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A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
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D. Risk Factors
You should carefully consider the risks we describe below,
in addition to the other information set forth elsewhere in this Annual Report, including our financial statements and the related notes
beginning on page F-1. The risks and uncertainties described below in this Annual Report on Form 20-F for the year ended December 31,
2025 are not the only risks we face. We may face additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial. Any of the risks described below or incorporated by reference in this Form 20-F, and any such additional risks, could
materially adversely affect our reputation, business, financial condition or results of operations.
Summary of Risk Factors
The following is a summary of some of the principal risks we face. The list
below is not exhaustive, and investors should read this “Risk Factors” section in full.
Business, Economic and Industry risks
● Our success depends on Deep TMS as a safe treatment option for patients, as well as market perception and acceptance of TMS generally.
● Our long-term growth depends on our ability to increase market penetration and further commercialize Deep TMS, as well as develop enhancements and features to the Deep TMS system through our research and development efforts and obtain regulatory clearances for additional indications, products and/or labeling expansions. If we fail to do so, we may be unable to achieve future growth.
● We operate in a very competitive environment and if we are unable to compete successfully against our existing or potential competitors, our revenues and operating results may be negatively affected.
● We are dependent on physicians and if we are unable to adequately train physicians and other treatment providers and operators or if they use the Deep TMS inadequately, we may be unable to achieve our expected growth.
● A significant portion of our revenues have been derived from a single customer. Material or significant loss of business from this customer could have an adverse effect on our business, financial condition and operating results.
● Failure to secure or maintain adequate coverage and reimbursement of our Deep TMS system for the currently authorized indications and other indications for which we obtain FDA authorization in the future, if any, including due to the availability of other, cheaper, methods of TMS treatment, may make physicians reluctant to use or recommend Deep TMS and have a material adverse effect on our sales, results of operations, and financial condition.
● We rely on third parties, including suppliers for some components used in manufacturing our Deep TMS products, distributors to market and promote our products internationally and third parties to conduct our clinical trials, which exposes us to uncertainty and instability.
● Clinical trials involve a lengthy and expensive process with an uncertain outcome, which may delay or cause us to abandon the development of Deep TMS for additional indications.
● Our collaboration arrangements may not be successful, which could adversely affect our ability to develop and commercialize our products.
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● We bear the risk of product liability, intellectual property, employment, and other lawsuits, as well as the risk of warranty, privacy, promotional and various other claims which might harm our business, may not be covered by our insurance policies or may exceed our insurance policy coverage, and we may not have enough funds to cover such claims or lawsuits damages.
● Our operations could be affected in the event of further geopolitical instability, war, supply chain disruptions, unfavorable market or political conditions, global pandemic or other outbreaks or other negative global trends or disruptions.
● Our reliance on the use of technology may adversely affect our business if we become subject to cyber-terrorism or other compromises and shut-downs or if we experience significant disruptions in our information technology systems, and security and privacy breaches may expose us to liability and harm our reputation and business.
● We may seek to grow our business through acquisitions or investments in new or complementary businesses, products or technologies, and/or through the licensing of products or technologies from third parties. The failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could harm our business.
Financial Condition and Capital Requirement Risks
● We have a history of operating losses. Although during the years ended December 31, 2024 and 2025 we achieved an operating profit, we may incur losses in the future and no longer be profitable and we cannot ensure that our existing capital will be sufficient to meet our capital requirements.
Risks related to our Neurolief and Management Service
Organizations (MSOs) Transactions and Holdings
● To the extent our due diligence procedures in an investment target do not result in our timely identification of a material deficiency or if certain events beyond our control occur, we may be required to subsequently take write-downs or write-offs, restructuring actions, and/or apply impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price.
● We hold minority stakes in the MSOs, limiting our ability to control their operations and actions, exposing us to the results of actions taken by the MSOs’ managements.
● MSOs are subject to complex regulatory requirements, and a potential violation of such regulation, including corporate practice of medicine (CPOM) regulation, may risk the value of our investment.
Government Regulatory Risks
● Our products 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 or to obtain and/or maintain needed clearances could harm our business.
● Our products must be manufactured in accordance with any applicable federal, state and/or foreign regulations, and we could be forced to recall our installed systems or terminate production if we fail to comply with these regulations.
● If treatment guidelines for the clinical conditions we are targeting change or the standard of care evolves, we may need to redesign and seek new marketing authorizations from the FDA for one or more of our products.
● The misuse or off-label use of Deep TMS 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, particularly if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
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● Deep TMS may cause or contribute to adverse medical events 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.
● If we or our distributors do not obtain and maintain international regulatory registrations or approvals for Deep TMS, we will be unable to market and sell our products outside of the United States.
● We are subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business.
● Healthcare policy changes, including legislation reforming the U.S. healthcare system, could harm our cash flows, financial condition, and results of operations.
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Intellectual Property Risks
● We depend on our intellectual property, and our future success is dependent on our ability to protect our intellectual property and not infringe on the rights of others.
● The duration of our patent rights may not be sufficient to effectively protect our products and business.
● Our right to the essential intellectual property upon which the Deep TMS technology is based derives from in-license agreements with government agencies and research institutions, the termination of which would prevent us from commercializing Deep TMS.
● The license agreements for our critical patents and related intellectual property impose significant monetary obligations and other requirements on us that may adversely affect our ability to successfully execute our business plan.
● The key patents that underlie Deep TMS technology are subject to the U.S. government’s royalty free usage rights on a worldwide basis for any discovery based on such patents, which may have unexpected, adverse consequences on the market for our product.
● If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
● Legal proceedings or third-party claims of intellectual property infringement and other challenges, whether with or without merit, may require us to spend substantial time and money and could prevent us from developing or commercializing Deep TMS.
Foreign Country Risks
● The Israeli government grants that we received require us to meet several conditions, may restrict our ability to manufacture our Deep TMS systems and transfer relevant know-how outside of Israel and require us to pay royalties, including increased royalties if we manufacture our Deep TMS systems outside of Israel or payment of a redemption fee if we transfer relevant know-how outside of Israel.
● We have manufacturing, assembly and other significant functions that are located in Israel and, therefore, our business and operations may be adversely affected by political, economic and military conditions in Israel.
● Exchange rate fluctuations between the U.S. dollar, the New Israeli Shekel and other foreign currencies may negatively affect our future results of operations.
● The price of our American Depositary Shares, or ADSs, may be volatile and may fluctuate due to factors beyond our control.
● The significant share ownership position of several of our officers, directors, and entities affiliated with certain of our directors, including Valor, may limit your ability to influence corporate matters.
Risks Related to our Financial Condition
and Capital Requirements
We have a history of operating losses. Although during
the years ended December 31, 2024 and 2025 we achieved an operating profit, we may incur losses in the future and no longer be profitable
and we cannot ensure that our existing capital will be sufficient to meet our capital requirements.
We have reached a net income of $2.9 million for the year ended December 31, 2024 and a net income of $7.5 million for the year ended December 31, 2025, but experienced net losses from our inception through (and including) the year ending December 31, 2023, largely reflecting research and development, general and administrative expenses, and sales and marketing expenses. As a result of these historical losses, as of December 31, 2025, we had an accumulated deficit of $90.8 million. While we have sold and leased Deep TMS systems and/or installed Deep TMS Systems under revenue generating pay-per-use models in various markets over the last few years, we may continue to incur significant sales and marketing, research and development, product development, regulatory and other expenses as we continue to pursue our commercialization efforts to increase adoption of Deep TMS and expand existing relationships with our
customers, to obtain regulatory clearances or approvals for Deep TMS in additional countries and for additional or broader indications, and to develop new enhancements or features to our existing Deep TMS systems. These expenses, along with potential declines in our revenues, may cause us to once again incur operating losses in the future. The net losses we may incur may fluctuate significantly from period to period. We will need to continue to generate additional revenues and to carefully manage our expenses to sustain profitability on an annual basis, and even if we continue to achieve profitability for a certain period, we cannot be sure that we will remain profitable for any substantial period of time. A failure to maintain profitability on an annual basis, or achieve profitability should we incur operating losses in the future, could negatively impact the value of our shares.
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We believe that our existing capital and other sources
of liquidity will be sufficient to meet our capital requirements. To date we have funded our operations primarily through offerings of
our securities, through research and development grants from the Israel Innovation Authority and other sources, and through sales and
leases of our Deep TMS systems as well as revenue generated through pay-per-use models on certain installed systems and services provided
to our customers. We expect to continue generating revenues primarily through sales, leases, pay-per-use fees, service fees and other
potential income generated by the commercial distribution of Deep TMS systems for approved indications.
The adequacy of our available funds to meet our operating
and capital requirements will depend on many factors, including our ability to achieve revenue growth and maintain favorable operating
margins; our ability to increase the market share of Deep TMS and expand our operations and offerings, including our sales and marketing
efforts; the cost, progress and results of our future research, product development and clinical programs for additional enhancements
to Deep TMS and future indications for our systems; the costs and timing of obtaining regulatory approvals for future indications or expanded
labeling for existing indications of Deep TMS; our ability to improve or maintain coverage and reimbursement arrangements with third-party
and government payors; the terms and conditions of commercial agreements for marketing and distribution of Deep TMS; the commercial success
of products and services offered by target companies into which we have made investments; the effect of competing technological and market
developments; and costs incurred in enforcing and defending certain of the patents and other intellectual property rights upon which our
technologies are based, to the extent such rights are breached or challenged.
On November 5, 2024, we consummated a private placement of
2,103,745 ADSs and warrants to purchase 1,500,000 ADSs to Valor BrainsWay Holdings, LLC, or Valor, for aggregate immediate gross proceeds
of approximately $20 million. We cannot be certain that in the future alternative financing sources will be available to us at such times
or in the amounts we need or whether we can negotiate commercially reasonable terms or at all, or that our actual cash requirements will
not be greater than anticipated. Any issuance of additional equity or equity-linked securities could be dilutive to our existing shareholders,
and any new equity securities could have rights, preferences, and privileges superior to those of holders of the Ordinary Shares or ADSs.
For example, in connection with the private placement to Valor, we amended our Articles of Association to provide Valor the right to designate
for nomination one or two members to our Board of Directors, depending on the percentage of their holdings. Moreover, future debt financing,
if available, may involve covenants restricting our operations or our ability to incur additional debt, pay dividends, repurchase our
shares, make investments and engage in merger, consolidation, or asset sale transactions. If we are unable to obtain future financing
through the methods we described above or through other means, our business may be materially impaired and we may be unable to complete
our business objectives and may be required to cease operations, curtail one or more product development or commercialization programs,
significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors, or liquidate all
our assets.
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Risks Related to our Business and Industry
Our success depends on Deep TMS as a safe treatment option for patients, as well
as market perception and acceptance of TMS generally.
Our business currently depends entirely on the success of
Deep TMS, our proprietary TMS solution. TMS is an emerging treatment option for patients. As a result, physician and patient awareness
of TMS therapy as a treatment option for applicable brain disorders, and experience with TMS therapies, is limited. Because the market
for TMS therapy is still developing and contains a limited number of market participants, sales of Deep TMS could be negatively impacted
by unfavorable market reactions to TMS generally, Deep TMS in particular, and/or negative developments in the industry.
If the use of our Deep TMS system or other TMS therapies
results in serious adverse events (e.g., seizures), or such products malfunction or are misused, patients and physicians may attribute
such negative events to TMS and/or Deep TMS, which may adversely affect market adoption of this form of therapy. Reported events may have
a negative effect on market perception of the effectiveness of Deep TMS. In addition, if patients undergoing treatment with any available
TMS solutions perceive the benefits to be inadequate or the administration of TMS to be too burdensome or inconvenient, and/or if adverse
events and/or factors such as discomfort and noise with available TMS solutions are too numerous or severe compared to the relevant rates
of alternative therapies or pharmaceutical options, it will be difficult to demonstrate the value of Deep TMS to patients and physicians.
Moreover, psychiatrists may find it difficult or expensive to train existing employees and/or hire additional staff, allocate sufficient
space or operate our device given that psychiatry is a field not traditionally associated with medical equipment treatment options. As
a result of any one or a combination of these reasons, demand for and the use of Deep TMS may decline or may not increase at the pace
or to the levels we expect.
Even if TMS therapy is widely accepted by physicians and patients,
our success will depend in large part on our ability to educate and train physicians and patients, and to successfully demonstrate the
safety, tolerability, ease of use, efficacy, cost effectiveness and other advantages of Deep TMS. We continually engage in active marketing
campaigns and numerous promotional efforts to raise awareness of Deep TMS and its benefits, but we cannot be assured that these efforts
will be successful or that they will not prove to be too costly. Physicians may find patient set up and the subsequent procedures for
future treatment sessions to be difficult or complicated compared to competing treatment methods. Any of these factors could slow market
adoption of Deep TMS.
Our long-term growth
depends on our ability to increase market penetration and further commercialize Deep TMS, as well as develop enhancements and features
to the Deep TMS system through our research and development efforts. If we fail to do so, we may be unable to achieve future growth.
Our strategy depends on our ability to further commercialize
and increase market penetration of Deep TMS for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious
depression), OCD, and smoking addiction, develop and seek regulatory approvals of Deep TMS for new indications or for expanded labeling
of current authorized indications, and add new enhancements or features for the Deep TMS system. These goals are also designed to respond
to changing customer demands, competitive pressures, and technologies. Our industry is characterized by intense competition, including
from other existing treatment options, a growing number of Traditional TMS competitors, other competing stimulation products, rapid technological
changes, new product and treatment protocol introductions and enhancements, price competition, and evolving industry standards. It is
important that we anticipate changes in technology and market demand, as well as physician practices to successfully develop, obtain clearance
or approval, if required, and successfully introduce new, enhanced, and competitive technologies and treatment protocols to meet our prospective
customers’ needs on a timely and cost-effective basis.
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We might be unable to further commercialize Deep TMS for
approved indications or develop, obtain or maintain regulatory clearances or approvals to market Deep TMS for new indications, different
treatment protocols or expanded labeling for current indications, or to develop and obtain regulatory approvals for enhancements or new
features for the Deep TMS system. Furthermore, our clearances on existing indications could be jeopardized by increased regulatory requirements
in different territories. Additionally, Deep TMS for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious
depression), OCD, smoking addiction, and any future indications, even if cleared, might not be sufficiently accepted by physicians or
the third-party payors who reimburse for the procedures performed with our products. Potential customers may not qualify for credit arrangements
with us and/or our third party financing vendors. Likewise, we may be unable to devise pricing strategies that are attractive to customers,
and even when we do, our customers may not always have the financial resources to meet their contractual commitments, which can negatively
impact our ability to collect on open debts accrued by customers, especially in cases of default by larger customers and/or multi-system
orders. The success of any new or expanded indications, enhancements, features or treatment protocols for the Deep TMS system will depend
on numerous additional factors, including but not limited to, our ability to properly identify and anticipate clinician and patient needs;
demonstrate the benefits associated with the use of Deep TMS when compared to the products and devices of our competitors; demonstrate
the safety and efficacy of new or expanded indications and treatment protocols, and develop and obtain regulatory approvals or clearances
of Deep TMS for such indications, enhancements, features or treatment protocols, to the extent required; and to adequately protect our
intellectual property and avoid infringing upon the intellectual property rights of third parties.
If we do not develop and obtain regulatory clearances or approvals
for new or expanded indications, enhancements, upgrades, features or treatment protocols in time to meet market demand, or if there is
insufficient demand for these indications, enhancements, features or treatment protocols, our results of operations will suffer. Our research
and development efforts may require a substantial investment of time and resources before we are adequately able to determine the commercial
viability of a new indication for Deep TMS, any enhancements to the Deep TMS system or any other innovation. In addition, even if we are
able to develop enhancements or new features for our products, these enhancements or features may not produce sales in excess of the costs
of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products
embodying new technologies or enhancements or features.
Furthermore, we must carefully manage our introduction of
new indications. If potential customers believe such indications will be subject to additional future enhancements or features or may
become available at a more attractive price, they may delay purchases until such indications are available. Certain customers may also
expect automatic upgrades, or upgrades at rates which do not meet the rates initially planned by the Company. We may also have excess
or obsolete inventory as we upgrade to newer models of our products and/or transition to new indications, and we have limited experience
in managing product transitions.
We operate in a very
competitive environment and if we are unable to compete successfully against our existing or potential competitors, our revenues and operating
results may be negatively affected.
Our Deep TMS systems for MDD (including reduction of comorbid
anxiety symptoms, commonly referred to as anxious depression), OCD, smoking addiction, and any future indications are or will be subject
to intense competition. The industry in which we operate is subject to rapid change and is highly sensitive to the introduction of new
products or other market activities of current or new industry participants. Our ability to compete successfully will depend on our ability
to develop and obtain regulatory clearances or approvals of Deep TMS for indications that reach the market in a timely manner, to receive
adequate coverage and reimbursement from third- party payors, and to successfully demonstrate to physicians and patients the merits of
Deep TMS compared to the products of our competitors. If we are not successful in convincing others of the merits of Deep TMS or educating
them on the use of the Deep TMS system, they may not use our system or use them effectively and we may be unable to increase our revenues.
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Deep TMS competes with several existing Traditional TMS
competitors, including Neuronetics, Magventure, Neurocare (MAG & More), Cloud TMS, Magstim, Nexstim Yingchi, Sebers (Remed/Blossom),
Magnus Medical, NeuroQuore, AMPA, and BTL. Competing TMS therapy companies have developed or may develop treatments that have improved
efficacy when compared to our products or that require a less significant investment of resources from physicians. Likewise, psychiatrists
and other customers may not be able to easily compare Deep TMS to our focal TMS competitors given limited data from head-to-head studies
and marketing campaigns and tactics employed by competitors which may have access to greater resources than we do.
We also face competition from pharmaceutical and other
companies, many of which have greater resources than we do, that develop competitive products, such as anti- depressant medications (including
but not limited to a nasal spray utilizing the drug esketamine, which was approved in 2022 by the FDA for use in conjunction with an oral
antidepressant) and to a lesser degree, ECT, home-use alternatives such as transcranial direct current stimulation (TDCS) devices, prescription
digital therapeutics (PDTs), and other neuromodulation treatment options. Our commercial opportunity could be reduced or eliminated if
these competitors develop and commercialize anti- depressant medications or other treatments that are safer or more effective than Deep
TMS, or are offered at more competitive prices, are more easily administered to patients or are otherwise more attractive to our customers
and patients. At any time, these and other potential market entrants may develop treatment alternatives that may make Deep TMS less competitive.
Additional potential competition could be due to new devices developed by competitors that are cheaper and easier to administer, such
as the at-home devices manufactured by Flow Neuroscience, or by Neurolief (with which we entered into a set of investment agreements during
2025).
We also note that competition varies based on the indication,
and some of the indications we are advancing may face marketability challenges based on existing treatment options. For example, there
are a variety of smoking cessation products currently available on the market, including nicotine patch treatment. Electronic cigarettes,
or e- cigarettes, are also widely available substitutes for tobacco smoking. Deep TMS for smoking cessation may not be a marketable alternative
to these existing options, particularly to the extent smokers need to pay out-of-pocket given the unavailability of reimbursement for
this indication.
Our competitors may also develop and patent processes or products
earlier than we can or obtain domestic or international regulatory clearances or approvals for competing products or processes, including
treatment protocols, more rapidly than we can, which could impair our ability to develop and commercialize similar products. Furthermore,
our educational efforts to distinguish between Deep TMS and traditional TMS may not be sufficiently effective, and our competitors may
therefore succeed in obtaining regulatory pathways for their products based on our clinical data without having to invest in clinical
trials themselves. In addition, we compete with our competitors to engage the services of independent distributors outside the United
States, both those presently working with us and those with whom we hope to work as we expand.
Furthermore, our competitors may be seeking predicate FDA
approvals in various psychiatric and neurological indications, and TMS products of various companies are frequently used off-label, and
in certain circumstances, are marketed outside of the United States for other indications. Additionally, if either TMS competitors or
other medical device or pharmaceutical companies introduce new and disruptive products or forms of therapy, our market share may be reduced
and our financial performance and ability to compete may be significantly impacted. These competitors may have obtained or seek to obtain
expansions of existing clearances and indications before we do. For example, in March 2024, one of our competitors received clearance
from the FDA effectively expanding its existing MDD clearance to cover adolescent patients, while we received a similar clearance only
later, in November 2025.
Moreover, our relationships with large clinic networks, which
we rely on, can be jeopardized (and thus impact on our installed base and future assumed revenue streams) depending on developments with
these networks and/or by the deepening of relationships between these networks and our competitors, thus leading to potential financial
difficulties that may negatively affect our revenues. For example, we had to remove devices and pursue collections from a clinic network
with whom we have had a relationship after the network had accrued an outstanding debt. Moreover, any exclusivity or other commercial
arrangements between our competitors and large clinic networks we also work with may hinder the deployment of our Deep TMS systems in
such networks. We are further exposed to the risk that our competitors, some of whom have more financial resources than us, may enter
into exclusive relationships, acquire or merge with clinic networks, thereby strengthening the relationship between them and the clinic
network and making it more difficult for us to maintain a business relationship with such clinic networks. For example, in January 2023
GreenBrook TMS Inc., which owned approximately 95 treatment centers offering TMS therapy in the United States, entered into an exclusive
relationship with Neuronetics, Inc., one of our competitors. Thereafter, in December 2024, Neuronetics acquired all of the issued and
outstanding shares of Greenbrook. Furthermore, any financial instability of these networks can have an adverse effect on our revenues.
In addition, our competitors may be acquired by enterprises that have more established distribution networks than we do, thus gaining
an integral distribution advantage over us.
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We are dependent
on physicians and if we are unable to adequately train physicians and other treatment providers and operators or if they use the Deep
TMS inadequately, we may be unable to achieve our expected growth.
There is a learning process involved for treatment providers
to become proficient in the use of our Deep TMS systems, which requires us to spend considerable time and resources for training. It is
critical to the success of our commercialization efforts to train a sufficient number of physicians and to provide them with adequate,
ongoing instruction and training in the use of our Deep TMS systems. This training process generally requires physicians to review and
study product materials and engage in hands-on training sessions. This training process may also take longer than expected or be more
complicated than the physicians or their personnel are comfortable with and may therefore affect our ability to increase sales. Convincing
physicians to dedicate the time and energy necessary for adequate training is challenging, and we may not be successful in these efforts.
The use of our Deep TMS system to treat certain indications,
including OCD, requires a special procedure to provoke the patient to exhibit symptoms of their disorder while the patient is treated
with Deep TMS. This procedure requires special training and may make the treatment more difficult to apply than alternative treatments,
as the treatment must be tailored for the condition of each patient. As a result, this may lead to a variability of the overall results
and between patients, which could discourage use of Deep TMS for these indications. In addition, if patient treatment is not administered
properly, or if our customers experience difficulties using our systems, this could reduce customer satisfaction and adversely affect
our revenues and our operating results. In certain of our markets, including in Israel, our commercialization model can include deploying
“operators,” or technicians trained and supervised by the Company to operate our systems at customer sites. The added services
provided by these operators could potentially expose us to added risks, including the potential for claims by patients relating to safety,
treatment protocol administered, services provided, and other potential claims. To the extent not covered by insurance, these and other
related issues can cause us to incur significant expenses and losses which can negatively impact our financial results.
To the extent our customer physicians do not properly diagnose
or select appropriate patient candidates for Deep TMS treatment and/or utilize unprescribed protocols it could result in variability of
the treatment efficacy and results for the patient. Our ability to generate significant revenues from Deep TMS relies on physicians’
and patients’ satisfaction with the effectiveness of Deep TMS and if physicians or patients are not satisfied with the results of
Deep TMS, our reputation, and future results of operations may be adversely affected.
A significant portion of our revenues have been
derived from a single customer. Material or significant loss of business from this customer could have an adverse effect on our business,
financial condition and operating results.
During the year ended December 31, 2025, a significant
portion of our revenues were derived from contracts with a single customer, which is a large and growing enterprise account operating
mental health clinics in multiple states across the United States. Our revenue concentration increases our exposure to risks associated
with changes in the financial condition, purchasing patterns, or strategic priorities of this customer. The loss of this customer, a reduction
in purchases, changes in pricing, delays in payments, or an inability to renew or replace such revenue on comparable terms could adversely
affect our results of operations and increase our operating cash requirements.
As we have increased our marketing efforts directed at
large clinic networks or chains and enterprise accounts and on multi-unit sales, we expect our customer base to continue to be concentrated
and may depend on a small number of customers for a large portion of our business. Any material disruption in revenue from significant
customers could have an adverse effect on our financial condition and operating results. In addition, reliance on a limited number of
customers may reduce our negotiating leverage, which could have a material adverse effect on our margins and business, and expose us to
counterparty credit risk. See the section titled “Item 4. Information on the Company—B. Business Overview—Customers”.
We may be unable
to predict and/or manage our anticipated growth effectively, which could make it difficult to execute our business strategy and we may
even be unable to forecast our future growth accurately.
We intend to continue to grow our business operations and
may experience periods of rapid growth and expansion. This anticipated growth could create a strain on our organizational, administrative
and operational infrastructure, including our supply chain operations, quality control, technical support and customer service, sales
force management and general and financial administration. These risks increase as we expand into new countries, each entailing varied
and often time-consuming regulatory challenges and requirements. We may be unable to maintain the quality, regulatory infrastructure,
or delivery timelines of our products or customer service, or satisfy customer demand if our business grows too rapidly. Our ability to
manage our growth properly will require us to continue to improve our operational, financial and management controls, and our reporting
systems and procedures. We consistently strive to update various enterprise software systems in a number of areas affecting a broad range
of business processes and functional areas. The time and resources required to implement these new systems is uncertain and failure to
complete this in a timely and efficient manner could harm our business.
As our commercial operations and sales volume grow, we will
need to continue to increase our workflow capacity for our supply chain, regulatory expansion, customer service, training and education
personnel, billing, accounting reporting and general process improvements and expand our internal quality assurance program, among other
things. Our current workforce and supply chain may not be sufficient to handle our expanding growth and we will be required to expand
and train additional personnel as we increase our sales efforts. We may not successfully implement these increases in scale or the expansion
of our personnel, which could harm our business.
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Moreover, we may be unable to predict future growth related
to Deep TMS for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious depression), OCD, smoking addiction,
and other psychiatric indications because some of these disorders are inherently difficult to diagnose and there are frequent co-morbidities
(overlap) in these disorders that complicate treatment methods. Diagnosis for psychiatric disorders, such as MDD and OCD, is based on
an individual’s reported experiences and mental status examination, and accordingly is subject to significant error. For example,
it is estimated that about half of the individuals in the United States who experience a major depressive episode annually are not diagnosed
correctly. In addition, there is a rising trend in which primary care providers, rather than mental health professionals, prescribe anti-depressant
medications. While we view this as an overall positive development for the industry, any errors in diagnosing the underlying condition
can impact the appropriateness – and thus efficacy – of any treatments administered, including Deep TMS. In addition, the
H-Coils for our Deep TMS systems may prove to be interchangeable in some respects, and clinicians may be able to treat patients with multiple
disorders in the same procedure. With respect to comorbidities, there is a high rate of tobacco use amongst patients suffering from mental
health conditions such as depression and anxiety. It is estimated that approximately 3 of every 10 cigarettes smoked by adults in the
United States are smoked by persons with mental health conditions. As a result of the foregoing factors, the addressable market for Deep
TMS for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious depression), OCD, and smoking addiction,
may be smaller than we currently anticipate, and predictions for our future growth may prove to be inaccurate. This may have a materially
adverse effect on our future results of operations.
If our sales and customer
support teams or independent third-party distributors and agents are not sufficiently skilled or fail to reach additional markets and
adequately promote, market and sell or lease our Deep TMS systems, our revenues could significantly decrease and we may not generate sufficient
revenues to sustain profitability.
As of December 31, 2025, we had 129 employees, including 53
employees in sales and marketing. Our operating results are directly dependent upon the sales and marketing efforts of our sales and customer
support team and on our independent third-party distributors and agents outside of the United States. If our employees or our independent
distributors and agents fail to adequately promote, market and sell or lease our Deep TMS systems, our revenues could significantly decrease
and/or fail to meet our targets.
In addition, our future revenues will largely depend on our
ability to successfully execute our marketing efforts and adequately address our customers’ needs. In certain territories, it is
or will be necessary to expand our sales force, including by hiring additional sales representatives or distributors with specific technical
backgrounds that can support our customers’ needs.
As we develop and seek regulatory clearances for new indications,
enhancements, features and treatment protocols and increase our marketing efforts, we will need to expand the reach of our marketing and
sales networks. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled employees,
and distributors with significant technical knowledge in various areas. New hires require training and take time to achieve full productivity.
If we fail to train new hires adequately, or if we experience high turnover in our sales force in the future, new hires may not become
as productive as may be necessary to maintain or increase our sales. If we are unable to expand our sales and marketing capabilities domestically
and internationally, we may be unable to effectively commercialize our Deep TMS systems, which could harm our business.
12
Failure to secure
or maintain adequate coverage and reimbursement of our Deep TMS system for the currently authorized indications and other indications
for which we obtain FDA authorization in the future, if any, including due to the availability of other, cheaper, methods of TMS treatment,
may make physicians reluctant to use or recommend Deep TMS and have a material adverse effect on our sales, results of operations, and
financial condition.
Patients generally rely on third-party payors to reimburse
all or part of the costs associated with outpatient treatment services. Patients may, thus, be unwilling to undergo, and physicians may
be unwilling to prescribe, a given course of treatment in the absence of adequate coverage and reimbursement. Accordingly, our ability
to successfully commercialize our Deep TMS system depends significantly on the extent to which treatment sessions using Deep TMS are covered
and reimbursed by government healthcare programs, such as Medicare and Medicaid (among others), commercial health insurers, managed care
organizations, and other third-party payors.
Third-party payors are increasingly examining the medical
necessity and cost effectiveness of medical products and services, in addition to safety and efficacy. Significant uncertainty exists
as to the reimbursement status of any newly approved (or cleared) products or therapies, which represent novel approaches to treatment
of a disease, addiction, or condition, such as Deep TMS for smoking addiction. Even if a third-party payor covers a particular treatment
that uses Deep TMS, the resulting reimbursement rate may not be adequate to cover a provider’s cost to purchase or lease the Deep
TMS system or ensure such transaction is profitable for the provider. Reimbursement by a third-party payor may depend upon a number of
factors, including the third-party payor’s determination that a treatment is neither experimental nor investigational, and is safe,
effective, and medically necessary, appropriate for the specific patient, cost-effective, supported by peer-reviewed medical journals
and included in clinical practice guidelines.
In the United States, there is no uniform policy of coverage
and reimbursement among third-party payors, including private insurers. Therefore, coverage and reimbursement for treatments can differ
significantly from payor to payor. However, many third-party payors often rely upon Medicare coverage policies and payment limitations
in setting their own coverage and reimbursement policies and methodologies. Private insurance coverage for Deep TMS as a treatment for
MDD generally requires 1 to 4 prior failures of anti-depressant medications.
Medicare coverage for Deep TMS as a treatment for MDD generally
requires that certain specified clinical criteria relating to medical necessity are met and documented. In particular, subject to variations
by payor and locale, under applicable payor policies, Deep TMS may be covered for MDD if: (i) prescribed by a licensed physician, knowledgeable
in the use of TMS (ii) as a treatment for an adult with a confirmed diagnosis of MDD and no contraindications, (iii) where there is sufficient
documentation of failure of between 1 and 2 previous medication trials (depending on the relevant Medicare Administrative Contractor policy).
Other relevant coverage factors considered under these policies include resistance to treatment with psychopharmacologic agents for depression,
history of response to repetitive TMS, and whether the individual is a candidate for electroconvulsive therapy (ECT) and TMS is less burdensome
to the patient. Reimbursement for Deep TMS as an MDD treatment is also generally limited to 36 treatment sessions.
Since 2021, there has been emerging reimbursement coverage
for Deep TMS for the treatment of OCD. While the criteria for this emerging Deep TMS for OCD coverage varies with each payor, generally
coverage requires the failure of a combination of between two and four medication trials of two different classes (with most requiring
two failed trials), for specified periods, and may also require a trial of psychotherapy, before qualifying for reimbursement. Maintaining
the reimbursement coverage obtained since 2021 and obtaining coverage from additional payors may be difficult, and payors may condition
coverage on the satisfaction of varied criteria.
Obtaining adequate reimbursement of Deep TMS for smoking addiction,
or for any future indications or expanded labeling of currently approved indications or different treatment protocols, as applicable,
may be difficult unless there is sufficient published clinical data to support clinical efficacy and cost effectiveness based upon the
treatment continuum of care. Currently, there is no third-party coverage of Deep TMS as a treatment for smoking addiction, as payors that
have evaluated Deep TMS for smoking addiction coverage have not yet concluded that it is a reasonable and necessary therapy for smoking
addiction. In October 2023 the Clinical TMS Society, an influential peer group, published the first coverage recommendations for smoking.
While this is an important first step toward educating payors, ongoing efforts advocating for coverage will be required, which may be
expensive and time-consuming. Therefore, it may take significant time to obtain sufficient reimbursement coverage of Deep TMS for smoking
addiction. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement
compared to existing approved biologics and other therapies. There may be significant delays in obtaining coverage and reimbursement for
newly approved therapies in the United States, and coverage may be more limited than the indications for which the product is approved
by the FDA or similar regulatory authorities outside the United States. Further, there is no guarantee that Deep TMS will ever be adequately
covered or reimbursed for smoking addiction, if at all, or any other future indication for which we obtain authorization, if any. Nonetheless,
the availability of reimbursement coverage in any given indication is not always the exclusive path to commercialization, and we may pursue
and/or develop cash-pay, corporate wellness programs, and/or other alternate models in order to monetize these indications.
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In addition, the U.S. federal government and state legislatures
have continued to implement cost containment programs, including price controls and restrictions on coverage and reimbursement. To contain
costs, governmental healthcare programs and third-party payors are increasingly challenging the price, scrutinizing the medical necessity,
and reviewing the cost-effectiveness of medical treatments. Outside of the United States, reimbursement systems vary significantly by
country. Many foreign markets have government-managed healthcare systems that govern reimbursement for psychiatric treatments and procedures
and certain markets, including Japan, impose additional criteria that must be met (such as the need for approval by sometimes insular
medical societies) before coverage may be practically obtained even on approved procedures. Additionally, some foreign reimbursement systems
provide for limited payments in a given period and therefore result in extended payment periods.
The rise of less expensive treatment methods, including home
use treatment devices (including, for example, the devices manufactured by Flow Neuroscience and Neurolief), can also threaten current
reimbursement rates.
If adequate levels of reimbursement from third-party payors
outside of the United States are not obtained, international sales and lease transactions for the Deep TMS system may not materialize
or grow significantly.
The marketability of Deep TMS may suffer if the government
and third-party payors fail to provide adequate coverage and reimbursement. Even if favorable coverage and reimbursement status is attained,
less favorable coverage policies and reimbursement rates may be implemented in the future.
Clinical trials involve
a lengthy and expensive process with an uncertain outcome, which may delay or cause us to abandon the development of Deep TMS for additional
indications.
We are currently at various stages of completed, ongoing or
planned clinical trials of Deep TMS for new indications and/or seeking expanded labeling for existing indications. Development of medical
devices includes pre-clinical studies and sometimes clinical trials, and is a long, expensive, and uncertain process, subject to delays
and failure at any stage. Clinical trials for Deep TMS involve certain specific risks, including factors related to trial design and patient
enrollment. Additionally, if we are unable to recruit a sufficient number of patients for our clinical trials, we may be unable to generate
sufficient data to support marketing authorization. Moreover, our research and development, pre-clinical and clinical trial activities
are subject to extensive regulation and review by numerous governmental authorities. We cannot predict whether we will encounter problems
with any of our completed, ongoing or planned clinical trials, which would cause us or regulatory authorities to delay or suspend clinical
trials, or delay the analysis of data from completed or ongoing clinical trials. We estimate that clinical trials involving various indications
of Deep TMS will continue for several years; however, such trials may also take significantly longer to complete and may cost more money
than we have expected.
Furthermore, the data obtained from the studies and trials
may be inadequate to support regulatory authorizations or to enable market acceptance of certain indications of Deep TMS. Failure can
occur at any stage of testing, and we may experience numerous unforeseen events during, or as a result of, the clinical trial process
that could delay or prevent commercialization of the current, or a future, version of Deep TMS for any particular indication, including
but not limited to delays in securing clinical investigators or trial sites for the clinical trial and in obtaining institutional review
board and other regulatory approvals to commence a clinical trial; slower than anticipated patient recruitment and enrollment; negative
or inconclusive results from clinical trials; unforeseen safety issues; an inability to monitor patients adequately during or after treatment;
placement of a clinical trial on hold by the FDA, institutional review boards/ethics committees or other regulatory authorities; changes
in governmental regulations or administrative actions, including governmental changes in permissible endpoints or other measures utilized
in clinical trials; problems with investigator or patient compliance with the trial protocols; the FDA or other regulators disagreeing
as to the design, protocol or implementation of our clinical trials; exceeding budgeted costs due to difficulty in accurately predicting
costs associated with clinical trials; the quality of the products falling below acceptable standards; and the inability to manufacture
sufficient quantities of our products to commence or complete clinical trials.
14
Additionally,
the FDA or other regulatory entities may disagree with our interpretation of data from our pre-clinical studies and clinical trials, or
may find the clinical trial design, conduct or results inadequate to demonstrate safety or efficacy, and may require us to pursue additional
pre-clinical studies or clinical trials, which could further delay authorization of additional indications, expansion of labeling for
existing indications or new treatment protocols for Deep TMS. A number of companies in the medical device and biotechnology industries,
including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after
seeing promising results in earlier clinical trials. We do not know whether any clinical trials we or our clinical partners may conduct
will demonstrate adequate efficacy and safety to result in regulatory authorization to market new indications for Deep TMS. In addition,
the results of our past clinical trials of Deep TMS may not be predictive of future trial results. If later-stage clinical trials involving
Deep TMS for new indications, expansion of labeling for existing indications or new treatment protocols do not produce favorable results,
our ability to obtain regulatory authorization for such indications, expansion or treatment protocols may be adversely impacted, which
will have a material adverse effect on our business, financial condition, and results of operations.
We rely on third parties,
including suppliers for some components used in manufacturing our Deep TMS products, distributors to market and promote our products internationally
and third parties to conduct our clinical trials, which exposes us to uncertainty and instability.
We rely on suppliers for most of the components used
in manufacturing Deep TMS, including the computer controlling the stimulator, the helmet, the stimulator, and the arm of the helmet, and
we may not have sufficient contractual assurances for the long-term supply of these components. We remain dependent on a single outsourcing
company utilized for the manufacture of certain components in our proprietary systems, including our proprietary stimulator, and other
third parties for various other components. For us to be successful, our suppliers and contract manufacturer must be able to provide us
with components in sufficient quantities, in compliance with quality and regulatory requirements, in accordance with agreed-upon specifications,
at acceptable costs and on a timely basis. While these suppliers have generally met our overall demand requirements, we have experienced
certain challenges with specific product orders (including but not limited to orders of important capacitors for use within our proprietary
stimulator) not conforming with the times and specifications initially set, which has in turn necessitated contingency measures –
such as increased inventory orders and/or lengthened order periods – to compensate for future possible risks in this regard. We
have also experienced challenges caused by unexpectedly large multisystem orders by enterprise customers which have caused supply delays
for other customer orders. As these multisystem orders have increased, the Company has also identified other specific areas in our supply
chain which require additional sourcing, for example regarding certain aspects of our helmets and positioning arms. The willingness of
third party suppliers to continue meeting our demands going forward may be limited for several reasons, including our lack of long-term
agreements with those suppliers, geopolitical factors, internal capabilities, our relative importance as a customer of those suppliers,
or, as applicable, their ability to produce the components for or provide assembly services to manufacture our Deep TMS systems. An interruption
in our commercial operations could occur if we encounter delays or difficulties in securing these components, if we cannot obtain an acceptable
substitute for these components, if changes are made to the specifications of components which are incompatible with our systems, and/or
if any mitigation plan involving alternative suppliers (which may include the need to transfer aspects of manufacturing or assembly from
one geographical location to another) is delayed or unsuccessful. In addition, we have experienced, and may continue to experience, supply
chain issues, which are in part related to, or exacerbated by, geopolitical instability and military threats on shipping routes and/or
on regions in which our manufacturing activities take place. See “ - Our operations could be affected in the event of further
geopolitical instability, war, supply chain disruptions, unfavorable market or political conditions, global pandemic or other outbreaks
or other negative global trends or disruptions.” and “ - We have manufacturing, assembly and other significant functions
that are located in Israel and, therefore, our business and operations may be adversely affected by political, economic and military conditions
in Israel.”
Any transition to a new supplier or contract manufacturer
could be time-consuming and expensive, may result in interruptions to our operations and product delivery, could affect the performance
specifications of Deep TMS or could require that we modify the design of our systems. If we are required to change our contract manufacturer,
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 Deep TMS systems in a timely manner. If
the change in manufacturer results in a significant change to any product, a new 510(k) clearance from the FDA or similar non-U.S. regulatory
authorization may be necessary before we implement the change, which could cause a substantial delay. We cannot assure you that we will
be able to identify and engage alternative suppliers or contract manufacturers on similar terms or without delay. Furthermore, our contract
manufacturer could require us to move to a different production facility. The occurrence of any of these events could harm our ability
to meet the demand for Deep TMS systems in a timely and cost-effective manner.
15
In
addition, we rely, and expect to rely in the future, on a network of third-party distributors and agents to market and distribute our
products in international markets. We are assessing the opportunity to continue expanding into other international markets. We may face
significant challenges and risks in managing a geographically dispersed distribution network. We have limited ability to control any third-party
distributors and agents. Our distributors and agents may be unable to successfully market, lease, and sell our products and may not devote
sufficient time and resources to support the marketing, sales, education, and training efforts that we believe enable the products to
develop, achieve or sustain market acceptance. Additionally, in some international jurisdictions, we rely on our distributors to manage
the regulatory process, while complying with all applicable rules and regulations, and we are dependent on their ability to do so effectively.
Moreover, if a dispute arises with a distributor or if a distributor is terminated by us or goes out of business, it may take time to
locate an alternative distributor, to seek appropriate regulatory approvals with the new distributor and to train new personnel to market
our products, and our ability to sell those systems in the region formerly serviced by such terminated distributor could be harmed. Any
of these factors could reduce our revenues from affected markets, increase our costs in those markets or damage our reputation. In addition,
if an independent distributor or agent were to depart and be retained by one of our competitors, we may be unable to prevent that distributor
or agent from helping competitors solicit business from our existing customers, which could further adversely affect our sales. As a result
of our reliance on third-party distributors and agents, we may be subject to disruptions and increased costs due to factors beyond our
control, including labor strikes, third-party error, and other issues. If the services of any of our distributors or agents become unsatisfactory,
we may experience delays in meeting our customers’ demands, and we may be unable to find a suitable replacement on a timely basis
or on commercially reasonable terms. Any failure to deliver products or services in a timely manner may damage our reputation and could
cause us to lose existing or potential customers.
We also rely on third parties in our clinical trials, which
are managed by our own staff and personnel as well as by certain third parties, including clinical trial sites, medical institutions,
clinical research organizations, or CROs, and private practices, for, among other things, site monitoring, statistical work, and electronic
data capture. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with applicable
protocols, and legal, regulatory, and scientific standards, including current good clinical practices, or cGCPs, which are set forth in
regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for clinical trials. If we or any such third
parties fail to comply with applicable cGCPs, the clinical data generated in such trials may be deemed unreliable and the FDA or comparable
foreign regulatory authorities may require us to perform additional clinical trials before granting a marketing authorization for any
particular indication. In addition, if such third parties do not devote sufficient time and resources to our clinical trials or otherwise
fail to carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or
accuracy of the clinical data they assist in obtaining is compromised due to the failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory
authorization for or successfully commercialize Deep TMS for a specified indication.
We face risks associated
with our international business.
We currently market and sell Deep TMS systems outside of the
United States in various countries and/or intend to market and expand the commercialization of Deep TMS in other international markets,
including Canada, Europe, Australia, and various Middle Eastern, Central/South American, and Asian countries. We are also assessing the
opportunity to expand into other international markets. However, our expansion plans may not be realized, or if realized, may not be successful.
Our international sales processes and team is less established and more volatile than those in the United States, which has affected the
financial predictability of our business in these territories. We expect each market to have particular regulatory hurdles to overcome,
and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our
business. In addition, the sale, lease, and shipment of our Deep TMS systems across international borders, as well as the purchase of
components and products from international sources, subjects us to extensive U.S. and other foreign governmental trade, import, export,
regulatory, and customs regulations and laws. Compliance with these regulations and laws is costly and exposes us to penalties for non-compliance.
We expect our international activities will be dynamic over the foreseeable future as we continue to pursue opportunities in international
markets.
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Our international business operations are subject to a
variety of risks, including but not limited to difficulties in staffing and managing foreign and geographically dispersed operations,
to the extent we establish non-U.S. operations; differing and multiple payer reimbursement regimes, government payors or patient self-pay
systems; difficulties in determining and creating the proper sales pathway in new, international markets; compliance with various U.S.
and international laws and regulations, including export control laws and the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) and similar
international laws, anti-money laundering laws and differing regulatory requirements for obtaining marketing authorizations for our products
in non-U.S. jurisdictions; changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell
our products, perform services or repatriate profits to the United States; tariffs and trade barriers, export regulations, sanctions,
and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; potential adverse tax
consequences, including imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign
subsidiaries or joint ventures; imposition of differing labor laws and standards; armed conflicts or economic, political, and/or social
instability in foreign countries and regions; fluctuations in foreign currency exchange rates; supply lags, inefficiencies, difficulty
managing expenses in our local currency in the event that its value diverges from that of the currencies of the jurisdictions where we
earn income, and other risks created by any sourcing, manufacture, assembly and/or production of our products/components outside of the
U.S., while commercial activities are largely focused in the U.S.; an inability, or reduced ability, to protect our intellectual property,
including any effect of compulsory licensing imposed by government action; and availability of government subsidies or other incentives
that benefit competitors in their local markets that are not available to us.
Tariff policies and potential
countermeasures could increase our costs and disrupt our supply chain, which could negatively impact the results of our operations.
U.S. President Trump has increased, and has indicated his
willingness to continue to increase, the use of tariffs by the U.S. to accomplish certain U.S. policy goals. These tariffs have already
marginally increased the cost of our imports into the U.S. which has led to increases in end user prices. Additionally, such tariffs and
any countermeasures could increase the cost of raw materials and components necessary for our operations, disrupt our supply chain and
create additional operational challenges. Further, it is possible that government policy changes and related uncertainty about policy
changes could increase market volatility. Because of these dynamics, we cannot predict the impact of any future changes to the U.S.’s
or other countries’ trading relationships or the impact of new laws or regulations adopted by the U.S. or other countries on our
business. Such changes in tariffs and trade regulations could have a material adverse effect on our financial condition, results of operations
and cash flows.
Our collaboration arrangements
may not be successful, which could adversely affect our ability to develop and commercialize our products.
We are currently involved in a number of research and development
collaborations with third parties relating to the development of new technologies and additional uses of Deep TMS. These and any future
collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts
and activities of our collaborators. If any of our collaboration arrangements are not successful, it could have a material adverse effect
on our business, financial condition, and results of operations.
Collaborations are subject to numerous risks, which may
include that collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations;
collaborators may elect not to pursue development and commercialization of our products or not to continue or renew development or commercialization
programs based on trial or test results, may change their strategic focus due to the acquisition of competitive products or may independently
develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates; availability
of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; a collaborator
with marketing, manufacturing, and distribution rights to one or more products may not commit sufficient resources to or otherwise not
perform satisfactorily in carrying out these activities; we could grant exclusive rights to our collaborators that would prevent us from
collaborating with others; we may be forced to terminate, litigate, and/or renegotiate arrangements with our collaborators due to default
on their obligations to us or due to their improper maintaining or defending our intellectual property rights or their use of our intellectual
property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our
intellectual property or proprietary information or expose us to potential liability; our collaborators may have claims that we breached
our obligations to them which may result in termination, renegotiation, litigation or delays in performance of such arrangements; disputes
may arise between us and a collaborator that causes the delay or termination of the research, development, and/or commercialization of
our current or future products or that results in costly litigation or arbitration that diverts management attention and resources; collaborations
may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization
of the applicable current or future products; collaborators may own or co-own intellectual property covering our products that results
from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual
property; and a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws
resulting in civil or criminal proceedings.
17
We bear the risk
of product liability lawsuits and warranty claims which might harm our business, may not be covered by our insurance policies or may exceed
our insurance policy coverage, and we may not have enough funds to cover such claims or lawsuits damages.
Our business exposes us to potential product liability
claims that are inherent in the testing, manufacture, sale, promotion, and use of medical devices for the treatment of MDD (including
reduction of comorbid anxiety symptoms, commonly referred to as anxious depression), OCD, smoking addiction, and other potential indications.
Our treatments are designed for patients who suffer from significant psychiatric, and neurological disorders, and addictions, and these
patients are more likely to experience significant adverse health outcomes, which could increase the risk of product liability lawsuits.
Furthermore, if physicians and other operators are not sufficiently trained in the use of our Deep TMS systems, they may misuse or ineffectively
use our system, which may result in unsatisfactory patient outcomes. We could become the subject of product liability lawsuits alleging
that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related
information resulted in an unsafe condition or injury to the patients.
Regardless of their merit or eventual outcome, product liability
claims may result in decreased demand for Deep TMS; injury to our reputation and brand; significant litigation costs or substantial monetary
awards to or costly settlements with patients; product recalls; loss of revenues; the inability to commercialize new indications, enhancements,
or features; and diversion of management attention from pursuing our business strategy.
We do not carry insurance for all categories of risk that
our business may encounter. Some of the policies we currently maintain include liability, employer’s liability, property, third
party liability, umbrella, workers’ compensation, products and clinical trial liability, cyber, professional indemnity, and directors’
and officers’ liability. We do not know, however, if these policies will provide us with adequate levels of coverage, particularly
in light of the dynamic and changing risk profile we face as a result of new business models, territories and ventures we pursue. Any
significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results
of operations. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance
coverage, our business could suffer. Any product liability claim brought against us, with or without merit, could result in the increase
of our product liability insurance rates or the inability to secure coverage in the future. In addition, a recall of some of our products,
whether or not related to a product liability claim, could result in significant costs and loss of customers.
In addition, we bear the risk of warranty claims on the products
we supply, often for the entire contract term for systems which we lease to customers, and generally for at least one year for Deep TMS
systems we sell to customers. There can be no assurance that we will have sufficient funds, devices, components and/or personnel to cover
future warranty claims. We may not be successful in claiming recovery of relevant components from our suppliers or vendors in the event
of a successful warranty claim against us by a customer and, to the extent recovered, such recovery from our vendor or supplier may not
be adequate. In addition, warranty claims brought by our customers related to third-party components may arise after the termination of
the warranty period we are eligible to receive from our suppliers, which could result in costs to us.
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We could be negatively
impacted by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical business practices.
We operate in a number of countries throughout the world,
and we may operate in countries that may not have the strong commitment to anti-corruption and ethical behavior that is required by U.S.
laws or by our corporate policies. We are subject to the risk that we, our U.S. employees or any future employees or consultants located
in other jurisdictions, or any third parties such as our distributors that we engage to do work on our behalf in foreign countries may
take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business, including the FCPA.
The FCPA generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments, offers
or promises to foreign officials for the purpose of obtaining or retaining business or other advantages. In addition, the FCPA imposes
recordkeeping and internal controls requirements on publicly traded corporations and their foreign affiliates, which are intended to,
among other things, prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the
establishment of “off books” slush funds from which such improper payments can be made.
We will face significant risks if we fail to comply with
the FCPA and other laws that prohibit improper payments, offers or promises of payment to foreign governments and their officials and
political parties by us and other business entities for the purpose of obtaining or retaining business or other advantages. In many foreign
countries, particularly in countries with developing economies, it may be a local custom that businesses operating in such countries engage
in business practices that are prohibited by the FCPA or other laws and regulations. We have implemented or are in the process of implementing
company policies relating to compliance with the FCPA and similar laws. However, such policies may not be effective at preventing all
potential FCPA or other violations. Although our agreements with our international distributors state our expectations for our distributors’
compliance with U.S. laws, including the FCPA, and provide us with various remedies upon any non-compliance, including the ability to
terminate the agreement, our distributors may not comply with U.S. laws, including the FCPA.
Any violation of the FCPA or any similar anti-corruption law
or regulation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions,
and might harm our business, financial condition, or results of operations.
Our operations
could be affected in the event of further geopolitical instability, war, supply chain disruptions, unfavorable market or political conditions,
global pandemic or other outbreaks or other negative global trends or disruptions.
In recent years, we experienced and continue to experience
supply chain and shipping delays, shortages and challenges due to geopolitical instability and military threats on global shipping routes,
forcing us to adapt our production line, forecasting and other logistical processes to address these challenges. Further global and regional
geopolitical instability could exacerbate disruptions to production, cause additional delays in the supply and delivery of products used
in our operations, negatively impact the planned pace of clinical trials, R&D and business initiatives, disrupt the marketplace in
which we operate, and may have material adverse effects on our operations, sales, revenues, collection from accounts and ability to raise
funds. Our third-party suppliers source certain components and materials of our Deep TMS systems from various countries, and any continued
geopolitical instability may adversely impact their development, manufacture, and supply processes. For example, the recent disruptions
to traditional trade routes caused by recent geopolitical instability and wars have necessitated reliance on more expensive shipping alternatives
which increased our lead times and costs of production. Additionally, we have seen a significant rise in the price of many of the electronic
components needed for our systems, most recently including as a result of supply shortages caused by AI and quantum computing market demand.
The extent to which the geopolitical instability impacts our results will depend on future developments, which are highly uncertain and
cannot be predicted.
19
In addition, we have experienced, and may continue to experience,
disruptions to the transportation channels used in our supply chain and distribution operations, including increased airport and shipping
port congestion, a lack of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or
shortages. Transport operators are exposed to various risks, such as extreme weather conditions, natural disasters, work stoppages, personnel
shortages, and operating hazards, as well as interstate and international transportation requirements. If we experience transportation
problems, or if there are other significant changes in the cost of these services, we may not be able to arrange efficient alternatives
and timely means to obtain raw materials or ship products to our customers. Disruptions in our container shipments may result in increased
costs, including the additional use of air freight to meet demand. Congestion in ports can affect previously negotiated contracts with
shipping companies, resulting in unexpected increases in shipping costs and reduction in our profitability. For example, since late 2023,
we needed to utilize more expensive air shipping methods in order to ensure timely delivery of capacitors, head caps, and certain other
components in our systems to avoid delays caused by the recent Houthi disruptions to traditional trade routes. While the Company is seeking
to shift more of its current air shipping processes to lower cost sea shipping methods, any delays or future disruptions in these plans
may result in significant financial impact on our ongoing costs of doing business. In addition, the geopolitical instability caused by
the Ukraine war, the Israel-Gaza war, the Israel-Hezbollah war, and most recently, the US-Israel-Iran war, has resulted in several disruptions
and delays in our global transportation channels, manpower and other challenges at our outsourced manufacturer (which relies heavily on
facilities and personnel located near the Israel-Lebanon border, a region particularly susceptible to any skirmishes and other outbreaks
of violence between Israel and Hezbollah and/or other northern neighbors), as well as quantity limits and price increases. See “
- We rely on third parties, including suppliers for some components used in manufacturing our Deep TMS products, distributors to market
and promote our products internationally and third parties to conduct our clinical trials, which exposes us to uncertainty and instability.”
and “ - We have manufacturing, assembly and other significant functions that are located in Israel and, therefore, our business
and operations may be adversely affected by political, economic and military conditions in Israel.”
As part of global supply chain problems in recent years, we
have seen a significant rise in the price of many of the electronic components needed for our systems. These price increases – which
were initially caused by supply and demand factors, and, in some cases, shortages relating to these parts across the globe – have
subsequently remained elevated despite the fact that many of these challenges have since improved. Furthermore, recent increases in demand
for electronic components by AI and quantum computer purchasers has caused further upward pressure on prices. On a related point, the
lead time for receiving certain specific electronic components shipped by suppliers has also increased in recent years, as well as increased
demand for multisystem orders of full systems by our enterprise customers. This has compelled us to increase buffer inventory levels to
ensure that future demand for our systems can be timely met. These risks may be further exacerbated in light of geopolitical events, including
the ongoing conflict between Russia and Ukraine, the Israel-Gaza war, the Israel-Hezbollah war, the US-Israel-Iran war, and other potential
related tensions with Israel’s other neighboring countries.
Expedited, reliable shipping is essential to our operations.
We rely heavily on providers of transport services for reliable and secure point-to-point transport of our products to our customers and
for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any systems,
it would be costly to replace such systems in a timely manner, and such occurrences may damage our reputation and lead to decreased demand
for our products and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely
affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions
affecting delivery services we use would adversely affect our ability to process orders for our products on a timely basis.
Worldwide economic and political conditions have also been
adversely impacted by continued political instability and military hostilities in multiple geographies including the conflict between
Ukraine and Russia, the Israel-Gaza war, the Israel-Hezbollah war, the US-Israel-Iran war, and potential related tensions with Israel’s
other neighboring countries. These conditions have made and may continue to make it difficult for our customers and potential customers
to afford our products, and could cause our customers to stop using our products or to use them less frequently. If that were to occur,
our revenue may decrease and our performance may be negatively impacted. In addition, the pressure on consumers to absorb more of their
own healthcare costs has resulted in some cases in higher deductibles and limits on durable medical equipment, which may cause seasonality
in purchasing patterns. Furthermore, during economic uncertainty, some customers experience job losses and may continue to have issues
gaining timely access to sufficient health insurance or credit, which could result in their unwillingness to purchase products or impair
their ability to make timely payments to us. A recession, depression or other sustained adverse market event could materially and adversely
affect our business and the value of our Ordinary Shares or ADSs.
We cannot predict the reoccurrence of any economic slowdown
or the future strength of the economy, worldwide, in the United States, in Israel, or in our industry. These and other economic factors
could have a material adverse effect on our business, financial condition and results of operations.
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Our reliance on
the use of technology may adversely affect our business if we become subject to cyber-terrorism or other compromises and shut-downs or
if we experience significant disruptions in our information technology systems, and security and privacy breaches may expose us to liability
and harm our reputation and business.
We depend on our information technology systems for the efficient
functioning of our business accounting, data storage, compliance, purchasing, and inventory management. While we will attempt to mitigate
interruptions, we may experience difficulties in implementing upgrades to our information technology systems, which would impact our business
operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt our operations, including
our ability to timely ship and track product orders, project inventory requirements, manage our supply chain, and otherwise adequately
service our customers. In the event we experience significant disruptions as a result of the current implementation of our information
technology systems, we may be unable to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or
reduce the efficiency of our entire operation and have a material adverse effect on our results of operations and cash flows.
We are increasingly dependent on sophisticated information
technology for our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect,
and enhance existing systems. Failure to maintain or protect our information systems and data integrity effectively could have a materially
adverse effect on our business.
We rely heavily on our internal computer and information technology
systems. Our information technology systems may be subject to cyber-terrorism or other compromises and shut-downs, which may result in
unauthorized access to our proprietary information, destruction of our data or disability, degradation or sabotage of our systems, often
through the introduction of computer viruses, cyber-attacks, and other means, and could originate from a variety of sources, including
internal or unknown third parties. We cannot predict what effects such cyber-attacks or compromises or shut-downs may have on our business,
and the consequences could be material. Cyber incidents may remain undetected for an extended period, which could exacerbate these consequences.
If our information systems or other technology are compromised, it could have a material adverse effect on our business.
In addition, as part of our business operations, we may receive
and process information about our customers, partners and, potentially, their patients, including protected health information (PHI),
and we may configure our devices to collect, transmit or store or contract with third parties to collect, transmit or store our customers’
data, including PHI. PHI, a subset of “individually identifiable information,” is defined under the federal level by the
Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information and Technology for Economic
and Clinical Health Act of 2009 (HITECH), including applicable implementing regulations. HIPAA, along with various analogous laws at
the state level and other analogous privacy laws in other countries in which we operate, governs the protection and confidentiality of
PHI, and other sensitive information, as applicable (as more fully described below). To the extent we, or third parties we contract with,
collect, store or transfer PHI, we may be required to safeguard PHI in accordance with HIPAA. Furthermore, to the extent we qualify as
a business associate under HIPAA, we may be directly subject to HIPAA’s Privacy Rule.
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While we implemented security measures relating to our operations,
generally, those measures may not prevent security breaches that could harm our business or expose us to liability under HIPAA and/or
applicable state or foreign privacy laws. Advances in computer capabilities, product improvements, inadequate technology or facility security
measures or other factors may result in a compromise or breach of our systems and any data we store and process. Our security measures
may be breached as a result of actions by third parties or employee error or malfeasance, among many other possibilities. A party who
is able to circumvent our security measures or exploit inadequacies in our security measures, could, among other things, misappropriate
proprietary information, including information about our customers and their patients, cause the loss or disclosure of some or all of
this information, cause interruptions in our or our customers’ operations or expose our customers to computer viruses or other disruptions
or vulnerabilities. Any compromise of our systems or the data we store or process could implicate reporting requirements, civil penalties,
and other enforcement actions under applicable laws, result in a loss of confidence in the security of our software, damage our reputation,
disrupt our business, lead to legal liability, and adversely affect our results of operations. Moreover, a compromise of our systems could
remain undetected for an extended period of time, exacerbating the impact of that compromise. Actual or perceived vulnerabilities may
lead to claims against us by our customers, their patients or other third parties, including federal, state and foreign governmental authorities.
While our customer agreements typically contain provisions that seek to limit our liability, there is no assurance these provisions will
be enforceable and effective under applicable law. In addition, the cost and operational consequences of implementing further data protection
measures could be significant.
We may seek to grow
our business through acquisitions or investments in new or complementary businesses, products or technologies, and/or through the licensing
of products or technologies from third parties. The failure to manage acquisitions, investments, licenses or other strategic alliances,
or the failure to integrate them with our existing business, could harm our business.
Our success depends in part on our ability to continually
enhance and broaden our product offerings in response to changing customer demands, competitive pressures, technologies, and market pressures.
Accordingly, from time to time, we may consider opportunities to acquire, make investments in or license other technologies, products,
and businesses that may enhance our capabilities, complement our current products, or expand the breadth of our markets or customer base.
For example, during 2025 we entered into an investment agreement with Neurolief, which enables us to potentially acquire all of Neurolief’s
issued and outstanding shares subject to the achievement of certain milestones. Potential and completed acquisitions, strategic investments,
licenses, and other alliances involve numerous risks, including but not limited to difficulty assimilating or integrating acquired or
licensed technologies, products or business operations; issues maintaining uniform standards, procedures, controls, and policies; unanticipated
costs associated with acquisitions or strategic alliances, including the assumption of unknown or contingent liabilities and the incurrence
of debt or future write-offs of intangible assets or goodwill; diversion of management’s attention from our core business and disruption
of ongoing operations; adverse effects on existing business relationships with suppliers, distributors, and customers; risks associated
with entering new markets in which we have limited or no experience; potential losses related to investments in other companies; potential
loss of key employees of the acquired businesses; and increased legal and accounting compliance costs.
We do not know if we will be able to identify acquisitions
or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms
or at all or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain
any key personnel, suppliers or distributors.
Foreign acquisitions involve unique risks in addition to those
mentioned above, including those related to integration of operations across different cultures, languages, legal and regulatory environments,
currency risks and the particular economic, political and regulatory risks associated with specific countries.
To finance any acquisitions, investments or strategic alliances,
we may choose to issue Ordinary Shares, ADSs or other equity-linked securities as consideration, which could dilute the ownership of
our shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our Ordinary Shares
or ADSs is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our shares as consideration.
Risks Related to our Neurolief Investment
Our investment
in Neurolief exposes us to various risks and uncertainties that are similar to some of the risks related to our operations and to the
risks we face in connection with our minority investments in MSOs, set forth elsewhere in this Item. In addition to such risks and uncertainties,
our investment in Neurolief exposes us to the following risks:
Risks Related to our Holdings in MSOs
To the extent our due diligence procedures in an investment target do not result in our timely identification
of a material deficiency or if certain events beyond our control occur, we may be required to subsequently take write-downs or write-offs,
restructuring actions, and/or apply impairment or other charges that could have a significant negative effect on our financial condition,
results of operations and our stock price.
During 2025 and early 2026, we acquired a minority stake in
several MSOs that provide administrative, management and other non-clinical services to certain clinic chains in the United States and
Canada, and the Company has plans to continue with this initiative. We have limited historical operating experience and sector-specific
expertise in the U.S. healthcare services industry and in the MSO operating model. As a result, our ability to identify, assess and manage
the risks associated with such investments may be more limited than that of companies with longstanding experience in this sector. Although
we conduct financial, legal, regulatory, operational and commercial due diligence and typically engage external advisors with relevant
expertise, our diligence efforts may not identify all material risks, liabilities or compliance deficiencies. The U.S. healthcare regulatory
environment is complex, highly technical and subject to frequent change, including laws and regulations relating to fraud and abuse, fee-splitting,
corporate practice of medicine, billing and reimbursement, privacy and data protection, licensure and supervision requirements, and relationships
between MSOs and affiliated clinical entities. The application and interpretation of these requirements may vary significantly by state
and may depend on facts and circumstances that are difficult to fully evaluate during the diligence process.
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In addition, certain risks may arise from historical practices
of acquired or affiliated entities that may not be fully disclosed, documented or discoverable through customary diligence procedures.
If risks or liabilities are not identified or are underestimated during the diligence process, or if portfolio companies do not maintain
adequate compliance, operational or financial controls following our investment, we may incur unexpected losses, impairments or write-downs
of our investments, or become subject to indemnification claims, litigation and/or regulatory enforcement actions. Any of these outcomes
could adversely affect our results of operations, financial condition, cash flows and reputation. In addition, management attention may
be diverted to address challenges arising from such investments, which could negatively impact our other business activities.
We hold minority stakes in the MSOs, limiting our ability
to control their operations and actions, exposing us to the results of actions taken by the MSOs’ managements.
Because we hold minority interests in the MSOs, we may have
limited ability to influence or control the strategy, governance, compliance posture, operations or risk management practices of the MSOs
or their affiliated professional entities. In addition, we may not be able to cause such entities to take actions that we believe are
necessary or advisable, including with respect to compliance, internal controls, capital allocation, management changes, litigation strategy
or strategic direction. Our minority rights, if any, may be limited to protective provisions that do not provide us with operational control,
and enforcement of such rights may be costly, time-consuming or uncertain. Furthermore, our interests may differ from those of controlling
owners, management teams or other investors, and we may not be able to prevent decisions that could adversely affect the value of our
investment.
MSOs are subject to complex regulatory requirements,
and a potential violation of such regulation, including CPOM regulation, may risk the value of our investment.
MSO arrangements with physician-owned or clinician-owned professional
entities are subject to regulatory scrutiny and may be challenged by regulators, private litigants or payors. If any MSO structure or
related contractual arrangements are determined to be non-compliant with applicable law or regulatory guidance, the MSO or affiliated
clinics could be subject to civil or criminal penalties, repayment obligations, exclusion from government healthcare programs, required
restructuring of operations, or termination of key commercial relationships, which could adversely affect the value of our investment.
In particular, MSO structures are subject to corporate practice
of medicine restrictions and related enforcement risk. Many U.S. states restrict the ability of non-licensed entities to practice medicine,
employ physicians to provide clinical services, or otherwise exercise control over clinical decision-making. These restrictions are commonly
referred to as corporate practice of medicine (CPOM) laws. MSOs and their affiliated professional entities typically seek to structure
their relationships in a manner intended to comply with applicable CPOM requirements, including through management services agreements
and separation of clinical and non-clinical functions. However, CPOM laws are primarily state-based, may be interpreted differently by
regulators and courts, and may change over time. If an MSO, an affiliated professional entity or any of their contractual arrangements
are determined to violate applicable CPOM restrictions, the MSO, the affiliated clinics, or potentially their owners, investors or counterparties
could be subject to civil or criminal penalties, contractual unenforceability, required restructuring of operations, disgorgement of fees,
or other sanctions. In addition, even if we do not exercise control over clinical operations, regulators or private litigants could seek
to assert that MSO arrangements in which we invest improperly influence clinical decision-making. Any such determination, enforcement
action or allegation could adversely affect the operations or financial condition of the MSOs in which we invest and could expose us to
reputational harm, litigation costs, indemnification claims or regulatory scrutiny.
Any of such occurrences may have a material adverse impact
on the value of our investment and our ability to realize any profit from such investment and could result in impairments or write-downs
of our investments, materially adversely affecting our financial results.
MSOs in which we invest may also provide services to
clinics that are, or may in the future become, our customers.
Some of the MSOs in which we invest may also provide services
to clinics that are, or may in the future become, our customers. These cross-relationships can create actual or perceived conflicts
of interest and expose us to risks inherent in related-party arrangements, including heightened regulatory scrutiny, contractual restrictions,
confidentiality and data-segregation obligations, and potential disputes among the parties. If we are unable to appropriately identify,
disclose, and manage these relationships, we could face investigations or claims, lose business, or be required to modify or terminate
arrangements on unfavorable terms, any of which could adversely affect our business, financial condition, and results of operations.
If laws governing the corporate practice of medicine
or fee-splitting change, we may be required to restructure some of our relationships, which may result in a significant loss of revenue
and diversion of other resources.
The CPOM prohibition exists in some form - by
statute, regulation, board of medicine or attorney general guidance, or case law - in most U.S. states and in Canada; though there is
broad variation between the different jurisdictions concerning the application and enforcement of the doctrine. Other laws and
regulations prohibit licensed practitioners from engaging in fee splitting (i.e., sharing a percentage of professional fees with an
unlicensed person or entity). The specific requirements, interpretation and enforcement of these laws vary significantly from
jurisdiction to jurisdiction, and may be subject to change and to evolving interpretations. There can be no assurance that these
laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the
future that could have a material and adverse effect on our business, financial condition and results of operations. Regulatory
authorities, boards of medicine, attorneys general and other parties may assert or determine that our relationships with MSOs and
physicians violate CPOM and/or fee-splitting prohibitions. If any of these events occur, we could be subject to significant
fines and penalties, certain relationships with MSOs and physicians could be voided and declared unenforceable and/or we could be
required to materially change the way we do business, which, could adversely affect our business, financial condition and results of
operations.
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Corporate practice of medicine doctrines also often impose
penalties on physicians themselves for aiding the corporate practice of medicine, which could discourage providers from participating
in the MSOs we invest in. If a successful legal challenge or an adverse change in relevant laws were to occur, and we were unable to adapt
our business model accordingly, our operations in affected jurisdictions would be disrupted, which could harm our business.
Dependence on clinician judgment and limitations imposed
by CPOM and related laws could adversely affect our business and results of operations.
Our ability to achieve our objectives depends in significant
part on the independent medical judgment, professional skill, and reputation of the physicians and other licensed clinicians who own and
control the affiliated professional entities to which the MSOs provide non-clinical administrative and management services. Under
CPOM and analogous fee-splitting and professional licensing laws in many jurisdictions, the MSOs are prohibited from practicing medicine,
employing physicians to provide clinical care in certain jurisdictions, or otherwise exerting control or undue influence over clinical
decision-making. As a result, the MSOs do not and cannot direct the diagnosis, treatment, prescribing, referral patterns, supervision
of other licensed professionals, maintenance of medical records, or other aspects of clinical practice. These legal restrictions limit
their visibility into, and their ability to oversee or remediate, an area that is critical to the success of the enterprise from which
the MSOs’ management fees are derived.
Because clinical decision-making is exclusively the responsibility
of the affiliated professional entities and their clinicians, variability in clinical quality, outcomes, documentation, or compliance
with payer, accreditation, or regulatory requirements may occur and may not be within the MSOs’ control to promptly correct. If
clinicians adopt practice patterns that are inconsistent with payer policies, clinical guidelines, or applicable law, or if they fail
to maintain required licenses, credentials, or participation agreements, the MSOs could experience increased denials, recoupments, audits,
penalties, malpractice claims exposure borne indirectly through contractual relationships, reputational harm, reduced patient or payer
demand, and deterioration in the financial performance of the professional entities—each of which could reduce the management fees
payable to the MSOs which we invest in.
Clinics Supported by the MSOs in which we invest are
subject to medical malpractice, patient safety and other healthcare-related claims, and inadequate or insufficient insurance coverage
could adversely affect our investment.
Clinics supported by the MSOs in which we invest are subject
to risks inherent in the provision of healthcare services, including medical malpractice, patient injury and safety claims, professional
liability claims and other litigation or regulatory proceedings. The frequency and severity of such claims may be affected by clinical
quality, provider training and supervision, patient volumes, procedure complexity and compliance with applicable standards of care and
regulatory requirements, issues we have very limited impact on due to our minority-stake in the MSOs. Although MSOs typically require
affiliated clinics and professional entities to maintain insurance coverage, including professional liability insurance, such insurance
may not be available on commercially reasonable terms, may be subject to exclusions, deductibles or coverage limits, or may otherwise
be insufficient to cover all liabilities.
In addition, insurers may deny coverage or disputes regarding
coverage may arise, and certain claims may not be insurable. If insurance coverage maintained by clinics, professional entities or MSOs
is inadequate, unavailable or disputed, such entities may be required to fund defense costs, settlements, judgments or regulatory penalties
directly, which could materially adversely affect their financial condition and operations. Any such outcome could reduce the value of
our investment, limit our ability to receive returns and result in losses.
Our put rights in connection with our MSO investments may not protect us
if the MSOs or other obligated parties lack sufficient liquidity to repurchase our interests.
In connection with certain of our investments in MSOs, we
have contractual put options or similar exit rights that permit us to require the MSO, its owners or other counterparties to repurchase
our equity interests. While these rights are intended to provide downside protection and liquidity, there can be no assurance that they
will be effective. The exercise of a put option typically requires the MSO or other obligated party to have sufficient available cash,
access to financing or other liquidity at the time of exercise. MSOs may operate with limited liquidity, may be subject to debt covenants
or other contractual restrictions, or may experience adverse operating or regulatory developments that limit their ability to fund a repurchase.
In addition, financing markets or lender appetite may be constrained at the time of exercise. If the MSO or other obligated party is unable
or unwilling to honor its repurchase obligations, we may be required to pursue enforcement actions, which may be costly, time-consuming
and uncertain in outcome, particularly if the obligor becomes insolvent or is subject to restructuring or bankruptcy proceedings. In such
circumstances, we may not recover the full value of our investment, or any value at all, and our put rights may not provide meaningful
protection against investment losses.
Risks Related to Employee Matters
If we are not able to retain our key management, or
attract and retain qualified scientific, technical, and business personnel, our ability to implement our business plan may be adversely
affected.
Our success largely depends on the skill, experience,
and effort of our senior management. The loss of the service of any of these persons would likely result in a significant loss in the
knowledge and experience that we possess and could significantly delay or prevent successful product development and other business objectives.
Our ability to achieve our strategic growth plans depends in part on our ability to recruit and maintain talented sales and operations
team members. New hires are often subject to a time intensive educational onboarding period before they can successfully identify potential
customer leads and close sales. This can lead to delays before we can ramp up our commercial initiatives and achieve sales targets. It
can also divert attention from our existing sales leadership and personnel who are needed to train these new hires. Additionally, we experienced
and continue to experience certain challenges in hiring and/or maintaining employees that we believe are related to current and previous
trends in the workforce. We believe that these events have created a climate of volatility in employment relations throughout the economy
and in our company, which has affected or may affect our ability to recruit, train and retain employees, including skilled sales professionals.
The employee turnover we historically experienced, including in our salesforce, has limited our ability to ramp up our sales and marketing
force as quickly as would have otherwise been possible. There is intense competition between numerous medical device, pharmaceutical,
and biotechnology companies, universities, governmental entities, and other research institutions, all of whom are seeking to employ qualified
individuals in the technical fields in which we operate, and we may not be able to attract and retain the qualified personnel necessary
for the successful development and commercialization of Deep TMS.
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Employment litigation and unfavorable publicity
could negatively affect our future business.
Employees may, from time to time, bring lawsuits
against us regarding injury, creating a hostile workplace, discrimination, payment of wage and overtime, sexual harassment, and
other employment issues. In recent years there has been an increase in the number of discrimination and harassment claims generally.
Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these
claims have had a significant negative impact on some businesses. Companies that have faced employment or harassment related
lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has negatively impacted
their sales. If we were to face any employment related claims, our business could be negatively affected.
Under applicable employment laws, we may not
be able to enforce covenants not to compete.
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. For example, 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. 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 and our competitiveness
may be diminished.
Risks Related to Government Regulation
Our products 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 or to
obtain and/or maintain needed clearances could harm our business.
We are subject to extensive regulation in the United States
and elsewhere, including by the FDA, FTC, and their foreign counterparts. 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; marketing, sales and distribution; premarket clearance and approval; 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 recur, could lead to death or serious injury; post-market approval studies;
and product import and export.
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The regulations to which we are subject are complex and
stringently enforced. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than
anticipated costs or lower than anticipated sales. The FDA enforces these regulatory requirements through, among other means, periodic
unannounced inspections. We do not know whether we will pass any future FDA inspections. Furthermore, various service offerings which
may be included under certain existing or potential pricing models, including but not limited to device operation services performed by
technicians engaged directly by us, could increase the risk profile and/or regulatory burden associated with our business. Failure to
comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as: warning
letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction
of products into the market; total or partial suspension of production; refusal to grant future clearances or approvals; withdrawals or
suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal
penalties.
An element of our strategy is to continue to upgrade
our Deep TMS systems, add new enhancements and features, pursue next-generation equipment versions utilizing our patented technology,
expand clearance or approval of the Deep TMS System to include new indications or broader application and introduce different treatment
plans. In the United States, before we can market a new medical device, claim new or expanded indications for use or introduce a significant
modification to an existing product, or implement new treatment plans, we must first receive either clearance under Section 510(k) of
the Federal Food, Drug, and Cosmetic Act, or the FDCA, premarket approval application (PMA) or de novo classification, from the
FDA, unless an exemption applies. In the PMA process, 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. However, some devices are automatically subject to the PMA pathway regardless of the level of risk they pose because
they have not previously been classified into a lower risk class by the FDA. Manufacturers of these devices may request that FDA review
such devices in accordance with the de novo classification procedure, which allows a manufacturer whose novel device would otherwise
require a PMA prior to marketing to request down-classification of the device on the basis that the device presents low or moderate risk.
If the FDA grants the de novo classification request, the applicant will then receive authorization to market the device. This
device type can then be used as a predicate device for future 510(k) submissions. 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 a 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.
We received marketing authorization of our MDD and smoking
addiction indications through the 510(k) clearance process and have made various expansions to our MDD indication, including, in 2021,
a clearance for a shortened three-minute depression protocol and a labeling expansion for anxious depression through subsequent 510(k)
clearances. In 2022, we extended our FDA clearance for MDD (including anxious depression) to our H7 Coil, also via the 510(k) process.
This does not include our shortened three-minute depression protocol, which continues only to apply for our H1 Coil. In 2024, we expanded
the FDA labeling for our system to treat late-life (ages 69-86) MDD indications and in November 2025 we expanded the FDA labeling of our
system to treat adolescent (ages 15-21) MDD indications as an adjunct therapy. Also in 2025, we obtained an expansion of our clearance
to cover an accelerated treatment protocol for MDD. We also received marketing authorization of our OCD indication through the de novo
classification process. Several competitors have obtained 510(k) clearance for their TMS device for an OCD indication, using our de
novo classification as a predicate device in their submission, and others may follow suit. The process of obtaining regulatory authorization
to market a medical device can be costly and time consuming, and we may not be able to successfully obtain authorizations on a timely
basis, if at all.
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The FDA can delay, limit or deny clearance or approval
of a device for many reasons, including: we may be unable to demonstrate to the FDA’s satisfaction that the product or modification
is substantially equivalent to the proposed predicate device or is safe and effective for its intended use; the data from our pre-clinical
studies and clinical trials may be insufficient to support authorization, where required; and the manufacturing process or facilities
we use may not meet applicable requirements. The FDA may also, instead of accepting a 510(k) submission, require us to submit a PMA, which
is typically a much more complex, lengthy, and burdensome application than a 510(k) submission. To support a PMA, the FDA would likely
require that we conduct one or more clinical studies to demonstrate that the device is safe and effective. In some cases, such studies
may be requested for a 510(k) as well. We may not be able to meet the requirements to obtain 510(k) clearance or PMA approval (or a de
novo classification request), in which case the FDA may not grant any necessary clearances or approvals. In addition, the FDA may
place significant limitations upon the intended uses of our products as a condition to a 510(k) clearance, PMA approval or de novo
classification. Product applications can also be denied or withdrawn due to failure to comply with regulatory requirements or the
occurrence of unforeseen problems following clearance or approval. Any delays or failure to obtain FDA clearance or approval of new products
we develop, any limitations imposed by the FDA on new product use or the costs of obtaining FDA clearance or approvals could have a material
adverse effect on our business, financial condition, and results of operations.
Even if granted, a 510(k) clearance, de novo classification,
or PMA imposes substantial restrictions on how our devices may be marketed or sold, and the FDA continues to place considerable restrictions
on our products and operations. For example, the manufacture of medical devices must comply with the FDA’s Quality System Regulation
(QSR). In addition, manufacturers must register their manufacturing facilities, list their products with the FDA, and comply with requirements
relating to labeling, marketing, complaint handling, adverse event and medical device reporting, reporting of corrections and removals,
and import and export restrictions. The FDA monitors compliance with the QSR and these other requirements through periodic inspections.
If our facilities or those of our suppliers are found to be in violation of applicable laws and regulations, or if we or suppliers fail
to take satisfactory corrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including
any of the following sanctions: untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties; customer
notifications or repair, replacement, refunds, recalls, detention or seizure of our products; operating restrictions or partial suspension
or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified
products; withdrawing 510(k) marketing clearances, PMA approvals and/or de novo classifications that have already been granted;
refusing to provide Certificates for Foreign Government; refusing to grant export approval for our products; or pursuing criminal prosecution.
Any of these sanctions could impair our ability to produce or commercialize our products in a cost-effective and timely manner in order
to meet our customers’ demands and could have a material adverse effect on our reputation, business, results of operations, and
financial condition. We may also be required to bear other regulatory compliance costs or take other actions that may have a negative
impact on our sales and our ability to generate profits.
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 authorization
of our future products under development or impact our ability to modify our currently marketed products on a timely basis. Such policy
or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new 510(k) clearances or other
classifications or approvals, increase the costs of compliance or restrict our ability to maintain our current clearances and de novo
authorization. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative or executive action in the United States, especially with the Trump administration, which has already implemented a
number of policy changes that are likely to impact our industry. In addition to substantive policy changes, the Trump administration’s
push for deregulation, a reduction of federal funding, and a reduction of the federal workforce in agencies including in the Department
of Health and Human Services (“DHHS”) may lead to delays in approvals or clearances, unpredictable enforcement, abrupt policy
changes, and many other forms of regulatory volatility that may destabilize our industry and could have a material adverse effect on our
business.
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In order to sell our products in member countries of the European Economic Area (EEA), or in countries
that also rely on the CE Mark outside the EEA, our products must comply with the General Safety and Performance Requirements of the Medical
Device Regulation (Regulation 2017/745) and the ISO 13485:2016 standard for Medical devices (Quality management systems, Requirements
for regulatory purposes). Compliance with these requirements is a prerequisite to be able to affix the CE Mark to our products, without
which they cannot be sold or marketed in the EEA. To demonstrate compliance with the General Safety and Performance 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 an EC Declaration of Conformity based on
a self-assessment of the conformity of its products with the essential requirements of the Medical Devices Regulation, a conformity assessment
procedure requires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, a Notified
Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file
and the quality system for the manufacture, design, and final inspection of our devices. We are audited and certified for ISO 13485, Quality
Management System, under the Medical Device Single Audit Program (MDSAP), which means that we undergo a single audit of our quality management
systems (QMS) to satisfy the regulatory requirements of multiple jurisdictions, such as the United States (FDA), Canada (Health Canada),
Brazil (ANVISA), Japan (PMDA) and Australia (TGA). In order to market class II (or above) medical devices in Canada, an MDSAP certificate
is mandatory. 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 General Safety and Performance 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. If we fail to remain in compliance with applicable European laws and directives, we would be unable to continue to affix
the CE Mark to our device, which would prevent us from selling them within the EEA and may have an impact on our marketing authorizations
in other countries.
We or our distributors will also need to obtain, or retain,
regulatory approval in other foreign jurisdictions in which we plan to or currently market and sell our products, and we or they may not
obtain such approvals as necessary to commercialize our products in those territories. Regulatory marketing authorizations in these foreign
jurisdictions typically require device testing, conformance to classification requirements, pre-market requests to authorize commercialization,
and in some cases, inspections and/or a local presence in the territory for the approval holder.
Any modification to a 510(k)-cleared product 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 de novo classification, or possibly, a PMA. Modifications to products that have been approved through the PMA
process generally require premarket FDA approval. Similarly, certain modifications made to products cleared through a 510(k) or authorized
through the de novo classification process may require a new 510(k) clearance. Each of the PMA, de novo classification and
the 510(k) clearance processes can be expensive, lengthy, and uncertain. The FDA’s 510(k) clearance process usually takes from three
to 12 months, but can be longer. The process of obtaining a PMA is 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 filed with the FDA. In addition, a PMA generally
requires the performance of one or more clinical trials. The de novo process generally takes between 4 months and one year.
Despite the time, effort and cost invested by us in an FDA
approval or clearance process, a device may eventually not be approved or cleared by the FDA. Any delay or failure to obtain necessary
regulatory authorizations could harm our business. Furthermore, even if we are granted regulatory authorizations, they may include significant
limitations on the indicated uses for the device, which may limit the market for the device.
Any modifications to our existing products may require new
510(k) clearance; however, future modifications may be subject to the substantially more costly, time- consuming, and uncertain PMA process.
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, product introductions or modifications could be delayed or canceled, which could cause our sales to decline and
our expenses to increase.
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The FDA requires every manufacturer to make the modification 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 authorizations
are necessary. We made modifications to our products in the past and have determined based on our review of the applicable FDA regulations
and guidance that in certain instances new 510(k) clearances were not required. We may make modifications or add additional enhancements
or features in the future that we believe do not require a new 510(k) clearance, de novo classification or a PMA. If the FDA disagrees
with our determination and requires us to submit new 510(k) notifications, de novo classifications or PMAs for modifications to
our previously authorized products for which we have concluded that new authorizations are unnecessary, we may be required to cease marketing
or to recall the modified product until we obtain appropriate regulatory authorization, and we may be subject to significant regulatory
fines or penalties. In addition, the FDA may not authorize our products for the indications that are necessary or desirable for successful
commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining required regulatory
authorizations would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our
future growth.
Our products must be
manufactured in accordance with any applicable federal, state and/or foreign regulations, and we could be forced to recall our installed
systems 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 FDA’s 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. Furthermore, we are required to verify that our suppliers maintain facilities,
procedures and operations that comply with our quality standards and applicable regulatory requirements. Compliance with the QSR is necessary
to receive FDA clearance or approval to market new products and is necessary for a manufacturer to be able to continue to market cleared
or approved devices in the United States. 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. Foreign regulatory authorities also impose manufacturing
quality requirements, that may differ from the FDA requirements, with which we must comply.
In February 2026, the FDA’s Quality Management
System Regulation (“QMSR”) became effective, replacing the QSR and aligning U.S. requirements with ISO 13485:2016 standards.
We or our third-party suppliers may fail to take the necessary
steps to comply with applicable regulations, including regulatory changes, which could cause delays in the delivery of our products. In
addition, failure to comply with applicable FDA or foreign jurisdiction 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 or clearances; 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 of Deep TMS for additional indications or any other clearances or approvals we may seek; clinical holds; refusal to permit
the import or export of our products; and criminal prosecution of us or our employees. Any of these actions could significantly and negatively
impact supply of our Deep TMS systems. 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 suffer reduced revenues and increased costs.
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If treatment guidelines for the clinical conditions
we are targeting change or the standard of care evolves, we may need to redesign and seek new marketing authorization from the FDA for
one or more of our products.
If treatment guidelines for the clinical conditions we
are targeting or the standard of care for such conditions evolves, we may need to redesign our Deep TMS systems and seek new marketing
authorizations from the FDA. Our existing 510(k) and de novo clearances from the FDA are based on current treatment guidelines.
Additionally, if treatment guidelines change so that different treatments become desirable, the clinical utility of one or more of our
indications could be diminished and our business could suffer.
The misuse or off-label
use of Deep TMS 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, particularly if we are deemed to have engaged in the promotion of these uses,
any of which could be costly to our business.
The Deep TMS system has been authorized for marketing by the
FDA only for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious depression), OCD, and smoking addiction
indications. We train our commercial organization to not promote our products for uses outside of the FDA-authorized indications for use,
known as “off-label uses.” However, we cannot guarantee that all of our employees, representatives, and agents will abide
by our marketing policies. If the FDA determines that our promotional materials, training, practices, or other marketing activities constitute
promotion of an off-label or unapproved 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, 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 laws prohibiting false claims for reimbursement.
Moreover, even if we, and all our employees, contractors,
and agents, market our products in compliance with applicable FDA regulations, such regulations do not apply to the practice of medicine,
and we cannot prevent a physician from prescribing and/or using our products off-label when, in the physician’s independent professional
medical judgment, he or she deems it appropriate. Similarly, we cannot prevent patients from using our products off-label. There may be
increased risk of injury to patients if physicians attempt to prescribe, or patients attempt to use, Deep TMS off-label. Furthermore,
the use of Deep TMS for MDD (including reduction of comorbid anxiety symptoms, commonly referred to as anxious depression), OCD or smoking
addiction other than as stated on product labeling, or for indications other than those authorized by the FDA, may not be effective to
treat such conditions, which could harm our reputation in the marketplace among physicians and patients. There are similar risks if Deep
TMS is prescribed or used off-label with respect to non-U.S. regulatory approvals.
Deep TMS may cause
or contribute to adverse medical events 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.
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, it 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 could take action, including warning letters,
untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance,
seizure of our products or delay in clearance of future products.
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The FDA and foreign regulatory bodies have the authority to require, and in the United States companies
are expected to voluntarily implement, 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. An FDA recall, whether mandatory or voluntary,
may be based on a finding that there is reasonable probability that the device could cause serious injury or death. 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. If we initiate a correction or removal for one of our devices to reduce a risk to health posed
by the device, we would be required to submit a publicly available Correction and Removal report to the FDA and, in many cases, similar
reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny
by the FDA, other international regulatory agencies, and our customers regarding the quality and safety of our devices. Furthermore, the
submission of these reports could be used by competitors against us in competitive situations and cause customers to delay purchase decisions
or cancel orders and would harm our reputation.
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 authorization for the device before we
may market or distribute the corrected device. Seeking such authorization 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 untitled letters or warning letters, product seizure, injunctions, administrative penalties or civil or criminal
fines.
Companies are required to maintain certain records of
corrective actions, even if they are not reportable to the FDA. We may initiate voluntary corrective actions for our products in the future
that we determine do not require notification to 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 adverse event involving Deep TMS systems could result
in voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or
other enforcement action. Any corrective action, whether voluntary or involuntary, as well as exposing us to private litigation, would
require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial
results.
If we or our distributors
do not obtain and maintain international regulatory registrations or approvals for Deep TMS, we will be unable to market and sell our
products outside of the United States.
Sales of our Deep TMS systems outside of the United States
are subject to foreign regulatory requirements that vary widely from country to country. While the regulations of some countries may not
impose barriers to marketing and selling Deep TMS systems or only require notification, others require that we or our distributors obtain
the approval of a specified regulatory body. Complying with foreign regulatory requirements, including obtaining registrations or approvals,
can be expensive and time-consuming, and we or our distributors may not receive regulatory approvals in each country in which we plan
to market Deep TMS or we may be unable to do so on a timely basis. The time required to obtain registrations or approvals, if required
by other countries, may be longer than that required for FDA authorization, and requirements for such registrations, clearances or approvals
may significantly differ from FDA requirements. If we modify our Deep TMS systems, we or our distributors may need to apply for additional
regulatory 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 or our distributors have received. If we or our distributors 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 authorization by the FDA and/or the permission
to affix the CE Mark does not ensure clearance or approval by regulatory authorities in other jurisdictions, and clearance or approval
by one or more foreign regulatory authorities does not ensure clearance or approval by the FDA, the EU and/or the regulatory authorities
in other foreign countries. However, a failure or delay in obtaining regulatory clearance or approval in one country may have a negative
effect on the regulatory process in others.
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We are subject to certain federal, state, and foreign fraud and abuse laws, health information privacy
and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to
or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our
business.
There are numerous U.S. federal and state, as well as foreign,
laws pertaining to healthcare fraud and abuse, including anti-kickback, false claims, physician self-referral, anti-inducement, and physician
transparency laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and
regulations involve substantial costs. Our business practices and relationships with providers and patients are subject to scrutiny under
these laws. We may also be subject to patient information privacy and security regulation by both the federal government and the states
and foreign jurisdictions in which we conduct our business. The healthcare laws and regulations that may affect our ability to operate
include:
● the federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons and entities 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, lease, order, or arrangement for, or recommendation of, a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The federal government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a specific intent to violate. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Although there are a number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti-Kickback Statute protecting certain common business arrangements and activities from prosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including by providing discounts, or engaging individuals as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit squarely within an exception 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 reimbursement support programs, educational or research grants, or charitable donations;
● the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal government funds, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Private individuals, commonly known as “whistleblowers,” can bring civil False Claims Act qui tam actions, on behalf of the government and themselves and may share in amounts paid by the entity to the government in recovery or settlement. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of $14,308 to $28,619 per false or fraudulent claim or statement. As noted above, 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 under the federal civil False Claims Act. Many pharmaceutical and medical device manufacturers have been investigated and have reached settlements for substantial amounts under the federal civil False Claims Act in connection with alleged off-label promotion of their products and allegedly providing free products to customers with the expectation that the customers would bill federal healthcare programs for the product. In addition, manufacturers can be held liable under the federal civil False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. There are also criminal penalties, including imprisonment and criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal government;
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● the federal Physician Self-Referral Law, commonly known as the Stark Law, which prohibits physicians from referring Medicare and Medicaid patients to healthcare entities in which they or any of their immediate family members have ownership interests or other financial arrangements, if these entities provide certain designated health services reimbursable by Medicare or Medicaid, unless an exception applies. The Stark Law also prohibits entities that provide designated health services reimbursable by Medicare and Medicaid from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral on a timely basis. Sanctions for violating the Stark Law include denial of payment, civil monetary penalties and exclusion from the federal healthcare programs. Failure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or fraudulent claim and may result in civil penalties and additional penalties under the federal False Claims Act;
● the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State healthcare program;
● HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statements or representations, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
● the federal Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act (PPACA), which requires certain manufacturers of drugs, medical devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations, as well as ownership and investment interests held by physicians and their immediate family members. Since January 2022, applicable manufacturers are also required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives;
● HIPAA, as amended by HITECH, and their respective implementing regulations, impose privacy, security, and breach reporting obligations with respect to PHI upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers and their respective business associates that perform services on their behalf that involve PHI. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make HIPAA compliance as well as civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; and
● analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require medical device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions that may be more stringent than those applicable to us in the United States; state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers.
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These laws and regulations, among other things, constrain
our business, marketing, and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we
may have with physicians or other potential purchasers of our products. We also entered into consulting agreements with physicians, which
are subject to these laws. Further, while we do not submit claims and our customers will make the ultimate decision on how to submit claims,
we may provide reimbursement guidance and support regarding our products. 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.
To enforce compliance with healthcare regulatory laws, certain
enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which
has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. For example, U.S. federal
and state regulatory and enforcement agencies continue to actively investigate violations of healthcare laws and regulations, including
pursuing novel theories of liability under these laws. These government agencies have recently increased regulatory scrutiny and enforcement
activity with respect to manufacturer reimbursement support activities and patient support programs, including bringing criminal charges
or civil enforcement actions under the federal healthcare Anti-Kickback statute, federal civil False Claims Act, the healthcare fraud
statute, and the HIPAA privacy provisions. Responding to investigations can be time and resource consuming and can divert management’s
attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our
business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to respond to.
If our operations are found to be in violation of any
of the healthcare laws or regulations described above or any other healthcare regulations that apply to us, we may be subject to administrative,
civil and criminal penalties, damages, fines, disgorgement, substantial monetary penalties, exclusion from participation in government
healthcare programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations, and oversight if we become subject
to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, reputational harm, and
the curtailment or restructuring of our operations.
Healthcare policy changes,
including legislation reforming the U.S. healthcare system, could harm our cash flows, financial condition, and results of operations.
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, FDA regulations
and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new
statutes, regulations, revisions, or reinterpretations of existing regulations may impose additional costs, lengthen review times of any
future products, or make it more difficult to 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.
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For example, in March 2010, the PPACA was enacted in the United States, which made a number of substantial
changes in the way healthcare is financed by both governmental and private insurers. Among other ways in which it may impact our business,
the PPACA 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; implements 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; and expands the eligibility criteria for Medicaid programs.
Some of the provisions of the PPACA have yet to be implemented,
and there have been judicial and Congressional challenges to modify, limit, or repeal certain aspects of the PPACA since its enactment
and it has continued to evolve. During his first term as president, President Trump supported the repeal of all or portions of the PPACA,
and in January 2017, he signed Executive Orders designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent
some of the requirements for health insurance mandated by the PPACA to the maximum extent permitted by law. Due to such efforts, certain
elements of the PPACA have been invalidated or suspended, which has, in turn, led to additional challenges against the law as a whole.
For example, the Tax Cuts and Jobs Act of 2017 included a provision repealing, effective January 1, 2019, the tax-based shared responsibility
payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate”. As a result, there is significant uncertainty regarding future healthcare
reform and its impact on our operations. In December 2018, a district court in Texas held that the individual mandate is unconstitutional
and that the rest of the PPACA is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual
mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the
PPACA. The Fifth Circuit’s decision on the individual mandate was appealed to the U.S. Supreme Court. On June 17, 2021, the Supreme
Court held that the plaintiffs (comprised of the state of Texas, as well as numerous other states and certain individuals) did not have
standing to challenge the constitutionality of the PPACA’s individual mandate and, accordingly, vacated the Fifth Circuit’s
decision and instructed the district court to dismiss the case. As a result, the PPACA will remain in-effect in its current form for the
foreseeable future; however, we cannot predict what additional challenges may arise in the future, the outcome thereof, or the impact
any such actions may have on our business, and there is even greater uncertainty given President Trump’s second term.
The Biden administration also introduced various measures
in 2021 focusing on healthcare and drug pricing, in particular. For example, on January 28, 2021, President Biden issued an executive
order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the PPACA marketplace, which
began on February 15, 2021, and remained open through August 15, 2021. The executive order also instructed certain governmental agencies
to review and reconsider their existing policies and rules that limit access to healthcare, including, among others, reexamining Medicaid
demonstration projects and waiver programs that include work requirements and policies that create unnecessary barriers to obtaining access
to health insurance coverage through Medicaid or the PPACA. On the legislative front, the American Rescue Plan Act of 2021 was signed
into law on March 11, 2021, which, in relevant part, eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s
average manufacturer price, for single source drugs and innovator multiple source drugs, beginning January 1, 2024. And, on August 16,
2022, the Inflation Reduction Act of 2022 (IRA) was signed into law. Among other things, the IRA requires manufacturers of certain drugs
to engage in price negotiations with Medicare (with negotiated drug prices beginning in 2026), imposes rebates under Medicare Part B and
Medicare Part D to penalize price increases that outpace inflation, and replaces the Part D coverage gap discount program with a new discounting
program beginning in 2025. The IRA also authorizes the DHHS to implement many of these provisions through guidance, as opposed to regulation,
for the initial years. We cannot yet assess the impact that the IRA will have on the medical-products industry, but it will likely be
significant.
There is seemingly constant evolution with regard to healthcare
in the United States, and we cannot predict what healthcare programs and regulations may be implemented or changed at the federal and/or
state level or the effect of any future legislation or regulation on our business or that of our current or prospective customers, suppliers,
and/or the U.S. healthcare industry as a whole.
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It is possible that such recent and/or future initiatives could have an adverse effect on our ability
to obtain or maintain approvals and/or successfully commercialize products in the United States in the future. For example, any changes
that reduce or impede the ability to obtain reimbursement for the type of products we currently market, or may commercialize in the future,
as applicable, in the United States would likely have an adverse effect on our business and profitability.
Our employees, consultants,
distributors, agents, and other commercial partners may engage in misconduct or other improper activities, including non-compliance with
regulatory standards and requirements.
We are exposed to the risk that our employees, consultants,
distributors, agents, and other commercial partners may engage in inappropriate, fraudulent or illegal activity. Misconduct by these parties
could include intentional, reckless or negligent conduct or other unauthorized activities that violate the regulations of the FDA and
other U.S. healthcare regulators, as well as non-U.S. regulators, including by violating laws requiring the reporting of true, complete
and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States
and abroad or laws that require the true, complete, and accurate reporting of financial information or data. In particular, sales, marketing,
and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or
prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business
arrangements. It is not always possible or practicable to identify and deter misconduct by our employees, distributors, agents, and other
third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with
these laws or regulations. Efforts to ensure that the activities of these parties will comply with applicable healthcare laws and regulations
involve substantial costs. These risks may be more pronounced, and we may find that the processes and policies we have implemented are
not effective at preventing misconduct. If any actions are instituted against us and we are not successful in defending ourselves or asserting
our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal
and administrative penalties, damages, monetary fines, individual imprisonment, disgorgement, possible exclusion from participation in
government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement
or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits
and future earnings and the curtailment of our operations. Whether or not we are successful in defending against such actions or investigations,
we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these
claims or investigations.
Risks Related to Our Intellectual
Property
We depend on our intellectual property, and our future success
is dependent on our ability to protect our intellectual property and not infringe on the rights of others.
Our success depends, in part, on our ability to obtain sufficient
patent protection and/or licensing rights for Deep TMS (including, but not limited to, the various H-Coils utilized in our devices and
various product features/capabilities), maintain the confidentiality of our trade secrets and know-how, operate without infringing on
the proprietary rights of others, and prevent others from infringing our proprietary rights. Our success also depends, in part, on the
ability of the U.S. Public Health Service, or PHS, which refers collectively to the National Institutes of Health, or NIH, the Centers
for Disease Control and Prevention, or CDC, and the FDA, as agencies of the PHS within the DHHS, and Yeda Research and Development Company
Ltd., or Yeda, the technology transfer arm of the Weizmann Institute of Science, from whom we license essential intellectual property
upon which the Deep TMS technology is based, to obtain sufficient patent protection for such intellectual property, maintain the confidentiality
of related trade secrets and know-how, operate without infringing on or violating the proprietary rights of others, and prevent others
from infringing or violating the Company’s owned and/or in-licensed intellectual property.
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We and our licensors try to protect our proprietary position by, among other things, filing U.S.,
European, and other patent applications related to Deep TMS, as well as to inventions and improvements that may be important to the continuing
development of Deep TMS. While we generally apply for patents in those countries where we intend to make or have made, use, sell, or import
patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail
to timely file a patent application in any such country, we may be precluded from doing so at a later date. In addition, we cannot assure
you that any of our future processes or product indications will be patentable or enforceable even if patented; our processes or product
indications will not infringe upon the patents of third parties; or we will have the legal and factual basis, or resources, to defend
against charges of patent infringement or other violation or misappropriation of intellectual property by third parties or to protect
our own intellectual property rights against infringement, misappropriation or violation by third parties.
Because the patent position of medical device companies involves
complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Changes in either the
patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the
breadth of claims that may be allowable or enforceable in our patents (including patents owned by or licensed to us). Our issued patents
may not provide us with any competitive advantages, may be held invalid or unenforceable as a result of legal challenges by third parties
or could be circumvented. Our competitors may also independently develop formulations, processes, technologies, methods or products similar
to ours or design around or otherwise circumvent patents issued to, or licensed by, us. Thus, any patents that we own or license from
others may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we
may license from third parties may not result in patents being issued. If these patents are issued, they may not be of sufficient scope
to provide us with meaningful protection. The degree of future protection to be afforded by our proprietary rights is uncertain because
legal means afford relatively limited protection, and may not adequately protect our rights or permit us to gain or keep our competitive
advantage.
Patent rights are territorial; thus, the patent protection
we do have exists only in those countries in which we have been issued patents. Even so, the laws of certain countries do not protect
our intellectual property rights to the same extent as do the laws of the United States and the European Union. Therefore, we cannot assure
you that the patents issued to us or to our licensors, if any, as a result of foreign patent applications will have the same scope of
coverage as our or our licensors’ U.S. patents. Competitors may successfully challenge our patents, produce similar products that
do not infringe our patents, or produce products in countries where we have not applied for patent protection or that do not respect our
patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not
possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law. A failure to obtain sufficient
intellectual property protection in any foreign country could materially and adversely affect our business, results of operations, and
future prospects. Moreover, we may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’
foreign patents, which could result in substantial costs and divert management’s resources and attention. Additionally, due to uncertainty
in patent protection law, we have not filed applications in many countries where significant markets exist.
Changes in patent law and regulations in other countries or
jurisdictions or changes in governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent
laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in
the future. For example, in Europe, beginning June 1, 2023, European applications and patents may be subjected to the jurisdiction of
the Unified Patent Court (UPC) for a single pan-European infringement action or revocation proceeding. European applications will for
now have the option in certain circumstances, upon grant of a patent, of becoming a Unitary Patent that will be subject to the jurisdiction
of the UPC. This is a significant change in European patent practice. As the UPC is a new court system with few decisions rendered, there
is little precedent for parties to rely on at the court, increasing the uncertainty. The UPC may provide our competitors with a new forum
to seek to centrally revoke our European patents if we do not opt our patents out of the UPC where permitted, and allows for the possibility
of a competitor to obtain pan-European injunctions with their own UPC-designated European patents. As a single court system can invalidate
a European patent, we, where applicable, may opt out of the UPC and as such, each European patent would then need to be challenged in
each individual country and each infringement action pursued in each country.
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After the completion of development and registration of our patents, third parties may still act
to manufacture and/or market products that infringe our patent protected rights, and we may not have adequate resources to enforce our
patents. Any such manufacturing and/or marketing of products by others that infringe our patent rights, or any development of products
which infringe the patent rights of others, may significantly harm our business, results of operations and prospects.
In addition, due to the extensive time needed to develop,
test, and obtain regulatory approval for new indications of Deep TMS, any patents that protect these indications may expire early during
the commercialization process. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration,
we may face increased competition through the entry of competing products into the market and a subsequent decline in market share and
profits.
Moreover, our business interests may change, or our licensors
may disagree with the scope of our license grants. In such cases, litigation could impede our ability to commercialize the technology,
or such licensing arrangements may result in the development, manufacturing, marketing, and sale by our licensors of products substantially
similar to our products, causing us to face increased competition, which could reduce our market share and significantly harm our business,
results of operations and prospects.
The duration of our patent
rights may not be sufficient to effectively protect our products and business.
Patents have a limited lifespan. In the United States, the
natural expiration of a patent is generally 20 years after its first effective non-provisional filing date. Although various extensions
may be available, the duration of a patent, and the protection it affords, is limited. Even if patents covering our technologies, products,
or product candidates are obtained, once the patent life has expired, we may be open to competition. Patents covering some of our core
technology have expired or will expire within the next five years. In particular, the earliest of our U.S. patents on Deep TMS expired
in January 2024 and certain patents from Patent Family B are due to expire in June 2026. See “Business - Intellectual Property.”
In addition, although upon issuance in the United States a patent can be extended based on certain delays caused by the United States
Patent and Trademark Office (USPTO), this extension can be reduced or eliminated based on certain delays caused by the patent applicant
during patent prosecution. If we do not have sufficient patent life to protect our technologies, products, and product candidates, our
business, and results of operations will be adversely affected.
Our right to the
essential intellectual property upon which the Deep TMS technology is based derives from in-license agreements with government agencies
and research institutions, the termination of which would prevent us from commercializing Deep TMS.
We have in-licensing agreements with the PHS and Yeda. There
is no assurance that the in-licenses or related rights on which we base our technology will not be terminated due to a material breach
of the underlying agreements or some other failure to meet the terms of agreement, such as a failure on our part to make certain progress
milestone payments set forth in the terms of the licenses or to comply with manufacturing obligations under these agreements, or otherwise
expire. There is no assurance that we will be able to renew or renegotiate our license agreements on acceptable terms if and when such
agreements terminate. We cannot guarantee that any in-license is enforceable or will not be terminated in the future. The termination
of any in-license or our inability to practice such technology and/or to enforce our rights under any in-license would materially and
adversely affect our ability to commercialize our Deep TMS systems.
The license agreements
for our critical patents and related intellectual property impose significant monetary obligations and other requirements on us that may
adversely affect our ability to successfully execute our business plan.
We depend upon license agreements with the PHS and Yeda for
our intellectual property rights to Deep TMS technology. Deep TMS was developed by our founders, among others, prior to our founding over
the course of their work for the PHS. The key family of patents and patent applications upon which the unique coil of Deep TMS technology
is based is owned by the DHHS (based on an assignment of the related rights from the PHS) and is exclusively in-licensed to us under a
license agreement with the PHS. A second family of patent applications covering additional functions of Deep TMS (including the multichannel
stimulator that we are developing for use in a more advanced version of our system), which is jointly owned by us with the NIH and Yeda,
is also licensed to us under the PHS license agreement and our license agreement with Yeda.
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Our license agreement with Yeda was made within the context of research we commissioned at the Weizmann
Institute involving Deep TMS. This agreement provides for in-licensed rights relating to our second and third families of patent applications,
which cover additional characteristics of Deep TMS (including several Deep TMS coils, multi-channel stimulation, and methods of use),
as well as in-licensed rights to rotational field TMS, which involves the perpendicular placement of two coils over the head operated
with a phase lag which causes a rotating induced electric field that enables stimulation of neurons in various orientations.
These agreements provide us an exclusive (subject to certain
standard exceptions and such as described below), worldwide license, with a right to sublicense, subject to the approval of PHS and Yeda,
as applicable, for the life of the relevant patents (in the case of Yeda, on a per country basis or until the 15-year anniversary of the
first commercial sale (per country) of a product developed on the basis of the agreement, if later for the development, creation, use,
import, offer, and sale of any product or treatment that relates to Deep TMS technology and that is developed on the basis of such patents
or (in the case of the agreement with Yeda) such research. These agreements require us, as a condition to the maintenance of our license
and other rights, to make milestone and royalty payments and satisfy certain performance obligations, including with respect to manufacturing.
If we were to receive a notice of non-compliance under any of these agreements, we would need to either obtain appropriate waivers and/or
cure such non-compliance, which may require us to modify our operations.
The first patent family upon which our Deep TMS products
are based, which is owned by the DHHS (based on an assignment of the related rights from the PHS) and is exclusively in-licensed to us
under a license agreement with the PHS, expired in the U.S. in January 2024, and a divisional patent within this family will expire in
the U.S. in 2026. See “Business - Intellectual Property.” While we have secured additional patents which we believe
extend the protection of our products into future years, we cannot be certain that this protection will completely compensate for the
expiration of this underlying patent.
All of the above-described obligations impose significant
financial and logistical burdens upon our ability to carry out our business plan. Furthermore, if we do not meet such obligations in a
timely manner, we could lose the rights to our proprietary technology, which would have a material adverse effect on our business, financial
condition, and results of operations.
In certain cases, we may rely on our licensors to conduct
prosecution, maintenance and/or defense of patents on our behalf. Our ability to ensure that these patents are properly prepared, prosecuted,
maintained, enforced or defended is therefore limited, which may adversely affect our licensed intellectual property rights. Any failure
by our licensors to properly prepare, prosecute, maintain, enforce, and defend patents or other licensed rights could materially harm
our ability to protect our products and prevent infringement of intellectual property rights by competitors, thereby materially reducing
our potential profits.
The key patents that
underlie our Deep TMS technology are subject to the U.S. government’s royalty free usage rights on a worldwide basis for any discovery
based on such patents, which may have unexpected, adverse consequences upon the market for our product.
Under our PHS license agreement, the U.S. government possesses
an irrevocable, nonexclusive, nontransferable royalty-free license for the practice of inventions based on the inventions upon which our
Deep TMS technology is based, for the benefit of the U.S. government, foreign governments, or international organizations under any existing
or future treaty or agreement applicable to the U.S. government at such time. Furthermore, the PHS may grant, or may cause us to grant,
nonexclusive research licenses, for the purpose of encouraging basic research at academic or corporate facilities (but, in the case of
any license to a commercial entity, subject to our right to object if we believe that such license would adversely impact the exclusivity
of our rights under the agreement). The PHS may also require us to grant sublicenses to responsible applicants if the public health and
safety so require, subject to our right to demonstrate that any such sublicense will not materially increase the availability to the public
of our licensed rights or that such public health and safety requirements may be otherwise met without any such sublicense.
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No material limits have been placed on the license held by the U.S. government for its own (or for
its treaty partners’ or agreement counter-parties’) benefit, and it is possible that the U.S. government, a foreign government
or an international organization could even commercialize a product on the basis of this license and the related technology. We cannot
provide assurance that these rights will not be exploited in a manner that infringes upon any otherwise enforceable exclusive licenses
we hold to the PHS-owned patents, that does not develop or advance products that compete with our own, or that does not otherwise adversely
impact our business. Because our rights with respect to the PHS-owned patents are critical to Deep TMS-based technologies and systems,
any unexpected consequences from the U.S. government’s or other third party’s exploitation of such rights could have an adverse
impact on the market for Deep TMS and, hence, on our business, financial condition, and results of operations.
If we are unable to protect
the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
In addition to filing patent applications, we generally try
to protect our trade secrets, know-how, technology, and other proprietary information by entering into confidentiality or non-disclosure
agreements with parties that have access to it, such as our development and/or commercialization partners, employees, contractors, and
consultants. We also enter into agreements that require the disclosure and assignment to us of the rights to the ideas, developments,
discoveries and inventions of our employees, advisors, research collaborators, contractors, and consultants while we employ or engage
them. However, we cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other
proprietary information because these agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these
parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors
might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret,
know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any
such competitor.
To the extent that any of our employees, advisors, research
collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in connection with
any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect to
any proprietary right, enforcement of our rights can be costly and unpredictable, and a court may determine that the right belongs to
a third party.
Legal proceedings or
third-party claims of intellectual property infringement and other challenges, whether with or without merit, may require us to spend
substantial time and money and could prevent us from developing or commercializing Deep TMS.
The medical device industry is characterized by competing
intellectual property and a substantial amount of litigation over patent rights. In particular, our competitors in both the United States
and abroad, many of whom have substantially greater resources and have made substantial investments in competing technologies, have been
issued patents and filed patent applications with respect to their products, methods and processes and may apply for other patents in
the future. The large number of patents, the rapid rate of new patent issuances, and the complexities of the technology involved increase
the risk of patent litigation.
Our commercial success depends upon our ability, and the ability
of any third party with which we may partner, to develop, manufacture, market and sell Deep TMS and various product features and protocols
we develop, and to use and promote the use of our technologies without infringing the patents of third parties. We face risks that there
may be patents issued to third parties that relate to Deep TMS and technology of which we are not aware, or that we must challenge, to
continue our operations as currently contemplated.
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The development, manufacture, use, offer for sale, sale
or importation of Deep TMS and any planned future-generation products may infringe on the claims of third-party patents or violate other
intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us and it is
not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty,
or other mechanisms. For example, because patent applications do not publish for at least 18 months, if at all, and can take many years
to issue, there may be currently pending applications unknown to us that may later result in issued patents that Deep TMS would infringe.
Therefore, there is a risk that we could adopt a technology without knowledge of a pending patent application, which technology would
infringe a third-party patent once that patent is issued. Also, because the claims of published patent applications can change between
publication and patent grant, published applications that initially do not appear to be problematic may issue with claims that potentially
cover our products, technology or methods.
Determining whether a product infringes a patent involves
complex legal and factual issues and the outcome of patent litigation is often uncertain. Even though we have conducted research of issued
patents, no assurance can be given that patents containing claims covering our products, technology or methods do not exist, have not
been filed or could not be filed or issued. For example, despite our past and ongoing efforts to ensure the proprietary nature of our
technologies, we are currently addressing a claim by Magnus Medical Inc. alleging that the use of our products for, and our activities
relating to, our accelerated Deep TMS stimulation protocol infringed its exclusively licensed IP rights.
The cost to us of any intellectual property litigation or
other infringement proceeding, even if resolved in our favor, could be substantial. Any claims of patent infringement, even those without
merit, could be expensive and time consuming to defend; cause us to cease making, licensing or using products that incorporate the challenged
intellectual property; require us to redesign, reengineer or rebrand Deep TMS, if feasible; cause us to stop engaging in normal operations
and activities, including developing new indications for Deep TMS; and divert management’s attention and resources. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater
financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other
proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other
proceedings may also absorb significant management time. Consequently, we may not be able to manufacture, use, offer for sale, sell or
import our Deep TMS systems in the event of an infringement action.
Any claims we assert against perceived infringers could provoke
these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding,
a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly
or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question.
An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk
that some of our confidential information could be compromised by disclosure during this type of litigation.
In the event of patent infringement claims, or to avoid potential
claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties
or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may
be nonexclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a product
or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims,
we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly.
In addition, because of the developmental stage of some of
our technologies, claims that Deep TMS and/or other features, protocols and other planned advancements of our technology infringes on
the patent rights of others are more likely to be asserted after commencement of commercial sales incorporating our technology.
In addition to infringement claims against us, we may become
a party to other patent litigation or proceedings before regulatory agencies, including post-grant review, inter parties review, interference
or re-examination proceedings filed with the U.S. Patent and Trademark Office that challenge our patent rights or the patent rights of
our licensors. The costs of defending our patents or enforcing our proprietary rights in post-issuance administrative proceedings can
be substantial and the outcome can be uncertain. An adverse determination in these proceedings could weaken or invalidate the patent
claims that cover our technology and Deep TMS, which could harm our business significantly and dissuade companies from collaborating
with us or permit third parties to directly compete with the same technology.
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We may be subject to claims that our employees,
consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at
universities or other medical device, biotechnology and/or pharmaceutical companies, including our competitors or potential competitors.
Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how
of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently
or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’,
consultants’ or independent contractors’ former employers or other third parties. Litigation may be necessary to defend against
these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees.
Obtaining and maintaining
patent protection depends on compliance with various procedures and other requirements, and our patent protection could be reduced or
eliminated in case of non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees
and various other governmental fees on patents and/or applications are due to the relevant patent agencies in several stages over the
lifetime of the patents and/or patent applications. The relevant patent agencies require compliance with a number of procedural, documentary,
fee payment and other requirements during the patent application process. In many cases, an inadvertent lapse can be cured by payment
of a late fee or by other means in accordance with the applicable rules. However, there are situations in which the failure to comply
with the relevant requirements can result in the 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 might be able to use our technologies and know-how
in the relevant jurisdiction, which could have a material adverse effect on our business, prospects, financial condition and results of
operation.
Risks Related to Our Functions
in Israel
We have manufacturing, assembly and other significant
functions that are located in Israel and, therefore, our business and operations may be adversely affected by political, economic and
military conditions in Israel.
Certain material aspects of our business are located
in Israel, including our headquarters, our research and development and our manufacturing and assembling. See “ - We rely on
third parties, including suppliers for some components used in manufacturing our Deep TMS products, distributors to market and promote
our products internationally and third parties to conduct our clinical trials, which exposes us to uncertainty and instability.”
In addition, 80 of our employees are located in Israel. Accordingly, our business will be directly influenced by the political, economic,
and military conditions affecting Israel at any given time. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have occurred between Israel and its neighboring countries. These conflicts involved missile strikes against civilian targets
in various parts of Israel and negatively affected business conditions in Israel. In addition, Israel faces threats from more distant
neighbors, in particular Iran. A change in the security and political situation in Israel and in the economy could impede our ability
to raise the funds required to finance our research and development plans and to create joint ventures with third parties, and could otherwise
have a material adverse effect on our business, operating results, and financial condition.
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Our facilities, and those of some of our suppliers including the outsourced contract manufacturer
for our newer systems, are in range of rockets and drones that may be fired from Iran, Lebanon, Syria or the Gaza Strip into Israel. In
the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our
facilities, our research and development activities, and our ability to deliver products to customers could be materially and adversely
affected. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation
in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that
are caused by terrorist attacks or acts of war, there can be no assurance that this government coverage will be maintained, or if maintained,
will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect
on our business, financial condition, and results of operations.
In October 2023, Hamas terrorists infiltrated Israel’s
southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive
rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas
within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the
attack, Israel’s security cabinet declared war against Hamas and a military campaign against this terrorist organization commenced
in parallel to its continued rocket and terror attacks. In addition, in October 2023, Hezbollah, a terror group based in Lebanon, commenced
extensive rocket attacks on northern Israel and other areas within the State of Israel. The personnel and facilities of our outsourced
manufacturer, located near the Israel-Lebanon border, were particularly susceptible throughout 2024 to the risks and instabilities posed
by the outbreaks of violence that occurred between Israel and Hezbollah during this period. Although a temporary ceasefire with Hezbollah
was reached in late 2024, the clash between Israel and Hezbollah in Lebanon may escalate in the future into a greater regional conflict.
Additionally, a Yemeni rebel group, the Houthis, launched a series of attacks on global shipping routes in the Red Sea, causing disruptions
of supply chain and also launched rockets and drones in an attempt to reach Israeli military and civilian targets. During June 2025, Israel
and the U.S. also engaged in a war with Iran, which impacted the Israeli workforce and operations. Although a temporary ceasefire was
reached in Gaza, tensions remain high in the region and escalated in March 2026, after the current US-Israel-Iran war commenced, which
impacts the Israeli workforce and operations. These geopolitical developments may adversely affect our ability to continue carrying out
various administrative, research, operational and commercial functions and activities both in Israel and globally.
In addition, popular uprisings in various countries in the
Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration in the
political and trade relationships that exist between the State of Israel and these countries. Furthermore, some countries restrict doing
business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli
companies if hostilities involving Israeli or political instability in the region continue or intensify. Such restrictions may seriously
limit our ability to sell Deep TMS to customers in those countries. In addition, there have been increased efforts by activists to cause
companies and consumers to boycott Israeli products. Such efforts, particularly if they become more widespread, may materially and adversely
impact our ability to sell our products.
Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel could
adversely affect our operations and product development, cause our revenues to decrease, and adversely affect the share price of publicly
traded companies having functions in Israel, such as us.
Moreover, in recent years Israel has been facing
political instability with the rapid changing of its government. Between the years 2018 and 2022, five elections were held for the
Israeli Parliament as a result of a failure to constitute a government. In addition, in 2022 a proposed dramatic and controversial
legal reform that would drastically change the way that the High Court of Justice would function and shift the balance of power
between the Knesset and other government bodies caused significant backlash in Israel, including civil protests and demonstrations,
which continued and intensified in connection with the October 2023 attacks on Israel and the hostages taken by Hamas and other
militant groups in the Gaza Strip. Any continuations or exacerbations of instability in Israel’s security, political and/or
economic environments might deter potential and current investors from investing in Israeli based companies such as BrainsWay.
43
Exchange rate fluctuations between the U.S.
dollar, the New Israeli Shekel and other foreign currencies may negatively affect our future revenues.
While a substantial portion of our revenues is and will continue
to be generated in U.S. dollars and our financial records are maintained in U.S. dollars, we incur a significant portion of our expenses
in currencies other than U.S. dollars, such as NIS. The U.S. dollar has devaluated significantly against the NIS during 2025 and in the
beginning of 2026, significantly increasing the costs of our Israeli operations and impacting our financial results. Our financial results
have been and may continue to be affected by fluctuations in the applicable exchange rates of currencies in the U.S., Israel, and other
countries in which our products and services may be sold.
Our operations may be affected by negative labor
conditions in Israel.
Strikes and work-stoppages occur relatively frequently in
Israel. If Israeli trade unions threaten additional strikes or work-stoppages and such strikes or work-stoppages occur, those may, if
prolonged, have a material adverse effect on the Israeli economy and on our business, including our ability to deliver products to our
customers and to receive raw materials from our suppliers in a timely manner.
Our operations could be disrupted as a result
of the obligation of some of our personnel to perform military service.
Members of our senior management and several of our key employees
reside in Israel, and although most of them are no longer required to perform reserve duty, some may be required to perform annual military
reserve duty, and may be called for active duty under emergency circumstances at any time. Since the initiation of the Israel- Gaza war
and subsequent regional wars, several of our Israel-based employees were drafted to the Reserves for purposes of the war effort, including
five employees in 2023, four in 2024 and ten in 2025. These employees hail from different departments across our organization, including
R&D, manufacturing, and finance. While some of these employees have been released, should they be re-drafted, or should the war expand
and/or other circumstances occur that would result in additional employees being drafted into the reserves, certain Israel-based functions,
primarily including our R&D and scientific operations could be impacted. These impacts could include delays in our ability to rollout
next generation products, and/or any planned redesigned components, features and/or capabilities on our existing products.
The termination or
reduction of tax and other incentives that the Israeli Government provides to domestic companies may increase the costs involved in operating
a company in Israel.
The Israeli government currently provides tax and capital
investment incentives to domestic companies, as well as grant and loan programs relating to research and development, and marketing and
export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental
authorities have indicated that the government may in the future further reduce or eliminate the benefits of those programs. In connection
with the increased defense expenses due to the Israel-Gaza war and other hostilities in Israel and with other countries in the region
since October 2023, additional budget cuts could be implemented, resulting in termination or reduction of grants and other benefits.
We may take advantage of these benefits and programs in the future, however, there is no assurance that such benefits and programs would
continue to be available in the future to us. If such benefits and programs were terminated or further reduced, it could have an adverse
effect on our business, operating results, and financial condition.
44
The
Israeli government grants that we received require us to meet several conditions, may restrict our ability to manufacture our Deep TMS
systems and transfer relevant know-how outside of Israel and require us to pay royalties, including increased royalties if we manufacture
our Deep TMS systems outside of Israel or payment of a redemption fee if we transfer relevant know-how outside of Israel.
We have received royalty-bearing grants from the government
of Israel through the Israel Innovation Authority (IIA) (formerly the Office of the Chief Scientist of the Ministry of Economy and Industry),
for the financing of a portion of our research and development expenditures in Israel. When know-how is developed using IIA grants, the
Encouragement of Research, Development and Technological Innovation in Industry Law 5744-1984, or the Innovation Law, the IIA’s
rules and guidelines as well as the terms of each of these grants, impose an obligation to pay royalties from any income deriving from
a product developed, in whole or in part, directly or indirectly, in the framework of a research and development program funded by the
IIA, including any derivatives and related services. Therefore, we are required to pay low single- digit royalties on the sale of those
of our products developed with this funding, which payments shall not exceed, in the aggregate, the amount of the grant received (in U.S.
dollars), plus interest at an annual rate based on the 12-month SOFR rate plus 0.71513%. In addition, the Innovation Law restricts our
ability to manufacture our products, and transfer know-how developed as a result of the IIA’s funded research and development, outside
of Israel. In certain cases, transfer of the IIA funded know-how outside of Israel requires pre- approval by the IIA, which may also impose
certain conditions, including payment of a redemption fee calculated according to the formulas provided in the IIA’s rules and guidelines,
or the Redemption Fee, which differentiate between certain situations (while in no event will the Redemption Fee be more than six (6)
times the grants received from the IIA plus interest). In addition, we may need or deem it beneficial to us to manufacture our products
outside of Israel, in which case prior approval from the IIA is required (such approval is not required for the transfer of less than
10% of the manufacturing capacity in the aggregate), and we would be required to pay royalties at an accelerated rate and would be subject
to payment of increased royalties, as defined under the IIA’s rules and regulations (up to, in the aggregate, 300% of the amount
of the grant received (dollar linked), plus interest at annual rate based on the 12-month SOFR rate plus 0.71513%, depending on the manufacturing
volume that is performed outside Israel less royalties already paid to the IIA). Accordingly, we may be limited in our ability to manufacture
outside of Israel, and the manufacture of our products outside of Israel could have a material adverse effect on our business and results
of operations.
The IIA has also published rules and guidelines with respect
to the grant to a foreign entity of the right to use know-how that was developed using the IIA’s grants, or Funded Know-How, in
a manner that does not entirely prevent the IIA funded company from using the Funded Know-How, which include a requirement to receive
the IIA’s prior approval. This approval is subject to payment to the IIA in accordance with the formulas stipulated in these rules.
In addition, we may transfer Funded Know-How to another Israeli
company, provided that the acquiring company assumes all of our responsibilities toward the IIA (the transfer would still require IIA
approval, and is subject to the obligation to pay royalties to the IIA from the income of such sale transaction, but will not be subject
to the payment of the Redemption Fee).
The obligation to comply with the Innovation Law and with
the IIA’s rules and guidelines (including with respect to the restriction of the transfer of Funded Know-How and manufacturing rights
outside of Israel) remains in effect even after full repayment of the amount of royalties payable pursuant to the grants. Once a Redemption
Fee is paid on a transfer of Funded Know-How outside Israel, all obligations towards the IIA (including the royalty obligation) cease.
We are also subject to reporting obligations towards the IIA including submitting during the R&D approved program period periodic
reports pertaining to the progress of research and development, submitting reports on income derived from products developed using grants
from the IIA and, in certain circumstances, reports regarding change in the holding in our company and change of control. Furthermore,
in the event of any change of control or any change in the holding of voting rights or rights to appoint directors or the CEO a result
of which any non-Israeli citizen or non-Israeli resident becomes an “Interested Party” in our company, the non-Israeli citizen
or non-Israeli resident shall comply with all the restrictions imposed on us and our obligations pursuant to Innovation Law and the IIA’s
rules and guidelines. See “Management - Internal Auditor” for definition of Interested Party. In addition, the government
of State of Israel may from time to time audit sales of products that it claims incorporate technology funded via IIA programs, and this
may lead to additional royalties being payable on additional product candidates. Moreover, under certain circumstances, further offerings
of our shares to the public in any stock exchange whether in Israel or abroad, is subject to the approval of the IIA.
These restrictions may impair our ability to enter into agreements
covering IIA Funded Know-how without the approval of the IIA, and we cannot be certain that such approval will be obtained on terms that
are acceptable to us, or at all. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity
of know-how developed with IIA funding pursuant to a merger or similar transaction, or in the event we undertake a transaction involving
the licensing of the IIA’s Funded Know-How, the consideration available to our shareholders may be reduced by the amounts we are
required to pay to the IIA. Any approval, if given, will generally be subject to additional financial obligations. Failure to comply with
the requirements under the IIA’s rules and guidelines and the Innovation Law may subject us to mandatory repayment of grants received
by us (together with interest and penalties), as well as expose us to criminal proceedings.
45
Enforcing a U.S. judgment against us and our current senior management and directors, or asserting
U.S. securities law claims in Israel, may be difficult.
We are incorporated in Israel. Our directors and some members
of our management reside in Israel (and most of our assets reside outside of the United States). Therefore, a judgment obtained against
us or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities
laws, may not be collectible in the United States, and may not be enforced by an Israeli court. It may also be difficult to effect service
of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
Even if an Israeli court agrees to hear such a claim, it may
determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such
a claim, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters
of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters.
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 the ADSs.
Israeli corporate law regulates mergers, requires tender offers
for acquisitions of shares above 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 (see Exhibit 2.3 attached
to this Annual Report). These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent
a change of control, and therefore would potentially depress the price of the ADSs.
Furthermore, Israeli tax considerations may make potential
transactions unappealing to us or to our shareholders, especially for those shareholders whose country of residence 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 stock 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.
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.
We have entered into assignment of invention agreements with
our employees who engage in research and development pursuant to which such individuals agree to assign to us all rights to any inventions
created during and as a result of their employment or engagement with us. A significant portion of our intellectual property has been
developed by our employees in the course and as a result of their employment by us. Under the Israeli Patent Law, 5727-1967, or the Patent
Law, inventions conceived by an employee during the scope of his or her employment with a company and as a result thereof 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 agreement between an employer and an employee
with respect to the employee’s right to receive compensation for such “service inventions,” the Israeli Compensation
and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to
remuneration for his or her service inventions and the scope and conditions for such remuneration. Israeli case law clarifies that the
right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such
waiver does not necessarily have to be explicit. In order to determine the scope and validity of such wavier, the Committee will examine,
on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract
laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria
specified in the Patents Law). As such, and although our employees have agreed to assign to us service invention rights, we may 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.
46
The government tax benefits that we currently are entitled to receive require us to meet several
conditions and may be terminated or reduced in the future.
Some of our operations in Israel may entitle us to certain
tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, once we begin to generate taxable
income. If we do not meet the requirements for maintaining these benefits, they may be reduced or cancelled and the relevant operations
would be subject to Israeli corporate tax at the standard rate, which is currently set at 23%. In addition to being subject to the standard
corporate tax rate, we could be required to refund any tax benefits that we may receive in the future, plus interest and penalties thereon.
Even if we continue to meet the relevant requirements, the tax benefits that our current “Technology Enterprise” is entitled
to may not apply in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes
that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which
could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of
acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs. See “Material Tax
Considerations - Israeli Tax Considerations and Government Programs” for additional information concerning these tax benefits.
Your rights and responsibilities
as a shareholder will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders
of U.S. companies.
The rights and responsibilities of our shareholders are
governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the
rights and responsibilities of shareholders in U.S. corporations. For example, a shareholder of an Israeli company has a duty to act in
good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders,
and to refrain from abusing its power in the company, including, among other things, voting at a general meeting of shareholders on matters
such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and
acquisitions, and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses
the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in
the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of
these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities
on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Risks Related to the ADSs and Ordinary Shares
The price of the ADSs may be volatile and may fluctuate due to factors beyond
our control.
The share price of publicly traded medical device companies
has been highly volatile and is likely to remain highly volatile in the future. The market price of the ADSs or Ordinary Shares on either
The Nasdaq Global Market, or Nasdaq, or the Tel Aviv Stock Exchange, or TASE, may fluctuate significantly due to a variety of factors,
including but not limited to, positive or negative results of testing and clinical trials by us, strategic partners, and competitors;
delays in entering into strategic relationships with respect to development and/or commercialization of Deep TMS or entry into strategic
relationships on terms that are not deemed to be favorable to us; technological innovations or commercial product introductions by us
or competitors; changes in government regulations; developments concerning proprietary rights, including patents and litigation matters;
public concern relating to the commercial value or safety of Deep TMS; financing or other corporate transactions; publication of research
reports or comments by securities or industry analysts; general market conditions in the medical device industry or in the economy as
a whole; or other events and factors, many of which are beyond our control.
47
These, and other market and industry factors, may cause
the market price and demand for the ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or
prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of the ADSs. In addition, stock markets
in general, and medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies.
The significant share
ownership position of several of our officers, directors, and entities affiliated with certain of our directors, including Valor, may
limit your ability to influence corporate matters.
Our officers, directors, and entities affiliated with
certain of our directors beneficially own or control, directly or indirectly, approximately 24.5% of our outstanding Ordinary Shares
as of March 23, 2026. Following a private placement of ADSs and warrants to purchase ADSs, consummated on November 5, 2024, and the exercise
by Valor of the warrant issued to it in the private placement during 2025, Valor and its affiliates own ADSs representing in the aggregate
approximately 13.3% of our outstanding share capital as of March 23, 2026. Valor also has the right, among other rights, to designate
(i) one nominee to our Board of Directors as long as it, together with its affiliates, beneficially holds at least 10% of our outstanding
share capital or (ii) two nominees to our Board of Directors as long as it, together with its affiliates, beneficially holds at least
20% of our outstanding share capital. Accordingly, our officers, directors, Valor and their affiliates are able to significantly influence,
though not independently determine, the outcome of matters required to be submitted to our shareholders for approval, including decisions
relating to the election of our Board of Directors, and the outcome of any proposed merger or consolidation of our company. These interests
may not be consistent with those of our other shareholders. In addition, these persons’ and Valor’s significant interest
in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of the ADSs and
our Ordinary Shares.
Holders of ADSs may
be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying Ordinary Shares.
ADSs are transferable on the books of the depositary.
However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance
of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of
the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government
or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to
cancel their ADSs and withdraw the underlying Ordinary Shares. Temporary delays in the cancellation of the ADSs and withdrawal of the
underlying Ordinary Shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer
of Ordinary Shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our Ordinary Shares. In
addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying Ordinary Shares when they owe money for fees,
taxes, and similar charges, and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations
that apply to ADSs or to the withdrawal of Ordinary Shares or other deposited securities. See Exhibit 2.3 attached to this Annual Report.
48
We and the depositary
are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, or to terminate
the deposit agreement, without the prior consent of the ADS holders.
We and the depositary are entitled to amend the deposit
agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders.
We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us or to the depositary.
Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the
terms of our business relationship with the depositary. In the event that the terms of an amendment are materially disadvantageous to
ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is
required under the deposit agreement. Furthermore, we may decide to direct the depositary to terminate the ADS facility at any time for
any reason. For example, terminations may occur when we decide to list our Ordinary Shares on a non-U.S. securities exchange and determine
not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility
will terminate, ADS holders will receive at least 90 days’ prior notice, but no prior consent is required from them. Under the circumstances
that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement,
the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying Ordinary Shares, but
will have no right to any compensation whatsoever.
ADS holders may not
be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes
to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing
our Ordinary Shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the
right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement.
If this jury trial waiver provision is not permitted by applicable
law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial
demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that
case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial
waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme
Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws
of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive
jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial
waiver provision, courts will generally consider whether a party knowingly, intelligently, and voluntarily waived the right to a jury
trial. We believe that this is the case with respect to the deposit agreement, and the ADSs. It is advisable that you consult legal counsel
regarding the jury waiver provision before entering into the deposit agreement.
If you or any other holders or beneficial owners of ADSs bring
a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under
federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims,
which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or
the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted
according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that
could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge
or justice hearing such claims, and the venue of the hearing.
No condition, stipulation or provision of the deposit agreement
or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision
of the U.S. federal securities laws, and the rules and regulations promulgated thereunder.
49
ADS holders do not have the ability to directly vote the Ordinary Shares underlying their ADSs and
may not receive voting materials in time to be able to exercise their right to vote.
Holders of the ADSs will not be able to exercise voting
rights attaching to the Ordinary Shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs may instruct
the depositary to vote the Ordinary Shares underlying their ADSs. Otherwise, holders of ADSs will not be able to exercise their right
to vote unless they withdraw the Ordinary Shares underlying their ADSs to vote them in person or by proxy in accordance with applicable
laws and regulations and our articles of association. Even so, ADS holders may not know about a meeting far enough in advance to withdraw
those Ordinary Shares. If we ask for the instructions of holders of the ADSs, the depositary, upon timely notice from us, will notify
ADS holders of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositary will mail to holders
a shareholder meeting notice that contains, among other things, a statement as to the manner in which voting instructions may be given.
We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote
the Ordinary Shares underlying their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders,
provided that it holds our Ordinary Shares as of the record date set for such meeting and otherwise complies with our articles of association.
In addition, the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing
voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give
voting instructions or to vote in person or by proxy, and they may not have any recourse against the depositary or us if their Ordinary
Shares are not voted as they have requested or if their shares cannot be voted.
Our Ordinary Shares and ADSs are traded
on different markets and this may result in price variations.
Our Ordinary Shares have been traded on the TASE since
January 4, 2007, and the ADSs have been traded on The Nasdaq Global Market since April 16, 2019. Trading in our securities on these markets
takes place in different currencies (dollars on the Nasdaq and NIS on the TASE), and at different times (resulting from different time
zones, different trading days, and different public holidays in the United States and Israel). The trading prices of our securities on
these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could
cause a decrease in the trading price of our securities on the other market.
We do not have any current plans to pay dividends
in the near term.
We do not have any current plans to pay any cash dividends
in the near term. We currently intend to retain all available funds and any future earnings to fund the development and growth of our
business. As a result, capital appreciation, if any, of the ADSs will be the investors’ sole source of gain for at least the next
several years. In addition, Israeli law limits our ability to declare and pay dividends, and may subject us to certain Israeli taxes.
For more information, see “Item 8.A. Financial Information - Consolidated Statements and Other Financial Information - Dividend
Policy.”
The price of the ADSs may rely on the research
and reports of equity research analysts.
The trading market for the ADSs may rely on the research and
reports that equity research analysts publish about us and our business. The price of the ADSs could decline if one or more securities
analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
We may be subject to securities litigation, which
is expensive and could divert our management’s attention.
In the past, U.S.-listed companies that have experienced volatility
in the market price of their securities, including many life sciences and biotechnology companies, have been subject to securities class
action litigation. We may be the target of this type of litigation in the future. Regardless of the merits or the ultimate results of
such litigation, securities litigation brought against us could result in substantial costs and divert our management’s attention
from other business concerns, which could have a material adverse effect on our results of operations.
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As a foreign private
issuer whose shares are listed on The Nasdaq Global Market, we follow certain home country corporate governance practices instead of certain
Nasdaq requirements.
As a foreign private issuer whose shares are listed
on The Nasdaq Global Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements
of the rules of The Nasdaq Global Market. Although we established a quorum requirement such that the quorum for any meeting of shareholders
is two or more shareholders holding at least 33 and 1/3% of our voting rights, which complies with Nasdaq requirements, pursuant to the
“foreign private issuer exemption” we established a quorum for an adjourned meeting, if the meeting is adjourned for lack
of quorum, of two or more shareholders holding any percentage of our voting rights. We also follow Israeli corporate governance practice
in lieu of Nasdaq Marketplace Rule 5635(c), which requires shareholder approval for certain dilutive events (such as issuances that will
result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us
and certain acquisitions of the shares or assets of another company), and prior to an issuance of securities when a stock option or purchase
plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which
stock may be acquired by officers, directors, employees or consultants. Otherwise, we comply with the rules generally applicable to U.S.
domestic companies listed on The Nasdaq Global Market. However, we may in the future decide to use the foreign private issuer exemption
with respect to some or all of the other Nasdaq corporate governance rules. Following our home country governance practices as opposed
to the requirements that would otherwise apply to a U.S. company listed on The Nasdaq Global Market may provide less protection than is
accorded to investors of domestic issuers.
By contrast, under the Israeli Companies Law, shareholder
approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning the terms
of their service (including indemnification, exemption, and insurance for their service or for any other position that they may hold at
a company); (b) extraordinary transactions with controlling shareholders of publicly held companies; (c) terms of office and employment
or other engagement of a controlling shareholder, if any, or such controlling shareholder’s relative; (d) approval of transactions
with the company’s Chief Executive Officer with respect to his or her terms of employment, whether in accordance with the approved
compensation policy of the company or not, or transactions with officers of the company not in accordance with the approved compensation
policy; (e) approval of the compensation policy of the company for “office holders”(as such term is defined in the Israeli
Companies Law); and (f) certain private placements involving the issuance of 20% or more of our total voting rights, or private placements
as a result of which a person will become a controlling shareholder of the company. In addition, under the Israeli Companies Law, a merger
requires approval of the shareholders of each of the merging companies.
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 a foreign private issuer, we are exempt from the rules
and regulations under the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, related to the furnishing and
content of proxy statements, and our principal shareholders are exempt from the provisions of Section 16 of the Exchange Act in its entirety.
Following the enactment of the Holding Foreign Insiders Accountable Act (HFIAA) on December 18, 2025, our directors and officers became
subject to the reporting requirements of Section 16(a) of the Exchange Act beginning March 18, 2026, including the obligation to file
initial ownership reports on Form 3 and transaction reports on Form 4 with respect to our equity securities. However, our directors and
officers remain exempt from the short-swing profit recovery provisions of Section 16(b) and the short sale prohibition of Section 16(c)
of the Exchange Act. Compliance with Section 16(a) reporting obligations will require us to implement new internal procedures, including
collecting and verifying security ownership information for all directors and officers, obtaining or renewing EDGAR filing credentials,
and establishing communication channels with our directors’ and officers’ securities brokers for timely reporting of transactions
in our securities. In addition, we are not required under the Exchange Act to file annual, quarterly, and current reports, and financial
statements with the SEC as frequently or as early as domestic companies whose securities are registered under the Exchange Act. In
order to maintain our current status as a foreign private issuer, either (a) a majority of our Ordinary Shares and ADSs (calculated together)
must be owned of record, directly or indirectly, by non-residents of the United States or (b)(i) a majority of our senior management
or directors may 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 were to 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. Furthermore, on June 4, 2025, the SEC published a Concept Release highlighting potential
amendments to the foreign private issuer definition, such as updating eligibility requirements or adding trading volume and listing criteria.
If we lose our status as a foreign private issuer due to new requirements adopted by the SEC or because we no longer meet the current
definition, we would be required to file periodic reports and registration statements on more detailed U.S. domestic forms, comply with
SEC requirements and Nasdaq corporate governance rules from which we are currently exempt and incur significant additional legal, accounting
and administrative expenses. 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 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 may incur increased costs as a result of operating
as a public company in the United States, and our management may be required to devote substantial time to new compliance initiatives.
As a public company whose ADSs are listed in the United
States, and particularly as we no longer qualify as an emerging growth company and/or may lose our foreign private issuer status and/or
as SEC directives reducing or eliminating exemptions for foreign private issuers take effect, we incur accounting, legal and other expenses
that we did not incur prior to our listing on Nasdaq and registration with the SEC, including costs associated with our reporting requirements
under the Exchange Act. We also incur costs associated with corporate governance requirements, including requirements under Section 404
and other provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), as well as rules implemented by the SEC and The Nasdaq Global
Market, and provisions of Israeli corporate law applicable to public companies, and the rules of the TASE. These rules and regulations
may increase our legal and financial compliance costs, introduce new costs such as investor relations, increased insurance premiums and
stock exchange listing fees, and may make some activities more time-consuming and costly. Our board members and other personnel may need
to devote a substantial amount of time to these initiatives. We are constantly evaluating and monitoring developments with respect to
these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Changes in the laws and regulations affecting public companies
will result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more
costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept
reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees
or as senior management. We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such
requirements.
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 the ADSs and Ordinary Shares.
Our management is required to assess the effectiveness of
our internal controls and procedures and disclose changes in these controls on an annual basis. Additionally, as we ceased being deemed
an emerging growth company effective December 31, 2024 and are deemed to be an accelerated filer, pursuant to Section 404(b) of the Sarbanes-Oxley
Act we are required to include an auditor attestation on our internal control over financial reporting in the annual report.
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.
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 possibly 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 will continue to require an investment of substantial time and resources, including by our Chief Executive Officer, Chief Financial
Officer and other members of our senior management. The determination and any remedial actions required could divert internal resources
and take a significant amount of time and effort to complete and could result in us incurring additional costs that we did not anticipate,
including the hiring of outside consultants. 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 of the Sarbanes-Oxley Act, 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. If we identify material
weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely
manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting
firm is unable to express an opinion or issues an adverse opinion in its attestation as to the effectiveness of our internal control over
financial reporting required by Section 404(b), investors may lose confidence in the accuracy and completeness of our financial reports
and the trading price of the ADSs and Ordinary Shares could be negatively affected. We could also become subject to investigations by
Nasdaq or the TASE, the SEC or other regulatory authorities, which could require additional financial and management resources.
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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, 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.
Risks Related to Tax Matters
We may be a passive foreign investment company for U.S.
federal income tax purposes, which generally would result in certain adverse U.S. federal income tax consequences to our U.S. shareholders.
In general, a non-U.S. corporation is a “passive foreign
investment company” (a PFIC) for any taxable year in which (i) 75% or more of its gross income consists of passive income (the “income
test”) or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production
of, passive income (the “asset test”). Generally, “passive income” includes interest, dividends, rents, royalties,
certain gains, and cash is a passive asset for PFIC purposes.
We have not made a formal determination as to whether we would
be classified as a PFIC for the current taxable year or previous taxable years, and do not plan to make such a determination for subsequent
years. The determination of whether we are a PFIC depends on the particular facts and circumstances (such as the valuation of our assets,
including goodwill and other intangible assets), and may also be affected by the application of the PFIC rules, which are subject to differing
interpretations. The fair market value of our assets is expected to depend, in part, upon (i) the market price of the ADSs, which is likely
to fluctuate, and (ii) the composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that
is raised in any financing transaction.
If we were a PFIC for any taxable year during which
a U.S. shareholder owned the ADSs, such U.S. shareholder generally will be subject to certain adverse U.S. federal income tax consequences,
including increased tax liability on gains from dispositions of the ADSs and certain distributions and a requirement to file annual reports
with the Internal Revenue Service. In light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we
will not become a PFIC in any future taxable year. Prospective investors should consult their own tax advisers regarding our PFIC status.
See “Material Tax Considerations - Certain U.S. Federal Income Tax Considerations - Passive Foreign Investment Company Considerations.”
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