagree
and require the conduct of a new conformity assessment, the modification of the existing CE Certificate or the issuance of a new CE Certificate,
we may be required to recall or suspend the marketing of the modified versions of our products.
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Legislative or regulatory reforms in the
United States or the EU may make it more difficult and costly for us to obtain regulatory clearances or approvals for our products or
to manufacture, market or distribute our products after clearance or approval is obtained.
From time to time, legislation
is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take
other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify
our currently cleared products on a timely basis. Over the last several years, the FDA has proposed reforms to its 510(k) clearance process,
and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult
for manufacturers to utilize the 510(k) clearance process for their products. For example, in September 2023, the FDA issued three draft
guidances intended to strengthen and modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things,
the draft guidances recommend best practices for selecting a predicate device to encourage the evolution of safer and more effective medical
devices in the 510(k) program and clarify when clinical data may or may not be needed to support a 510(k) submission. These proposals
have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation. Accordingly,
it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our
ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances,
or otherwise create competition that may negatively affect our business.
In September 2019, the FDA
finalized guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain,
well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device
meets objective safety and performance criteria established by the FDA, thereby obviating the need, in the case of applicable products,
for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process.
The FDA maintains a list of device types appropriate for the “safety and performance based” pathway and will continue to develop
product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended
in the guidance documents, where feasible. The FDA may establish performance criteria for classes of devices for which we or our competitors
seek or currently have received clearance, and it is unclear the extent to which such performance standards, if established, could impact
our ability to obtain new 510(k) clearances or otherwise create competition that may negatively affect our business.
In addition, FDA regulations
and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. In particular,
due to general uncertainty with respect to the current U.S. legal, regulatory and policy environment, and specifically regarding positions
that the Trump administration may take regarding FDA regulations and policies, we are unable to predict the impact of any future legislative,
regulatory or third-party actions with respect to these issues. Any new statutes, regulations or revisions or reinterpretations of existing
regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain clearance
or approval for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal
interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among
other things, require: additional testing prior to obtaining clearance or approval; changes to manufacturing methods; recall, replacement
or discontinuance of our products; or additional record keeping.
The FDA’s and other
regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or
delay regulatory clearance or approval of our future products. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt
to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance,
we may lose any marketing approval or clearance that we may have obtained and we may not achieve or sustain profitability.
On April 5, 2017, the
European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive.
Unlike directives, which must be implemented into the national laws of the EEA member states, the regulations would be directly applicable,
i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states and are intended to eliminate
current differences in the regulation of medical devices among EEA member states. The Medical Devices Regulation, among other things,
is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and
ensure a high level of safety and health while supporting innovation.
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The Medical Devices Regulation
will, however, only become applicable three years after publication (in 2020). Once applicable, the new regulations will, among other
things:
● strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
● establish explicit provisions on manufacturers’ responsibilities for follow-up regarding the quality, performance and safety of devices placed on the market;
● improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
● set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and
● strengthened rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.
These modifications may have
an effect on the way we conduct our business in the EEA.
Healthcare reform laws and regulatory changes
could adversely affect our products and financial condition.
During the past several years,
the U.S. healthcare industry has been subject to an increase in governmental regulation, as well as judicial challenges, at both the federal
and state levels. Efforts to control healthcare costs, including limiting access to care, alternative delivery models and changes in the
methods used to determine reimbursement scenarios and rates, are ongoing at the federal and state government levels. From time to time,
changes designed to contain healthcare costs have been implemented, some of which have resulted in decreased reimbursement rates for diagnostic
imaging services that may impact our business or may otherwise affect our ability to commercialize or profitably sell any product candidates
for which we obtain regulatory approval.
In March 2010, former President
Obama signed into law the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 (collectively,
the “ACA”), which included measures that significantly changed the way healthcare is financed by both governmental and private
insurers. While a primary goal of these healthcare reform efforts was to expand coverage to more individuals, it also involved additional
regulatory mandates and other measures designed to constrain medical costs. The ACA significantly impacts the medical device industry.
Among other things, the ACA:
● Imposes an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, which, through a series of legislative amendments, was suspended, effective January 1, 2016 and subsequently repealed altogether on December 20, 2019;
● Establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate and develop such research; and
● Implements Medicare payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.
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In addition, the ACA and
related healthcare reform laws, regulations and initiatives have significantly increased regulation of managed care plans and decreased
reimbursement under Medicare managed care. Moreover, to alleviate budget shortfalls, states have at times reduced or frozen payments to
Medicaid managed care plans. We cannot accurately predict the complete impact of these healthcare reform initiatives, but they could lead
to a decreased demand for medical devices and other outcomes that could adversely impact our business and financial results.
Some of the provisions of the ACA have yet to be fully implemented,
and certain provisions have been subject to judicial and Congressional challenges. For example, a case challenging the ACA’s requirement
that private insurers cover certain preventative services is currently pending before the U.S. District Court Judge for the Northern District
of Texas. In March 2023, the judge struck down this requirement with immediate nationwide effect on March 30, 2023, and, on appeal, in
June 2024 the U.S. Court of Appeals for the Fifth Circuit held, among other things, that the ACA’s requirement that group health
plans and health insurance issuers cover certain preventative services without cost-sharing is unconstitutional. The parties have petitioned
to appeal the case to the U.S. Supreme Court, which granted certiorari in January 2025. It is unclear when or how the Supreme Court will
rule or how this decision and appeal, subsequent decisions and appeals, and other efforts to challenge, repeal or replace the ACA, or
portions thereof, will affect our future products or our business. It is possible that the ACA, as currently enacted or as it may be amended
in the future, and other healthcare reform measures that may be adopted in the future, could have an adverse effect on our industry generally
and on our ability to commercialize our future products and achieve profitability. It is unclear how any such challenges and the healthcare
reform efforts of the second Trump administration will impact ACA and our business. The implementation of new health care legislation
could result in significant changes to the health care system, which could have a material adverse effect on our business, results of
operations, financial condition and growth prospects.
Disruptions at the FDA and other government
agencies caused by funding or staffing shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership
and other personnel, or otherwise prevent new or modified products from being developed, cleared or approved or commercialized in a timely
manner or at all, which could negatively impact our business.
The ability of the FDA to
review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory,
regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other
events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated
in recent years as a result. In addition, government funding of other government agencies that fund research and development activities
is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and
other agencies may also slow the time necessary for new medical devices or modifications to cleared or approved medical devices to be
reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several
years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory
agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to
the COVID-19 pandemic, beginning in March 2020, the FDA postponed certain inspections of domestic and foreign manufacturing facilities.
Since that time, the FDA has resumed on-site inspections of domestic and foreign manufacturing facilities; however, regulatory authorities
within or outside the United States may adopt or resume similar restrictions or other policy measures in response to the COVID-19 pandemic
or other global health concerns. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or
other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly
impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have
a material adverse effect on our business.
The current Trump administration
has implemented policies that may affect the FDA, including its review process, such as efforts to downsize the federal workforce, remove
job elimination protections for federal workers, limit certain communications, and potentially interfere with user fee reauthorization.
If political considerations or global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections,
reviews or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory
submissions, which could have a material adverse effect on our business. In addition, funding of other government agencies that support
research and development activities that pertain to FDA review, such as research to understand new technologies or establish new standards,
is subject to the political process, which is inherently fluid and unpredictable.
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Risks Related to Employee Matters
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.
Our employment agreements
generally include covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly
with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions
in which our employees work at all or for a sufficient duration of time to prevent members of our management team from competing with
us. Israeli courts have required employers seeking to enforce covenants not to compete to demonstrate that the competitive activities
of a former employee will harm one of a limited number of material interests of the employer, such as the secrecy of a company’s
confidential commercial information or the protection of its intellectual property. In Israel, if we cannot demonstrate that such an interest
will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants
and our competitiveness may be diminished, and in the U.S., these regulatory changes may have similar effects, thus creating uncertainty
regarding the proposed regulation and its effects on preserving our competitiveness.
We may not be able to attract and retain
the highly skilled employees we need to support our planned growth.
To continue to execute our
business and our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense. We may
not be successful in attracting and retaining qualified personnel. If we fail to attract new personnel or fail to retain and motivate
our current personnel, our business, financial condition, results of operations and future growth prospects could be severely harmed.
Failure to comply with employment and labor
laws and regulations could materially and adversely affect our business, financial condition, and results of operations.
We are subject to a variety
of federal and state employment and labor laws and regulations and other laws related to working conditions, wage-hour pay,
over-time pay, employee benefits, anti-discrimination, and termination of employment. Noncompliance with applicable laws or regulations
could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties,
or injunctions. An adverse outcome in any such litigation could require us to pay contractual damages, compensatory damages, punitive
damages, attorneys’ fees and costs. Claims, enforcement actions, or other proceedings could harm our reputation, business, financial
condition and results of operations. We could be materially and adversely affected by any such litigation. In addition, responding to
any action will likely result in a significant diversion of management’s attention and resources and an increase in professional
fees.
Risks Related to Owning Our Ordinary Shares
Our share price may be volatile, and you
may lose all or part of your investment.
The market price for our
shares may be volatile and subject to wide fluctuations in response to factors including the following:
● actual or anticipated fluctuations in results of operations;
● actual or anticipated changes in our growth rate relative to our competitors, as well as announcements by us or our competitors of significant business developments, changes in relationships with our target customers, manufacturers or suppliers, acquisitions or expansion plans;
● failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public, as well as variance in our financial performance from the expectations of market analysts;
● issuance of new or updated research reports or short reports by securities analysts or other market participants;
● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
● additions or departures of key management or other personnel;
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● our involvement in claims, litigation and investigations;
● disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technology;
● announcement or expectation of additional debt or equity financing efforts;
● sales of our ordinary shares or other securities by us, our insiders or our other shareholders, or the perception that these sales may occur in the future;
● the trading volume of our ordinary shares;
● market conditions in our industry;
● changes in the estimation of the future size and growth rate of our markets; and
● general economic, market or political conditions in the United States or elsewhere.
In particular, the market
prices of pre-commercial-stage companies like ours have been highly volatile due to factors, including, but not limited to:
● our ability to develop and commercialize our technology and future products or services;
● developments or disputes concerning our product’s intellectual property rights;
● our or our competitors’ technological innovations;
● fluctuations in the valuation of companies perceived by investors to be comparable to us;
● announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies or patents;
● failure to complete significant transactions or collaborate with vendors in manufacturing our product; and
● proposals for legislation that would place restrictions on the price of medical therapies.
These and other market and
industry factors may cause the market price and demand for our ordinary shares to fluctuate substantially, regardless of our actual operating
performance, which may limit or prevent investors from readily selling their ordinary shares and may otherwise negatively affect the liquidity
of our ordinary shares. In addition, the stock market in general, and Nasdaq Global Market and emerging growth companies in particular,
have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of these companies. Such broad market fluctuations, and other factors (such as variations in quarterly and yearly operating results, general
trends in the medical imaging industry, and changes in state, federal or other applicable regulations affecting us and our industry) may
adversely affect the market price of our ordinary shares, if a market for them develops.
In the past, when the market
price of shares has been volatile, holders of those shares have instituted securities class action litigation against the company that
issued the shares. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such
a lawsuit could also divert resources and the time and attention of our management.
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As a foreign private issuer, we are exempt
from certain requirements that apply to domestic issuers and we are permitted to follow certain home country corporate governance practices
instead of applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to shareholders under rules applicable
to domestic issuers.
We report under the Exchange Act as a non-U.S. company with foreign
private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of
the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the
solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the section of the
Exchange Act requiring liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange
Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information,
although we intend to furnish comparable quarterly information on Form 6-K. In addition, foreign private issuers are not required to file
their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers
are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that
are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign
private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material
information.
In addition, as a foreign
private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under
the listing rules of the Nasdaq Stock Market for domestic issuers. For instance, we follow home country practice in Israel with regard
to, among other things, the director nomination procedure, approval of compensation of officers, and quorum at shareholder meetings. In
addition, we follow our home country law, instead of the listing rules of the Nasdaq Stock Market, which require that we obtain shareholder
approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance
that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20%
or more interest in the company and certain acquisitions of the stock or assets of another company. As foreign private issuer we are also
permitted to follow home country practice in Israel with regard to composition of the board of directors.
As a result of all of the
above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.
We may lose our foreign private issuer status
which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal,
accounting and other expenses.
As discussed above, we are
a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements
of the Exchange Act applicable to U.S. domestic issuers. We will remain a foreign private issuer until our board determines that we no
longer meet the qualification set forth in Securities Act Rule 405 and Exchange Act Rule 3b-4, with such determinations to be made on
an annual basis as of the end of our second fiscal quarter. In order to maintain our current status as a foreign private issuer, either
(a) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a
majority of our executive officers or directors must not be U.S. citizens or residents, (ii) more than 50 percent of our assets cannot
be located in the United States and (iii) our business must be administered principally outside the United States. If we lose this
status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which
are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate
governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities
laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than
the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase
our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were
required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for
us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members
of our board of directors.
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We have not paid dividends in the past and
have no immediate plans to pay dividends.
We plan to reinvest all of
our future earnings, to the extent we have earnings, in order to develop and commercialize our technology and products and to cover operating
costs, finance operations and to otherwise become and remain competitive. We have never declared or paid any dividends on our ordinary
shares and we do not plan to pay any cash dividends with respect to our securities in the foreseeable future. As we are an initial launch-stage
company with limited operating history, we may not be able to generate, at any time, sufficient surplus cash that would be available for
distribution to the holders of our ordinary shares as a dividend. Therefore, you should not expect to receive cash dividends on the ordinary
shares we are offering. Consequently, investors may need to rely on sales of their ordinary shares after price appreciation, which may
never occur, as the only way to realize any future gains on their investment. In addition, the Companies Law imposes restrictions on our
ability to declare and pay dividends. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend
Policy” for additional information. Payment of dividends may also be subject to Israeli withholding taxes. See “Item “10.
Additional Information—E. Taxation—Taxation of Our Shareholders—Dividends” for additional information.
We incur significant increased costs as
a result of operating as a public company that reports to the SEC and our management is required to devote substantial time to meet compliance
obligations.
As a public company reporting
to the SEC, we incur significant legal, insurance, director compensation, accounting and other expenses that we did not incur as a private
company. We are subject to reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, as well as rules subsequently implemented
by the SEC that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure
and financial controls and changes in corporate governance practices. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) imposes various other requirements on public companies. There are significant corporate governance
and executive compensation-related provisions in the Dodd-Frank Act that may increase our legal and financial compliance costs, make some
activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Our management
and other personnel may need to devote a substantial amount of time to these compliance initiatives. In addition, 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 accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a
result, it may be more difficult and expensive for us to attract and retain qualified people to serve on our board of directors, our board
committees or as executive officers.
We also incur costs associated
with corporate governance requirements, including requirements under rules implemented by the SEC and the Nasdaq Global Market, and provisions
of Israeli corporate law applicable to public companies. These rules and regulations have and will continue to increase our legal and
financial compliance costs, introduce costs such as investor relations and stock exchange listing fees, and make some activities more
time-consuming and costly. Our board and other personnel continue to devote a substantial amount of time to these initiatives. To the
extent we are not in compliance with the Companies Law or Nasdaq Global Market rules, we may be subject to additional costs or delisting.
We are continuously evaluating and monitoring developments with respect to these rules, and we cannot estimate the amount of additional
costs we may incur or the timing of such costs.
We have incurred and expect
to continue to incur additional expenses and devote increased management effort toward ensuring compliance with the auditor attestation
requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder) because we no longer qualify
as an “emerging growth company.” We cannot estimate the amount of additional costs we may incur as a result of being a public
company or the timing of such costs.
Pursuant to Section 404 of
the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, our management is required
to report on the effectiveness of our internal control over financial reporting. To maintain the effectiveness of our disclosure controls
and procedures and our internal control over financial reporting, we expect that we will need to continue enhancing existing, and implement
new, financial reporting and management systems, procedures and controls to manage our business effectively and support our growth in
the future. The process of evaluating our internal control over financial reporting requires an investment of substantial time and resources,
including by our Chief Financial Officer and other members of our senior management. As a result, this process may divert internal resources
and take a significant amount of time and effort to complete. In addition, as we no longer qualify as an “emerging growth company”
under the JOBS Act, our independent registered public accounting firm must attest to the effectiveness of our internal control over financial
reporting under Section 404. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse
effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses,
as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of
the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than
anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse
opinion on internal controls from our independent auditors.
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Shares eligible for future sale may adversely
affect the market for our ordinary shares and the issuance of additional ordinary shares as a result of the exercise of our outstanding
warrants and options will dilute the percentage ownership of our other shareholders.
From time to time, certain of our shareholders are eligible to sell
all or some of their ordinary shares by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated
under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate shareholders may sell freely
after six months subject only to the current public information requirement (which disappears after one year). Of the 69,590,228
ordinary shares outstanding as of December 31, 2025, approximately 68,686,070 ordinary shares have been registered under the Securities
Act and are freely transferable by persons other than our “affiliates” without restriction or additional registration; the
remaining shares outstanding have not been registered under the Securities Act and may be offered or sold only pursuant to an effective
registration statement or pursuant to an available exemption from the registration requirements. As of December 31, 2025, approximately
69,380,548 of our ordinary shares were held by “non-affiliates” and are freely tradable without restriction pursuant
to Rule 144. Any substantial sale of our ordinary shares pursuant to Rule 144 or pursuant to any resale prospectus may have a material
adverse effect on the market price of our ordinary shares.
In addition, as of December
31, 2025, there was one outstanding warrant to purchase a total of 2,142,858 ordinary shares, with exercise prices of $19.00 per share.
As of December 31, 2025, there were 4,282,546 ordinary shares issuable upon the exercise of options to purchase ordinary shares outstanding
under our 2019 Equity Incentive Plan (as defined below), at a weighted average exercise price of $14.88 per share, 140,629 outstanding
restricted share units (“RSUs”), and 3,141,938 additional ordinary shares reserved for future issuance under our 2019 Equity
Incentive Plan. The warrant is exercisable immediately and will expire on July 26, 2028. More convertible securities may be granted in
the future to the Company’s officers, directors, employees or consultants or as part of future financings. The exercise of outstanding
options and warrants will dilute the percentage ownership of the Company’s other shareholders.
The purchase price of the ordinary shares
may not reflect our actual value.
The price of our ordinary
shares may not be indicative of our actual value or any future market price for our securities. This price may not accurately reflect
the value of the ordinary shares or the value that potential investors will realize upon their disposition of ordinary shares. The price
does not necessarily bear any relationship to our assets, earnings, book value per share or other generally accepted criteria of value.
If equity research analysts
discontinue research or reports about us or our business or if they issue unfavorable commentary or downgrade our ordinary shares, or
if other market participants such as short sellers issue unfavorable reports about us, the price of our ordinary shares could decline.
The trading market for our
ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. The analysts’
estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are
below the estimates or expectations of public market analysts and investors, the price of our ordinary shares could decline. Moreover,
the price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue
other unfavorable commentary or cease publishing reports about us or our business.
Our management conducted an evaluation of
the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was
effective as of December 31, 2025. If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial
and other public reporting, which would harm our business and the trading price of our ordinary shares.
Effective internal controls
over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and
procedures are designed to prevent fraud. Our management is required to assess the effectiveness of our internal controls and procedures
and disclose changes in these controls on an annual basis and our independent registered public accounting firm is required to attest
to the effectiveness of our internal controls over financial reporting pursuant to Section 404.
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Any failure to implement
required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or
that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our ordinary shares.
Our management conducted
an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial
reporting was effective as of December 31, 2025.
The process of determining
whether our existing internal controls are compliant with Section 404 and sufficiently effective will require the investment of substantial
time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may
divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of
this process and whether we will need to implement remedial actions in order to implement effective controls over financial reporting.
The determination of whether or not our internal controls are sufficient and any remedial actions required could result in us incurring
additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404,
any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation.
As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after
the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial
reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial
reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors.
Furthermore, if we are unable
to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may be subject to sanctions
or investigations by regulatory authorities, such as the SEC or stock exchanges, and we could lose investor confidence in the accuracy
and completeness of our financial reports, which could hurt our business, the price of our ordinary shares and our ability to access the
capital markets.
We may be classified as a passive foreign
investment company (“PFIC”) for U.S. federal income tax purposes for our taxable year ended December 31, 2025, and possibly
for the current taxable year and future taxable years, which could result in adverse U.S. federal income tax consequences to U.S. Holders
of our ordinary shares.
A non-U.S. corporation will
be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year consists of certain types of passive income;
or (2) at least 50% of the value of its assets (generally determined based on an average of the quarterly values of the assets) during
such year is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, cash
and assets readily convertible into cash are categorized as passive assets and our goodwill and other unbooked intangibles will generally
be taken into account in determining our asset value.
A non-U.S. corporation’s
PFIC status is a factual determination made annually after the close of each taxable year. Because the PFIC income test described above
is based on a non-U.S. corporation’s gross income and not its net income, a non-U.S. corporation in the early stages of its business,
such as our company, can be treated as a PFIC in those taxable years before it has sufficient operating revenue as a result of earning
any amount of interest or other passive income. As a result, we believe that we may technically be classified as a PFIC for the taxable
year ended December 31, 2025. Depending upon the composition of our income and assets and the market price of our ordinary shares during
2026 and subsequent taxable years and whether we start generating a substantial amount of active revenue, we could continue to be classified
as a PFIC for 2026 and subsequent taxable years if we are classified as a PFIC for 2025. In addition, it is possible that any subsidiary
that we own would also be classified as a PFIC for such taxable years.
If we were classified as
a PFIC for any taxable year during which a U.S. Holder (as defined below) holds our ordinary shares, certain adverse U.S. federal income
tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income
Tax Considerations.”
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Risks Related to Our Operations in Israel
Conditions in Israel, including in the
aftermath of Israel’s war with Hamas, Hezbollah, Iran and other terrorist organizations or terror-supporting governments in the
Middle East, and political and economic instability in the region, may adversely affect our operations and limit our ability to market
our products, which would lead to a decrease in revenues.
We are incorporated under
Israeli law, and many of our employees and senior members of our management team, operate from our headquarters located in Israel. In
addition, most of our officers and directors are residents of Israel. Accordingly, our business and operations are directly affected by
economic, political, geopolitical, and military conditions in Israel.
Since the establishment of
the State of Israel in 1948 and in recent years, armed conflicts between Israel and its neighboring countries and terrorist organizations
active in the region have involved missile strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel,
and recently abduction of soldiers and citizens.
Following the October 7, 2023 attacks by Hamas, Israel declared that
it is in war against Hamas, leading to military conflicts with Hamas, Hezbollah and Iran (both directly and through proxies). Despite
some ceasefire agreements, military activity and hostilities continue varying levels of intensity. At the same time, in June 2025, Israel
launched a major military strike against Iran, resulting in a twelve-day armed conflict (the “Twelve-Day War”) that also involved
direct U.S. airstrikes on Iranian nuclear facilities. A ceasefire was reached on June 24, 2025, however Hezbollah has now rejoined hostilities
in connection with the military operations conducted against Iran.. In late February 2026, the United States and Israel launched significant
military operations against Iran, and Iran responded with retaliatory missile and drone attacks on Israel, U.S. military assets and Gulf
states, including the United Arab Emirates, Saudi Arabia, Qatar, Kuwait and Bahrain. This conflict has caused significant casualties in
the region, disrupted commercial air travel, damaged critical infrastructure, and effectively suspended shipping through the Strait of
Hormuz. The duration and ultimate scope of this conflict remain highly uncertain. A prolonged or expanding conflict could result in sustained
disruptions to regional and global economic conditions, continued volatility in energy markets and further deterioration of commercial
and financial activity across the Middle East and globally. Any or all of these situations may potentially escalate in the future to more
violent events which may affect Israel and us.
While our facilities have
not been damaged during the current conflicts, ongoing hostilities have caused and may continue to cause damage to private and public
facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupting our operations and supply chains. In
addition, Israeli organizations, government agencies and companies have been subject to extensive cyber-attacks. These factors could lead
to increased costs, risks to employee safety, and challenges to business continuity, with potential financial losses.
The continuation of the conflict
has led to a deterioration of certain indicators of Israel’s economic standing, for instance, credit rating actions or outlook changes
by international rating agencies.
As a result of the war and
related regional military developments, a small number of our employees were called by Israel for military service, and such persons were
unavailable for extended periods of time. Our operations were generally not disrupted by such absence.
Currently, our activities
in Israel remain largely unaffected, and we maintain business continuity plans backed by our inventory levels located outside of Israel.
As of the date of this annual report, the impact of the recent war and its aftermath on our results of operations and financial condition
is not material, but such impact may increase, and could become material, as a result of the restarting of the war, in light of the tense
regional environment and the activities of Iran and its terrorist proxies to rebuild their capabilities to attack Israel.
Our commercial insurance
does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently
covers the reinstatement value of certain direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that
such government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by
us could have a material adverse effect on our business.
The global perception of
Israel and Israeli companies, influenced by international judicial bodies and geopolitical events, may lead to increased sanctions and
other negative measures against Israel, as well as Israeli companies and academic institutions. There is also a growing movement among
countries, activists, and organizations to boycott Israeli goods, services and academic research or restrict business with Israel, which
could affect business operations. If these efforts become widespread, along with any future rulings from international tribunals against
Israel, they could significantly and negatively impact business operations.
Prior to the October 2023
war, the Israeli government pursued changes to Israel’s judicial system and has recently renewed its efforts to effect such changes.
As of early 2026, several pieces of legislation aimed at restructuring the judicial selection committee and re-regulating the civil service
have advanced in the Knesset. These developments have raised concerns that such proposed changes may negatively impact the business environment
in Israel and could lead to political instability or civil unrest. If such changes are pursued and approved, this may have an adverse
effect on our business, results of operations, and ability to raise additional funds. In addition, Israel’s election cycle (or
the possibility of early elections) may contribute to governmental inconsistency, policy uncertainty and civil unrest, any of which could
adversely affect our operations and the Israeli business environment.
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The termination or reduction of tax and
other incentives that the Israeli government provides to Israeli companies may increase our costs and taxes.
The Israeli government currently
provides tax and capital investment incentives to Israeli companies, as well as grant and loan programs relating to research and development
and marketing and export activities (see “Item 10. Additional Information—E. Taxation—Israeli Tax Considerations and
Government Programs”). In recent years, the Israeli government has reduced the benefits available under these programs and the Israeli
governmental authorities may in the future further reduce or eliminate the benefits of these programs. We may take advantage of these
benefits and programs in the future; however, there can be no assurance that such benefits and programs will be available to us. If we
qualify for such benefits and programs and fail to meet the conditions thereof, the benefits could be canceled and we could be required
to refund any benefits we might already have enjoyed and become subject to penalties. Additionally, if we qualify for such benefits and
programs and they are subsequently terminated or reduced, it could have an adverse effect on our financial condition and results of operations.
It may be difficult to enforce a U.S. judgment
against us, our officers and directors named in this annual report on Form 20-F in Israel or the United States, or to assert U.S. securities
laws claims in Israel or serve process on our officers and directors.
We are incorporated in Israel.
Many of our directors and officers are not residents of the United States and a significant portion of their and our assets are located
outside the United States. Service of process upon us or our non-U.S. resident directors and officers may be difficult to obtain within
the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities
laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities
laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our directors and officers
because Israel may not be the most appropriate forum 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 proved as a fact, 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 addressing the matters described above. Additionally, Israeli courts might
not enforce judgments obtained in the United States against us or our directors and officers, which may make it difficult to collect on
judgments rendered against us or our directors and officers.
Moreover, an Israeli court
will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli
courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if
it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same
matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel
at the time the foreign action was brought.
Your rights and responsibilities as our
shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of
U.S. corporations.
We are incorporated under
Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our amended and restated articles of association
and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in typical U.S. corporations. In particular, pursuant to the Companies Law, each shareholder of an Israeli company has to act in good
faith and in a customary manner in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders
on amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and certain
transactions requiring shareholders’ approval under the Companies Law. In addition, under Israeli law, a controlling shareholder
of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has
the power to appoint or prevent the appointment of a director or officer in the company or has other powers toward the company has a duty
of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is little case law
available in Israel to assist in understanding the implications of these provisions that govern shareholder behavior.
Our amended and restated articles of association
contain exclusive forum provisions for certain claims, which could limit our shareholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers or employees.
Our amended and restated
articles of association provides that the federal district courts of the United States of America will, to the fullest extent permitted
by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal
Forum Provision”). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware
holding that such provisions are facially valid under Delaware law. While there can be no assurance that U.S. federal or state courts
or Israeli courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced
in a particular case, application of the Federal Forum Provision means that suits brought by our shareholders to enforce any duty or liability
created by the Securities Act must be brought in federal court and cannot be brought in state court. Section 27 of the Exchange Act creates
exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder and the Federal Forum Provision does not apply to suits brought to enforce any duty or liability created by the Exchange Act.
Accordingly, actions by our shareholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder
must also be brought in federal court. Our shareholders will not be deemed to have waived our compliance with the federal securities laws
and the regulations promulgated thereunder.
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Any person or entity purchasing
or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to the Federal
Forum Provision. This provision may limit our shareholders’ ability to bring a claim in a judicial forum they find favorable for
disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and
other employees. Alternatively, if a court were to find the Federal Forum Provision contained in our amended and restated articles of
association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could harm our business, operating results and financial condition.
Provisions of our amended and restated articles
of association and Israeli law and tax considerations may delay, prevent or make difficult an acquisition of us, which could prevent a
change of control and negatively affect the price of our ordinary shares.
Israeli corporate law regulates
mergers, requires tender offers for acquisitions of shares if such acquisitions cause the acquirer to hold more than specified thresholds,
requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters
that may be relevant to these types of transactions. For example, under Israeli law, a merger may not be consummated unless at least 50
days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at
least 30 days have passed from the date that the shareholders of both merging companies approved the merger.
Furthermore, Israeli tax
considerations may make potential transactions unappealing to us or to our shareholders, such as for those shareholders whose country
of residence for tax purposes does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example, Israeli
tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows
for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in
some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating
companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited
in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. In order to benefit from
the tax deferral, a pre-ruling from the Israel Tax Authority may be required.
These provisions of Israeli
law and Israeli tax laws may delay, prevent or make difficult a merger with, or an acquisition of us, or all or a significant portion
of our assets, which could prevent a change of control and may make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our shareholders. These provisions may limit the price that investors may be willing to pay in the future for our
ordinary shares and therefore depress the price of our shares.
Our amended and restated
articles of association provide that our directors (other than external directors) are elected on a staggered basis, such that a potential
acquirer cannot readily replace our entire board of directors at a single annual general shareholder meeting.