3.A. [Reserved]
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
Investing in our ordinary
shares involves a high degree of risk. You should carefully consider the risks described below before investing in our ordinary shares.
There are a number of risks
and uncertainties that could affect our business and cause our actual results to differ from past performance or expected results. We
consider the following risks and uncertainties to be those material to our business. If any of these risks actually occur, our business,
financial condition and results of operations could suffer, and the trading price of our ordinary shares could decline. We urge investors
to consider carefully the risk factors described below, together with the other information contained in this Annual Report on Form 20-F,
in evaluating any investment in our ordinary shares.
Risks Related to Our Financial Position and Capital Requirements
Our historical financial statements do not
reflect the potential variability in earnings that we may experience in the future relating to our RAIN governance token (“RAIN”)
holdings. Accordingly, it may be difficult to evaluate the Company’s business and future prospects. The Company may not be able
to achieve or maintain operating profitability or positive cash flows from operations in any given period.
Our historical financial statements may not be indicative of our future
results of operations due to the volatility associated with the digital cryptocurrency assets we hold in our corporate treasury, which
we acquired using the $212 million gross proceeds received from the private placement that we completed with certain accredited investors
on November 24, 2025 (the “Private Placement”).
Gains and losses from changes
in fair value are generally non-cash in nature, and we may report net income in periods in which we do not generate operating revenue
or have positive cash flows from operations. Accordingly, our reported net income (loss) may not be indicative of our operating performance
or our ability to generate cash flows. For example, for the year ended December 31, 2025, we recognized net income attributable to an
unrealized, non-cash gain resulting from increases in the fair value of the digital cryptocurrency assets held in our digital asset treasury
and the RAIN Option (as defined below) during the period from the completion of the Private Placement through December 31, 2025.
1
The market price of digital
cryptocurrency assets has historically been subject to dramatic price fluctuations and is highly volatile. We determine the fair value
of the digital cryptocurrency assets in our corporate treasury based on ASU 2023-08, which requires us to measure our digital assets at
fair value in our statement of financial position, and to recognize gains and losses from changes in the fair value of our digital assets
in net income each reporting period. This may create significant volatility in our reported earnings and materially affect the carrying
value of our digital assets, which in turn could have a material adverse effect on the market price of our ordinary shares. In addition,
any sale of our digital assets may result in gains or losses for financial reporting purposes and could further contribute to volatility
in our reported earnings.
Due in particular to the volatility
in the price of digital cryptocurrency assets, including RAIN, we expect our early adoption of ASU 2023-08 to increase the volatility
of our financial results, and it could significantly affect the carrying value of our digital cryptocurrency assets on our balance sheet.
Because we intend to purchase additional digital cryptocurrency assets in the future and increase our overall holdings of digital cryptocurrency
assets, we expect that the proportion of our total assets represented by our digital cryptocurrency asset holdings will increase in the
future. As a result, and in particular with respect to the quarterly periods and full fiscal year to which ASU 2023-08 will apply, and
for all future periods, volatility in our earnings may be significantly greater than what we experienced in prior periods.
We operate a dual strategy that combines
clinical development in quality longevity therapeutics with a treasury model anchored in decentralized prediction markets infrastructure
through the RAIN protocol. We expect our clinical operations to incur additional losses in the future, and our clinical operations may
never be able to achieve or maintain operating profitability.
We operate a dual strategy
that combines clinical development in quality longevity therapeutics with a treasury model anchored in decentralized prediction markets
infrastructure through the RAIN protocol. To date, we have focused our clinical operations almost exclusively on developing our product
candidate, Allocetra™, a universal, off-the-shelf cell therapy designed to reprogram macrophages into their homeostatic stage, currently
focusing on treatment of osteoarthritis. We have funded our clinical operations to date primarily through proceeds from public and private
offerings of equity and equity-linked securities and grants from the Israel Innovation Authority (the
“IIA”). We have no saleable products and have not generated any revenue from product sales. We have incurred
operating losses in each year since our inception in 2005. As of December 31, 2025, we had retained earnings of approximately $1.1 billion.
Substantially all of our operating losses resulted from costs incurred in connection with our clinical development programs and from general
and administrative costs.
We expect to continue to incur
significant research and development expenses in connection with our clinical operations in the future as we continue the advancement
of our clinical studies and as we potentially pursue additional indications. We may also incur expenses in connection with third-party
studies and trials involving our product candidates or other intellectual property. In addition, if we obtain marketing approval for any
of our product candidates, we will likely initially incur significant outsourced sales, marketing and manufacturing expenses, as well
as continued research and development expenses. As a result, we expect our clinical operations to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing cell immunotherapy
products, we are unable to predict the extent of any future operating losses or when we will be able to achieve or maintain operating
profitability, if at all.
We have not generated
any revenue from Allocetra™ or any other product candidate, and we may never be able to achieve or maintain profitability or positive
cash flows from our clinical operations.
Our ability to become profitable
from our clinical operations depends upon our ability to generate operating revenue in excess of our operating expenses. We have not generated
any revenue to date from our development of Allocetra™, or any other product candidate. We do not know when, or if, we will generate
any revenue from Allocetra™ or any other product candidate. We do not expect to generate revenue from Allocetra™ unless and
until we obtain regulatory and marketing approval of, and commercialize, Allocetra™ or any other product candidate. We will continue
to incur research and development and general and administrative expenses related to our clinical operations. We expect to continue to
incur losses relating to our clinical operations for the foreseeable future, and such losses will likely increase as we:
● initiate and manage preclinical development and clinical trials for our current and any new product candidates;
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● seek regulatory approvals for our product candidates, or future product candidates, if any;
● implement internal systems and infrastructure (including, without limitation, hiring of additional personnel, as needed) to develop sales and marketing functions, if and when our product candidate receives applicable regulatory approval;
● seek to in-license additional technologies for development, such as cell delivery, processing and testing technologies;
● hire additional management and other personnel; and
● move towards commercialization of our product candidates and future product candidates, if any.
We may out-license our ability
to generate revenue from our product candidates, depending on a number of factors, including our ability to:
● obtain favorable results from and progress the clinical development of our product candidates, particularly Allocetra™;
● develop and obtain regulatory approvals in various countries and for the uses we intend to pursue for our product candidates;
● subject to successful completion of registration, clinical trials and perhaps additional clinical trials of any product candidate, apply for and obtain marketing approval in the countries we intend to pursue for such product candidate;
● contract for the manufacture of commercial quantities of our product candidates at acceptable cost levels, subject to the receipt of marketing approval; and
● establish external, and potentially, internal, sales and marketing capabilities to effectively market and sell our product candidates in the United States and other countries.
Even if Allocetra™,
our lead product candidate, which is currently being developed for osteoarthritis, is approved for commercial sale for any indication,
it may not gain market acceptance or achieve commercial success. In addition, we anticipate incurring significant costs associated with
commercialization. We may not achieve profitability from our clinical operations soon after generating product revenue, if ever. If we
are unable to generate product revenue, we would not be able to achieve or maintain operating profitability or positive cash flows from
our clinical operations and may be unable to continue our clinical operations without additional funding.
We will need substantial
additional capital in the future to support our clinical operations. If additional capital is not available, we will have to delay, reduce
or cease clinical operations.
We will need to raise substantial
additional capital to fund our clinical operations and to develop and commercialize our current product candidate, Allocetra™, or
any future product candidate. Our future capital requirements may be substantial and will depend on many factors, including, but not limited
to:
● our clinical trial results;
● the cost, timing and outcomes of seeking marketing approval of our product candidates;
● the costs associated with commercializing our product candidates if we receive marketing approval, including the cost and timing of establishing external, and potentially in the future, internal, sales and marketing capabilities to market and sell such product candidates;
3
● subject to receipt of marketing approval, revenue received from sales of approved products, if any, in the future;
● the demand for our products, if any;
● the cost of filing and prosecuting patent applications and the cost of defending our patents;
● the cost of prosecuting infringement actions against third parties;
● exploration and possible label expansion of our product candidates for the treatment of other conditions or indications;
● any product liability or other lawsuits related to our future product candidates or products, if any;
● the expenses needed to attract and retain skilled personnel; and
● the costs associated with being a public company.
Based on our current operating
plan, we anticipate that our existing resources will be sufficient to maintain our currently planned operations, including our continued
product development, through the end of 2027. We will require significant additional funds to initiate and complete the U.S. Food and
Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) approval process. However,
changing circumstances may cause us to consume capital significantly faster than we currently anticipate, including, without limitation,
regulatory requests by the FDA or EMA, changes in our development strategy, delays in or an inability to execute our development plans,
unsuccessful preclinical or clinical studies and losing our “Small and Medium Enterprise” status at the EMA, which entitles
us to significant fee reductions. Because of the numerous risks and uncertainties associated with the development and commercialization
of our product candidates, we are unable to estimate the amount of increased capital and operating expenditures associated with our anticipated
clinical trials and general operations. We have no committed external sources of funds. Additional financing may not be available when
we need it or on terms that are favorable to us. If adequate funds are not available to us on a timely basis, or at all, we may be required
to terminate or delay planned clinical trials or other development activities for our product candidates, which would materially and adversely
affect our liquidity and results of operations.
Raising additional financing
may be costly or difficult to obtain, may dilute current shareholders’ ownership interests and may require that we relinquish our
rights to certain of our technologies, products or marketing territories.
Any debt or equity financing
that we may need may not be available on terms favorable to us, or at all. Any additional capital raised through the sale of equity or
equity-linked securities may dilute our current shareholders’ ownership in us and could also result in a decrease in the market
price of our ordinary shares. The terms of the securities issued by us in future capital transactions may be more favorable to new investors
and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. Debt financing, if
available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring debt, making capital expenditures, engaging in certain asset sales or declaring
dividends or making other restricted payments. If we obtain funding through a strategic collaboration or licensing arrangement, we may
be required to relinquish our rights to certain of our technologies, products or product candidates or marketing territories. If we are
unable to obtain the required additional capital, we may have to curtail our growth plans or cut back on existing business, and we may
not be able to continue operating.
We may incur substantial costs
in pursuing future financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing
and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities
we issue, such as convertible notes and warrants, which may adversely impact our financial condition and results of operations.
4
We have not yet commercialized
any products, and we may never achieve or maintain profitability from our clinical operations.
We have not yet commercialized
any products, and we may never do so. We do not know when or if we will complete any of our product development efforts, obtain regulatory
approval for any product candidates or successfully commercialize any approved products. Even if we are successful in developing products
that are approved for marketing, we will not be successful unless these products gain market acceptance for appropriate indications. The
degree of market acceptance of any of our planned future products will depend on a number of factors, including, but not limited to:
● the timing of regulatory approvals in the countries, and for the uses, we intend to pursue with respect to the commercialization of our product candidates;
● the competitive environment;
● the acceptance by the medical community of the safety and clinical efficacy of our products and their potential advantages over other therapeutic products;
● the adequacy and success of distribution, sales and marketing efforts, including through strategic agreements with pharmaceutical and biotechnology companies; and
● the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.
Physicians, patients, third-party
payors or the medical community in general may be unwilling to accept, utilize or recommend coverage of, and in the case of third-party
payors, cover, any products we may develop or commercialize. As a result, we are unable to predict the extent of future losses from our
clinical operations or the time required to achieve operating profitability, if at all. Even if we successfully develop one or more products,
we may continue to incur significant expenses and negative cash flows from operations.
We are unable to estimate
our long-term capital requirements due to uncertainties associated with the development and commercialization of our product candidates.
If we fail to obtain necessary funds for our operations, we will be unable to develop and commercialize any of our product candidates.
We expect our long-term capital
requirements to depend on many potential factors, including, among others:
● the number of product candidates in development;
● the duration and cost of discovery and preclinical development;
● the regulatory path of product candidates, including our lead product candidate, Allocetra™, which is being developed for osteoarthritis;
● the results of preclinical and clinical testing, which can be unpredictable in product candidate development;
● our ability to successfully commercialize our product candidates, including securing commercialization and out-licensing agreements with third parties and favorable pricing and market share;
● the progress, success and costs of our clinical trials and research and development programs, including those associated with milestones and royalties;
● the costs, timing and outcome of regulatory review and obtaining regulatory approval of our lead product candidate and addressing regulatory and other issues that may arise post-approval;
5
● the breadth of the labeling, assuming that any of our product candidates are approved for commercialization by the relevant regulatory authority;
● our need or decision to acquire or in-license complementary technologies or new platform technologies or product candidate targets;
● the costs of enforcing our issued patents and defending intellectual property-related claims;
● the costs of investigating patents that might block us from developing potential product candidates;
● the costs of recruiting and retaining qualified personnel;
● the development of, and value derived from, our Treasury Reserve Policy (as defined below);
● our revenue, if any; and
● our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.
If we are unable to obtain
the funds necessary for our operations, we will be unable to develop and commercialize any of our product candidates, or any future product
candidates, which would materially and adversely affect our business, liquidity and results of operations.
Due to our recurring
operating losses, our ability to continue to operate as a going concern is dependent on additional financial support.
We devote substantially all
of our efforts toward research and development activities. In the course of such activities, we have sustained operating losses and expect
such losses to continue for the foreseeable future. We have no current source of operating revenue to sustain our present activities,
and we do not expect to generate operating revenue until, and unless the FDA, EMA or other regulatory authorities approve one of our product
candidates and we successfully commercialize (including out-licensing) such product candidate. Based on our current operating plan, we
anticipate that our existing resources will be sufficient to maintain our currently planned operations, including our continued product
development, through the end of 2027. Accordingly, our ability to continue operating will require us to obtain additional financing to
fund our operations and we cannot provide any assurance that we will be successful in doing so. If we are not successful in obtaining
additional capital resources, we may not be able to continue our activities beyond the end of 2027. The perception of our inability to
continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result
in loss of confidence by investors, suppliers and employees.
Our operating history
makes it difficult to evaluate our business and prospects.
Our operations to date have
been limited primarily to research and development, clinical trials, raising capital and recruiting scientific and management personnel,
and more recently, the establishment of a digital treasury strategy. Therefore, it is difficult to evaluate our business and prospects.
We have not yet commercialized or obtained regulatory approval for any product candidate. Consequently, any predictions about our future
performance may not be accurate, and you may not be able to fully assess our ability to complete development or commercialize our product
candidates, or any future product candidates, obtain regulatory approvals or achieve market acceptance or favorable pricing for our product
candidates or any future product candidates.
Our business, operating
results and growth may be adversely affected by current or future unfavorable economic and market conditions due to geopolitical tensions
and political, economic and military instability.
Our business depends on the
economic health of the global economies. U.S. and global markets have recently experienced volatility and disruption, including as a result
of heightened geopolitical tensions and conflicts, such as the war between Russia and Ukraine, the war between Israel and Hamas and, more
recently, the war between Israel and the U.S. against Iran and related regional conflicts and instability. In addition, there is current
uncertainty about the future relationship between the U.S. and other countries with respect to trade policies, taxes, government regulations
and tariffs and we cannot predict whether, and to what extent, U.S. trade policies will change in the future. If the conditions in the
global economies remain uncertain or continue to be volatile, or if they deteriorate, including as a result of the impact of military
conflict, terrorism or other geopolitical events, such as military or political instability in Israel or the region or changes in U.S.
relations with other countries, our business, operating results and financial condition may be materially adversely affected. Economic
weakness, inflation and increases in interest rates, limited availability of credit, liquidity shortages and constrained capital spending
have at times in the past resulted, and may in the future result, in a challenging capital raising environment, slower adoption of new
technologies and increased competition, and any such disruptions may also magnify the impact of other risks described in this Annual Report
on Form 20-F. See also “Risks Related to Israeli Law and Our Operations in Israel—Our
headquarters and other significant operations are located in Israel and, therefore, our business and operations may be adversely affected
by political, economic and military instability in Israel.”
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Risks Related to Our Business, Industry and
Regulatory Requirements
We have focused substantially
all of our efforts and resources on Allocetra™, and we may not obtain regulatory approval of Allocetra™.
We have focused substantially
all of our efforts and financial resources in the research and development of Allocetra™. As a result, our business is primarily
dependent on our ability to complete the development of, obtain regulatory approval for, and successfully commercialize Allocetra™.
The process to develop, obtain regulatory approval for and commercialize Allocetra™ is long, complex and costly, and its outcome
is uncertain.
The research, testing, manufacturing,
labeling, approval, sale, marketing and distribution of drugs and pharmaceutical products, including biologics, are subject to extensive
regulation by the FDA, the EMA and regulatory agencies in other countries. These regulations differ from jurisdiction to jurisdiction.
We are not permitted to market Allocetra™, or any other product candidate, in the United States until we receive approval of a biologics
license application (“BLA”) from the FDA, or in the European Union until we receive a marketing authorization application
(“MAA”) from the EMA, or in any foreign countries until we receive the requisite approval from the respective regulatory
agencies in such countries. We have not yet obtained regulatory clearance to conduct confirmatory clinical trials that are necessary to
file a BLA with the FDA or comparable applications to other regulatory authorities in other countries, nor have we received marketing
approval for Allocetra™ in any country. The results of clinical trials may be unsatisfactory and, even if endpoints are successfully
met, the FDA, EMA, or other regulatory authorities, may not approve our marketing application should we be in a position to file one.
Marketing approval procedures
and timelines vary among countries and can involve additional product testing and additional administrative review periods. The approval
process may include the risks detailed above, as well as other risks. In some countries and in specific programs, product approval depends
on showing superiority to an approved alternative therapy. This can result in significant expenses for conducting complex clinical trials.
In addition, time from approval to commercialization may significantly differ between countries. In particular, in many countries outside
the United States, it is required that a product receives pricing and reimbursement approval before it can be commercialized. This can
result in substantial delays in such countries. If we fail to comply with regulatory requirements in the United States or international
markets or to obtain and maintain required approvals or if regulatory approvals in the United States or international markets are delayed,
our target market will be reduced and our ability to realize the full market potential of our products will be harmed.
Marketing approval in one
jurisdiction does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction
may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or
setback in obtaining such approval would impair our ability to develop foreign markets for Allocetra™ or any other product candidate.
This would reduce our target market and limit the full commercial potential of Allocetra™ or any other product candidate.
7
It is possible that
none of our product candidates will achieve commercial success in a timely and cost-effective manner, or ever.
Even if regulatory authorities
approve any of our product candidates, they may not be commercially successful. Our product candidates may not be commercially successful
because, among other things, government agencies or other third-party payors may not provide reimbursement for the costs of the product,
or the reimbursement may be too low to be commercially successful. Also, physicians and others may not use or recommend our product candidates,
even following regulatory approval. In addition, a product approval, even if issued, may limit the uses for which such product may be
distributed, which could adversely affect the commercial viability of the product. Moreover, third parties may develop superior products
or have proprietary rights that preclude us from marketing our product. Physician and patient acceptance of, and demand for, our products,
if we obtain regulatory approval, will depend largely on many factors, including, but not limited to, the extent, if any, of reimbursement
of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the
safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with such products. If physicians,
government agencies and other third-party payors do not accept the use or efficacy of our products, we will not be able to generate significant
revenue, if any.
Results from our clinical
trials may be negative or may not replicate the results of our preclinical trials or earlier clinical trials, which could require that
we abandon development of Allocetra™, our other product candidates or any future product candidates, which will significantly impair
our ability to generate revenues.
Upon the completion of any
clinical trial, the results might not support the outcomes sought by us. Further, success in preclinical testing and early clinical trials
does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate the results
of prior clinical trials and preclinical testing. A number of companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the
results from the completed preclinical studies and clinical trials for Allocetra™ may not be predictive of the results we may obtain
in later stage trials of Allocetra™ or clinical trials of any of our other product candidates. Our clinical trials may produce negative
or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data
are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily
in preclinical studies. and clinical trials have nonetheless failed to obtain approval by the FDA, EMA, or other regulatory agency, for
their products.
In addition, the clinical
trial process may fail to demonstrate that Allocetra™ is safe and effective for its indicated uses. Any such failure may cause us
to abandon Allocetra™ and may delay development of other product candidates. Any delay in, or termination or suspension of, our
clinical trials will delay the requisite filings with the FDA, EMA or other regulatory agencies and, ultimately, our ability to commercialize
our product candidates and generate revenues. If the clinical trials do not support our product claims, the completion of development
of such product candidate may be significantly delayed or abandoned, which will significantly impair our ability to generate revenues
and will materially adversely affect our results of operations.
The clinical trial process
is complex and expensive, and commencement and completion of clinical trials can be delayed or prevented for a number of reasons.
We may not be able to commence
or complete the clinical trials required to support our submission of a BLA to the FDA or a MAA to the EMA or any similar submission to
regulatory authorities in other countries. Drug development is a long, expensive and uncertain process, and delay or failure can occur
at any stage of any of our clinical trials. The fact that the FDA, EMA or other regulatory authorities permit a company to conduct human
clinical trials is no guarantee that the trial will be successful. On the contrary, most product candidates that enter clinical trials
do not prove to be successful and do not result in the filing of a BLA, MAA or similar filing. Drug candidates that prove successful at
one clinical trial phase may prove unsuccessful at a subsequent phase. Human clinical trials are very expensive and difficult to design
and implement, in part because they are subject to rigorous regulatory requirements and in part because the results of clinical trials
are inherently uncertain and unpredictable. Regulatory authorities, such as the FDA and EMA, may preclude clinical trials from proceeding.
Additionally, the clinical trial process is time-consuming, and failure can occur at any stage of the trials. We may encounter problems
that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors,
including:
● difficulties obtaining regulatory clearance or approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial;
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● delays in reaching or failing to reach agreement on acceptable terms with prospective contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), pharmaceutical shipping companies and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, CMOs, shipping companies and trial sites;
● insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials;
● difficulties in obtaining institutional review board (“IRB”) approval to conduct a clinical trial at a prospective site;
● delays resulting from a decision of the FDA or EMA not to review a BLA or MAA for Allocetra™, respectively, or any of our other product candidates, under the FDA’s Fast Track Development Program or as a Breakthrough Therapy; and
● challenges in recruiting and enrolling patients or donors to participate in clinical trials for a variety of reasons, including size and nature of patient population, proximity of patients to clinical sites, eligibility criteria for the trial, nature of trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications.
Clinical trials may also be
delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated
by us, the FDA, EMA or other regulatory authorities, the IRBs at the sites where such boards are overseeing a trial, or a Data and Safety
Monitoring Board (“DSMB”) overseeing the clinical trial at issue or other regulatory authorities due to a number of
factors, including:
● failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
● inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;
● unforeseen safety issues or lack of effectiveness; and
● lack of adequate funding to continue the clinical trials.
Even when clinical trials
are designed for patients to be randomized with comparable attributes across the treatment and placebo groups, significant imbalances
in patient attributes across patient subgroups could make it challenging to analyze the efficacy of our product candidates. These imbalances
made it challenging to deduce the relative effect in other patient subgroups.
In addition, we or regulatory
authorities may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks,
or if others report that similar products pose an unacceptable risk to patients, or if the regulatory authorities find deficiencies in
our regulatory submissions or the conduct of such trials. Any suspension of clinical trials will delay possible regulatory approval, if
any, and adversely affect our ability to develop products and generate revenue.
Obtaining approval of
a BLA, MAA or other regulatory approval, even after clinical trials that are believed to be successful is an uncertain process.
Even if we complete our planned
clinical trials and believe the results to be successful, all of which are uncertain, obtaining approval of a BLA, or similar regulatory
application, is an extensive, lengthy, expensive and uncertain process, and the EMA, the Israeli Ministry of Health (“IMOH”),
the FDA and other regulatory agencies may delay, limit or deny approval of our product candidates for many reasons, including:
● we may not be able to demonstrate to the satisfaction of the applicable regulatory agencies that our product candidates are safe and effective for any indication;
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● the results of our clinical trials may not meet the level of statistical significance or clinical significance required by the applicable regulatory agencies for approval;
● the applicable regulatory agencies may disagree with the number, design, size, conduct or implementation of our clinical trials;
● the applicable regulatory agencies may not find the data from preclinical studies and clinical trials sufficient to demonstrate that our product candidates’ clinical and other benefits outweigh their respective safety risks;
● the applicable regulatory agencies may disagree with our interpretation of data from preclinical studies or clinical trials;
● the applicable regulatory agencies may not accept data generated at our clinical trial sites;
● the data collected from preclinical studies and clinical trials of our product candidates may not be sufficient to support the submission of a BLA or similar regulatory application;
● the applicable regulatory agencies may not schedule an advisory committee meeting in a timely manner, or the advisory committee may recommend against approval of our application or may recommend that the applicable regulatory agencies require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
● the applicable regulatory agencies may require development of a risk evaluation and mitigation strategy as a condition of approval;
● the applicable regulatory agencies may require simultaneous approval for both adults and children which would delay needed approvals, or we may have successful clinical trial results for adults, but not children, or vice versa;
● the applicable regulatory agencies may change their approval policies or adopt new regulations that may impede consideration or approval of our BLA, or similar regulatory application;
● the applicable regulatory agencies may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers, or suppliers of blood and cell samples or providers of cell collection, freezing and transportation services, with which we enter into agreements for clinical and commercial supplies; and
● the applicable regulatory agencies may demand post-marketing approval studies, such as Phase IV clinical trials, in connection with our product candidates.
Phase III clinical trials
frequently produce unsatisfactory results even though prior clinical trials were successful. Therefore, the results of the additional
trials that we conduct may or may not be successful. The applicable regulatory agencies may suspend all clinical trials or require that
we conduct additional clinical, nonclinical, manufacturing, validation or drug product quality studies and submit those data before considering
or reconsidering the marketing application, or similar regulatory application. Depending on the extent of these, or any other studies,
approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available.
It is also possible that additional studies, if performed and completed, may not be considered sufficient by the applicable regulatory
agencies to provide regulatory approval. If any of these outcomes occur, we likely would not receive approval for Allocetra™, or
any of our other product candidates, and may be forced to cease operations.
Even if we obtain regulatory
approval for Allocetra™, or any of our other product candidates, the approval might contain significant limitations related to the
intended uses for which the product is approved, including, without limitation, restrictions related to certain labeled populations, age
groups, warnings, precautions or contraindications, or an approval may be subject to significant post-marketing studies or risk mitigation
requirements. If we are unable to successfully commercialize Allocetra™, or any of our other product candidates, we may be forced
to cease operations.
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Changes in regulatory
requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical
trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion
of our clinical trials.
Changes in regulatory requirements
and guidance or unanticipated events during our clinical trials may occur, and as a result, we may need to amend our clinical trial protocols.
Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may adversely affect the cost,
timing and successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any of our clinical
trials, the commercial prospects for our affected product candidates would be harmed and our ability to generate product revenue would
be delayed, possibly materially.
Our manufacturing processes
are complex, delicate and susceptible to contamination, and involve biological intermediates that are subject to stringent regulations.
Blood is a raw material that
is susceptible to damage and contamination and may contain human pathogens, any of which would render the blood unsuitable as raw material
for further manufacturing. For instance, improper storage of blood, by us or third-party suppliers, may require us to destroy some of
our raw material. If unsuitable blood is not identified and discarded prior to the release of the blood to the manufacturing process,
it may be necessary to discard intermediate or finished product made from that blood or to recall any finished product released to the
market or individual patients, resulting in a charge to cost of goods sold.
The manufacture of Allocetra™
is a complex and delicate process of cell collection, separation, freezing, storing, incubation, harvesting, formulating and testing,
each under aseptic conditions. First, cells are collected by separation from blood donations at collection centers and medical centers.
Donations for AllocetraTM are collected from healthy donors through apheresis. The cells sourced for AllocetraTM
are then shipped to a manufacturing site for cryopreservation by trained personnel pursuant to current Good Manufacturing Practices (“cGMP”)
requirements, FDA guidelines and our manufacturing protocol, as detailed in our Chemistry Manufacturing and Controls (“CMC”)
protocols. Second, the cells are thawed, processed, prepared in an intravenous bag and tested according to our quality assurance and quality
control assays and cGMP requirements. The final product is then shipped to the clinical site where it is infused into the patient within
the predetermined expiration period. All shipping and handling are pursuant to carefully controlled conditions, including controlled temperatures,
as required by applicable regulations. The manufacturing sites must be registered manufacturing facilities operating under cGMP requirements
and all manufacturing activities, including cell collection, processing, testing, freezing, shipping, final product preparations, packaging
and labeling, must be conducted by properly and adequately trained personnel in accordance with detailed protocols, batch records and
our CMC and based on cGMP requirements and FDA, or other applicable regulatory, guidelines.
Allocetra™, and our
other potential drug candidates, if any, may fail to meet our stringent specifications through a failure in one or more of these process
steps. Such failure would prohibit us from releasing the drug at issue for human use until the failure is properly and sufficiently corrected
and resolved. We may detect instances in which an unreleased product was produced, either internally (as is the case for small scale preclinical
or early stage clinical production) or by a CMO (as would be the case for large scale production for which we would provide appropriate
technology training and require EMA or FDA approval), without adherence to our manufacturing procedures or blood used in our production
process was not collected, shipped, processed or stored in a compliant manner consistent with our current cGMP, or other regulations or
regulatory requests, including those by the EMA. Such an event of non-compliance would likely result in our determination that the implicated
product candidates should not be released and therefore should be destroyed. Even if handled properly, biologics may form or contain particulates
or have other issues or problems after storage which may require destruction or recalls. The impact of such non-compliance or issues or
problems would be exacerbated if our manufacturing efforts are scaled to conduct a Phase II or Phase III clinical trial in Europe, Israel
or the United States, where there may be numerous collection sites and where shipments may be made to multiple locations with large numbers
of patients across a large geographical area. There can be no assurance that we can scale such a manufacturing process, including in Europe,
Israel and the United States, in a cost-effective or efficient manner, or in a manner that will meet all regulatory requirements, including
EMA, IMOH or FDA requirements, if at all.
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While we expect to write-off
small amounts of work-in-progress in the ordinary course of business due to the complex nature of blood, our processes and our product
candidates, unanticipated events may lead to write-offs and other costs materially in excess of our expectations and the reserves we have
established for these purposes. Such write-offs and other costs could cause material fluctuations in our liquidity and results of operations.
Furthermore, contamination of our product candidates could cause consumers or other third parties with whom we conduct business to lose
confidence in the reliability of our manufacturing procedures, which could adversely affect our liquidity and results of operations. In
addition, faulty or contaminated product candidates that are unknowingly distributed could result in patient harm, threaten the reputation
of our products.
If we or any potential
CMOs we retain in the future fail to comply with manufacturing regulations, our financial results and financial condition could be adversely
affected.
Before a marketing application
is approved, or before we begin the commercial manufacture of any of our products, CMOs and other outsourced manufacturing service providers
we may engage must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical
manufacturing facilities are continuously subject to inspection by EMA and foreign regulatory authorities before and after product approval.
Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer
may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner.
The EMA and foreign regulators
require manufacturers to register manufacturing facilities. The EMA and foreign regulators also inspect these facilities to confirm compliance
with requirements that the EMA or foreign regulators establish. We, to the extent we may manufacture our products in the future, or our
materials suppliers may face manufacturing or quality control problems causing product production and shipment delays or a situation where
we or the supplier may not be able to maintain compliance with the EMA’s or foreign regulators’ requirements necessary to
continue manufacturing our product candidate. Any failure to comply with EMA or foreign regulatory requirements could adversely affect
our clinical research activities and our ability to develop and market our product candidate and any future product candidates.
If a third-party manufacturer
with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses,
recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal
or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.
Our ability to produce
safe and effective products depends on the safety of our blood supply against transmittable diseases.
Despite overlapping safeguards,
including the screening of donors and GMP aseptic manufacturing under a quality controlled governing system, the risk of transmissible
disease through blood products cannot be entirely eliminated. For example, because blood-derived therapeutics involve the use and purification
of human blood, there has been concern raised about the risk of transmitting human immunodeficiency virus (“HIV”),
West Nile virus, H1N1 virus or “swine flu” and other blood-borne pathogens and infectious agents through blood-derived products.
There are also concerns about the future transmission of H5N1 virus, or “bird flu.” In the 1980s, thousands of individuals
with hemophilia worldwide became infected with HIV through contaminated Factor VIII blood-derived products.
New infectious diseases emerge
in the human population from time to time. If a new infectious disease has a period during which time the causative agent is present in
the bloodstream, but symptoms are not present, it is possible that blood donations could be contaminated by that infectious agent. Typically,
early in an outbreak of a new disease, tests for the causative agent do not exist. During this early phase, we must rely on screening
of donors and patients (e.g., for behavioral risk factors or physical symptoms) to reduce the risk of blood contamination. Screening methods
are generally less sensitive and specific than a direct test as a means of identifying potentially contaminated blood units.
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During the early phase of
an outbreak of a new infectious disease, our ability to manufacture safe products would depend on the manufacturing process’ capacity
to inactivate or remove the infectious agent. To the extent that a product’s manufacturing process is inadequate to inactivate or
remove an infectious agent, our ability to manufacture and distribute that product would be impaired.
If a new infectious disease
were to emerge in the human population, the regulatory and public health authorities could impose precautions to limit the transmission
of the disease that would impair our ability to procure blood, manufacture our product candidates or both. Such precautionary measures
could be taken before there is conclusive medical or scientific evidence that a disease poses a risk for blood-derived products.
In recent years, new testing
and viral inactivation methods have been developed that more effectively detect and inactivate infectious viruses in collected blood.
There can be no assurance, however, that such new testing and inactivation methods will adequately screen for, and inactivate, infectious
agents in the blood used in the production of our product candidates.
Our product candidates
may produce undesirable side effects that we may not detect in our clinical trials, which could prevent us from achieving or maintaining
market acceptance of any such product candidate and could substantially increase commercialization costs or even force us to cease operations.
Even if Allocetra™,
or any of our other product candidates, receives marketing approval, we or others may later identify undesirable side effects caused by
the product, and, in that event, a number of potentially significant negative consequences could result, including, without limitation:
● regulatory authorities may suspend or withdraw their approval of the product;
● regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions, or they may require that these statements be placed in a black box on the product’s labeling;
● regulatory authorities may require us to issue specific communications to healthcare professionals, such as “Dear Doctor” letters;
● regulatory authorities may issue negative publicity regarding the affected product, including safety communications;
● we may be required to change the way the product is administered, conduct additional preclinical studies or clinical trials or restrict or cease the distribution or use of the product; and
● we could be sued and held liable for harm caused to patients, and in certain cases, certain relatives.
Any of these events could
prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase commercialization
costs or even force us to cease operations.
Even if Allocetra™
or any other product candidate that we may develop receives marketing approval, we will continue to face extensive regulatory requirements,
and any such product may still face future development and regulatory difficulties. In addition, we are subject to government regulations,
and we may experience delays in obtaining the required regulatory approvals to market our proposed product candidates.
Even if we receive regulatory
approval to market a particular product candidate, any such product will remain subject to extensive regulatory requirements, including
requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and
recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the
product may be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product, which could adversely affect us by reducing revenues or increasing expenses, and cause
the approved product candidate not to be commercially viable. In addition, as clinical experience with a drug expands after approval,
typically because it is used by a greater number and more diverse group of patients after approval than during clinical trials, side effects
and other problems may be observed over time after approval that were not seen or anticipated during pre-approval clinical trials or other
studies. Any adverse effects observed after the approval and marketing of a product candidate could result in limitations on the use of
or withdrawal of any approved products from the marketplace. The absence of long-term safety data may also limit the approved uses of
our products, if any. If we fail to comply with the regulatory requirements of the EMA, and other applicable U.S. and foreign regulatory
authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered,
we could be subject to administrative or judicially imposed sanctions or other setbacks, including, without limitation, the following:
● suspend or impose restrictions on operations, including costly new manufacturing requirements;
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● refuse to approve pending applications or supplements to applications;
● suspend any ongoing clinical trials;
● suspend or withdraw marketing approval;
● seek an injunction or impose civil or criminal penalties or monetary fines;
● seize or detain products;
● ban or restrict imports and exports;
● issue warning letters or untitled letters; or
● refuse to approve pending applications or supplements to applications.
In addition, various aspects
of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Costs
arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and,
consequently, could adversely affect our business operations and financial performance.
Delays in regulatory approval,
limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on the Company.
If we receive marketing
approval for any of our product candidates, sales will be limited unless the product achieves broad market acceptance.
The commercial success of
Allocetra™ or any future product candidate for which we obtain marketing approval from the FDA, EMA or other regulatory authorities,
will depend on the breadth of its approved labeling and upon the acceptance of the product by the medical community, including physicians,
patients and third-party payors. The degree of market acceptance of any approved product will depend on a number of factors, including,
without limitation:
● demonstration of clinical safety and efficacy compared to other products;
● ability of physicians to accurately diagnose the targeted indications;
● the relative convenience and ease of administration;
● the prevalence and severity of any adverse side effects;
● limitations or warnings contained in the product’s approved labeling;
● distribution and use restrictions imposed by the EMA, or other regulatory agencies, or agreed to by us as part of a mandatory or voluntary risk management plan;
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● availability of alternative treatments, including a number of competitive products already approved or expected to be commercially launched in the near future;
● pricing and cost effectiveness;
● the effectiveness of our, or any future collaborators’, sales and marketing strategies;
● our ability to obtain sufficient third-party coverage or reimbursement; and
● the willingness of patients to pay for drugs out of pocket in the absence of third-party coverage.
If any of our product candidates
is approved but does not achieve an adequate level of acceptance by physicians, third-party payors and patients, we may not generate sufficient
revenue from the product, and we may not become profitable. In addition, our efforts to educate the medical community and third-party
payors on the benefits of the product may require significant resources and may never be successful.
Any collaboration arrangements
that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our
current and any future product candidates.
We may determine to seek collaboration
arrangements in the future with pharmaceutical or biotechnology companies for the development and commercialization of Allocetra™
and any future product candidates. For example, we plan to seek potential external collaboration
or out-licensing opportunities for the continued clinical development of Allocetra™ for use in patients with sepsis instead of pursuing
internal development. We will face, to the extent that we decide to enter into future collaboration agreements, significant competition
in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement.
We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements. Additionally, the
terms of any collaborations or other arrangements that we may establish may not be favorable to us.
Any future collaborations
that we enter into may not be successful. The success of our collaboration arrangements, if any, would depend heavily on the efforts and
activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they
will apply to these collaborations. For example, we may not be able to control the amount and timing of resources that the collaboration
partner devotes to the product development or marketing programs, the collaboration partner may experience financial difficulties, or
we may be required to relinquish important rights such as marketing, distribution, and intellectual property rights.
Disagreements between parties
to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process
or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements
can be difficult to resolve.
Collaborations with pharmaceutical
or biotechnology companies and other third parties are often terminated or allowed to expire by the other party. Any such termination
or expiration could adversely affect us financially and could harm our business reputation.
We cannot be certain that,
following a collaboration, strategic transaction or license, we will achieve the results, revenue, or specific net income that justifies
such transaction.
If we acquire or in-license
additional technologies or product candidates, we may incur additional costs, have integration difficulties and experience other risks
that could harm our business and results of operations.
We may acquire or in-license
additional product candidates and technologies. Any product candidate or technologies we in-license or acquire will likely require additional
development efforts prior to commercial sales, including extensive preclinical or clinical testing, or both, and approval by the FDA,
EMA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical
product development, including the possibility that the product candidate, or products developed based on in-licensed technology, will
not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any
product candidate that we develop based on acquired or in-licensed technology that is granted regulatory approval will be manufactured
or produced economically, successfully commercialized or widely accepted or competitive in the marketplace. Moreover, integrating any
newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects
of our business strategy, our business may not succeed.
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The FDA, EMA and other
regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly
promoted off-label uses, we may become subject to significant liability.
The FDA, EMA and other regulatory
agencies strictly regulate promotional claims about prescription products. In particular, a product may not be promoted for uses that
are not approved by the FDA, EMA or other regulatory agencies as reflected in the product’s approved labeling. In particular, any
labeling approved by such regulatory agencies for our products, if any, may also include restrictions on use. Such regulatory agencies
may impose further requirements or restrictions on the distribution or use of our products as part of a mandatory plan, such as limiting
prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet
certain safe-use criteria and requiring treated patients to enroll in a registry. If we receive marketing approval for our product candidates,
physicians may nevertheless prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are
found to have promoted such “off-label” uses, we may become subject to significant liability. In particular, the U.S. federal
government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies
from engaging in off-label promotion. The EMA has also requested that companies enter into consent decrees or permanent injunctions under
which specified promotional conduct is changed or curtailed.
We may be subject to
extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.
Our business involves the
controlled use, including through our service providers, of hazardous materials, various biological compounds and chemicals; therefore,
we, our agents and our service providers may be subject to various environmental, health and safety laws and regulations, including those
governing air emissions, water and wastewater discharges, the use, management and disposal of hazardous, radioactive and biological materials
and wastes and the cleanup of contaminated sites. The risk of accidental contamination or injury from these materials cannot be eliminated.
If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including
for investigation, remediation and monitoring of the contamination, including natural resource damage, the costs of which could be substantial.
We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any environmental
and health laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs
incurred by us to install new or updated pollution control equipment for our service providers, modify our operations or perform other
corrective actions at our facilities or the facilities of our service providers. In addition, fines and penalties may be imposed on us,
our agents and/or our service providers for non-compliance with environmental, health and safety and other laws and regulations or for
the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents.
We expect the healthcare
industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, which could adversely
affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer
our products.
In Europe, the United States
and in other countries, sales of our products, if any, will depend in part upon the availability of reimbursement from third-party payors,
which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasingly
challenging the price and examining the cost effectiveness of medical products and services.
Increasing expenditures for
healthcare have been the subject of considerable public attention in Europe and the United States. Both private and government entities
are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the European and U.S. healthcare
systems have been introduced or proposed, including reducing reimbursement for prescription products and reducing the levels at which
consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.
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Although we cannot predict
the full effect on our business of the implementation of existing legislation or the enactment of additional legislation pursuant to healthcare
and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of,
our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products.
This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional
collaborators and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will
continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales.
It will be difficult
for us to profitably sell our future products, if any, if reimbursement for any such product is limited by government authorities and
third-party payor policies.
In addition to any healthcare
reform measures that may affect reimbursement, market acceptance and sales of our future products, if any, will depend on the reimbursement
policies of government authorities and third-party payors. Government authorities and third-party payors, such as private health insurers
and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in
the European and U.S. healthcare industries, as well as elsewhere, is cost containment. Government authorities and these third-party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that
reimbursement will be available for our future products, if any, and, if reimbursement is available, the level of reimbursement. Reimbursement
may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-party payors are likely
to impose strict requirements for reimbursement in order to limit off-label use of a higher priced drug or treatment. Reimbursement by
a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product is:
● a covered benefit under its health plan;
● safe, effective and medically necessary;
● appropriate for the specific patient;
● cost-effective; and
● neither experimental nor investigational.
Obtaining coverage and reimbursement
approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide
supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. We may not be able to provide sufficient
data to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be
available for our future products. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of,
our future products. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize our
product candidate, or any future product candidates, profitably, or at all, even if approved.
Governments outside
the United States tend to impose strict price controls, which may adversely affect our future revenues, if any.
In some countries, particularly
the countries comprising the European Union, the pricing of pharmaceuticals and certain other therapeutics is subject to governmental
control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing
approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial
that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable
or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
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We are subject to anti-kickback
laws and regulations. Our failure to comply with these laws and regulations could have adverse consequences for us.
There are extensive international
and U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant
criminal and civil penalties. Such U.S. federal laws include: the anti-kickback statute, which prohibits certain business practices and
relationships, including the payment or receipt of compensation for the generation of business that will be paid by Medicare or other
federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; the anti-inducement law,
which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services
covered by either program; the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false
or fraudulent claims for payment by the federal government, including the Medicare and Medicaid programs; and the Civil Monetary Penalties
Law, which authorizes the U.S. Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive
acts. In addition, the Affordable Care Act requires drug manufacturers to report to the government any payments to physicians for consulting
services and the like. Many jurisdictions outside the United States have similar anti-kickback, fraud and abuse, and healthcare laws and
regulations, and we could be subject to these laws and regulations to the extent that we operate in such jurisdictions.
Sanctions for violating these
federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties, imprisonment,
denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both, and debarment. As federal and
state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement
efforts to reduce or eliminate waste and to control fraud and abuse in governmental healthcare programs. Private enforcement of healthcare
fraud has also increased, due in large part to amendments to the Civil False Claims Act in 1986 that were designed to encourage private
persons to sue on behalf of the government. Efforts to ensure compliance with any of these federal, state and other fraud and abuse laws
and regulations may involve substantial costs, and a violation of the same could have a material adverse effect on our liquidity and financial
condition. An investigation into the use by physicians of any of our products, if ever commercialized, may dissuade physicians from either
purchasing or using them, and could have a material adverse effect on our ability to commercialize those products.
Our market is subject
to intense competition. If we are unable to compete effectively, Allocetra™ or any other product candidate that we may develop may
be rendered uncompetitive or obsolete.
There are a number of products
in development for the treatment or prevention of osteoarthritis, most of which are being developed by companies that are far larger than
us, with significantly greater resources and more experience. The FDA has approved several therapies for the treatment of osteoarthritis,
including a certain treatment specifically for knee osteoarthritis. Further, our industry is highly competitive and subject to rapid and
significant technological change. Our potential competitors include large, fully integrated, pharmaceutical and biotechnology companies,
specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. All of these
competitors currently engage in, have engaged in or may engage in the future in the development, manufacturing, marketing and commercialization
of new pharmaceuticals, some of which may compete with our product candidates. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large, established companies. These companies may have products in development
that are superior to Allocetra™ or any other product candidate that we may develop. Key competitive factors affecting the commercial
success of Allocetra™ and any other product candidates that we may develop are likely to be efficacy, time of onset, safety and
tolerability profile, reliability, convenience of dosing, price and reimbursement. Furthermore, even if Allocetra™ and any other
product candidates that we may develop are able to achieve these attributes, and are approved, acceptance of our products may be inhibited
by the reluctance of physicians to switch from existing therapies to our products, or if physicians choose to reserve our products for
use in limited circumstances.
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Many of our potential competitors
have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and
development of drug candidates, obtaining FDA, EMA and other regulatory approvals of products and the commercialization of those products.
Accordingly, our competitors may be more successful than us in obtaining FDA, EMA and other marketing approvals for drugs and achieving
widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug
we may commercialize, which may render Allocetra™ or any other product candidates that we may develop obsolete or uncompetitive
before we can recover the expenses of developing and commercializing the product. We anticipate that we will face intense and increasing
competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods
for the diseases and disorders we are targeting could render Allocetra™ or any other product candidates that we may develop, uncompetitive
or obsolete. If we cannot successfully compete with new or existing products, our marketing and sales will suffer, and we may never be
profitable.
Our competitors currently
include companies with marketed products and/or an advanced research and development pipeline. If Allocetra™ for the treatment of
moderate to severe knee osteoarthritis is approved for commercial sale, it would face competition from existing approved treatments for
knee osteoarthritis, many of which may have achieved commercial success. To compete successfully in the market for treatment of osteoarthritis,
we need to disrupt currently marketed drugs, meaning that we will have to demonstrate that the relative cost, method of administration,
safety, tolerability and efficacy of Allocetra™ provides a better alternative to existing and new therapies. Moreover, several companies
have reported the commencement of research projects related to the treatment or prevention of osteoarthritis. We face competition with
respect to Allocetra™ for the treatment of osteoarthritis and will face competition with respect to any product candidates that
we may seek to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies,
and biotechnology companies worldwide.
Significant disruptions
of information technology systems, cyberattacks and other security breaches could compromise our proprietary and confidential information,
which could harm our business and reputation.
In the ordinary course of
our business, we generate, collect and store proprietary information, including information regarding clinical trial subjects, intellectual
property and business information. We rely on sophisticated information technology systems, including software, cloud services and network-connected
control systems, some of which are managed, hosted, provided or serviced by third parties. The secure storage, maintenance, and transmission
of and access to this information is important to our operations, including our research and development efforts, and reputation. The
future operation, success and growth of our business depends on streamlined processes made available through our uninhibited access to
information systems, global communications, internet activity and other network processes. Further, because certain employees are
working remotely, our reliance on our third-party information technology systems has increased, which could increase our cybersecurity
risk, create data accessibility concerns and make us more susceptible to communication disruptions, any of which could adversely impact
our business operations.
Like
most other companies, despite our current security measures and process controls, our information technology systems, and those of our
third-party service providers, may be vulnerable to information security breaches, ransomware or extortion, mishandled data, acts of vandalism,
computer viruses and interruption or loss of valuable business data. Stored data might be improperly accessed due to a variety of events
beyond our control, including, but not limited to, damage and interruption from power loss or natural disasters, computer system and network
failures, loss of telecommunications services, physical and electronic loss of access to data and information, terrorist attacks, hackers,
security breaches or other security incidents, and computer viruses or attacks. A failure of any third parties who maintain our information
technology systems to provide adequate and timely support could adversely affect the operation of our information technology systems.
Hackers
and data thieves are increasingly sophisticated and operate large-scale and complex attacks (including through the use of artificial intelligence),
which may remain undetected until after they occur. In some cases, attempted attacks and intrusions are designed not to be detected and,
in fact, may not be detected. Such attacks also may be further enhanced in frequency or effectiveness through threat actors’ use
of artificial intelligence. Computer hackers may attempt to penetrate our computer systems or those of our third-party vendors
and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications.
In addition, an employee, contractor, or other third party with whom we do business may attempt to obtain such information and may purposefully
or inadvertently cause a breach involving such information. Any such compromise of our data security and access to, or public disclosure
or loss of, confidential business or proprietary information could disrupt our operations, damage our reputation, provide our competitors
with valuable information and subject us to additional costs, which could adversely affect our business.
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The
costs of mitigating cybersecurity risks are significant and are likely to increase in the future. These costs include, but are not limited
to, retaining the services of cybersecurity providers; compliance costs arising out of existing and future cybersecurity, data protection
and privacy laws and regulations; costs related to maintaining redundant networks, data backups and other damage-mitigation measures;
and extra administrative costs to mitigate risk and deal with any system breaches.
We face potential product
liability exposure, and, if claims are brought against us, we may incur substantial liability.
Our products and product candidates
could cause adverse effects. These adverse effects may not be observed in clinical trials but may nonetheless occur in the future. If
any of these adverse effects occur, they may render our product candidates ineffective or harmful in some patients, and our sales would
suffer, materially adversely affecting our business, financial conditions and results of operations.
In addition, potential adverse
effects caused by our product candidates, or products, could lead to product liability claims. Product liability claims might be brought
against us by consumers, healthcare providers or others coming into contact with our products. If we cannot successfully defend ourselves
against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product
liability claims may result in:
● decreased demand for our product candidates for which we obtain marketing approval;
● impairment of our business reputation and exposure to adverse publicity;
● increased warnings on product labels;
● withdrawal of clinical trial participants;
● costs of related litigation;
● distraction of management’s attention from our primary business;
● substantial monetary awards to patients or other claimants;
● loss of revenue; and
● the inability to successfully commercialize our product candidates for which we obtain marketing approval.
If product liability
lawsuits are successfully brought against us, our insurance may be inadequate.
We have obtained liability
insurance coverage for our clinical trials with limits that are customary for such trials. However, our insurance coverage may not be
sufficient to reimburse us for any expenses or losses we may suffer. Moreover, in the future, we may be unable to maintain insurance coverage
at a reasonable cost or in sufficient amounts to adequately protect us against losses due to liability. If and when we obtain marketing
approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however,
we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded
in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings,
even if resolved in our favor, could be substantial. A successful product liability claim, or series of claims, brought against us could
cause our share price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
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The product liability insurance
we will need to obtain in connection with the commercial sales of our product candidates, if and when they receive regulatory approval,
may be unavailable in meaningful amounts or at a reasonable cost. If we are the subject of a successful product liability claim that exceeds
the limits of any insurance coverage we obtain, we would incur substantial charges that would adversely affect our earnings and require
the commitment of capital resources that might otherwise be available for the development and commercial launch of our product programs.
If we are unable to
obtain adequate insurance to protect our business and property against damage, our financial condition could be adversely affected in
the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors
could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.
We may not be able to obtain
insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss or claims by
third parties. To the extent our business or property suffers any damages, losses or claims by third parties, which are not covered, or
adequately covered, by insurance, our financial condition may be materially adversely affected. If we are unable to obtain appropriate
insurance, medical centers may be unwilling or unable to enter into site agreements to clinically test our candidate products.
We may be unable to maintain
sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately
insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage the Company.
We manage our business
through a small number of senior executive officers. We depend on them even more than similarly situated companies.
Our future growth and success
depend on our ability to recruit, retain, manage and motivate our senior executive officers. The loss of the services of our management
personnel, including without limitation, our Executive Chairman, Shai Novik, our Chief Executive Officer, Dr. Oren Hershkovitz, or our
Chief Medical Officer, Dr. Einat Galamidi, or the inability to hire or retain experienced management personnel could adversely affect
our ability to execute our business plan and harm our operating results.
Because of the specialized
scientific nature of our business, we rely heavily on our ability to attract and retain qualified senior executive officers with scientific
and technical experience. In particular, the loss of one or more of our senior executive officers could be detrimental to us if we cannot
recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members
of senior management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition,
we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement
personnel.
We incur significant
costs as a result of operating as a public company, and our management devotes substantial time to compliance initiatives. We may fail
to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in
sanctions or other penalties that would harm our business.
We incur significant legal,
accounting and other expenses as a public company, including costs relating to public company reporting obligations under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). and regulations regarding corporate governance practices. Our
management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover,
the reporting requirements, rules and regulations result in considerable legal and financial compliance costs. Any changes we make to
comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at
all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being
a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors
(the “Board,” or the “Board of Directors”) or Board committees or to serve as executive officers,
or to obtain certain types of insurance, including directors’ and officers’ liability insurance, on acceptable terms.
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We are subject to Section
404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the SEC, which generally require our management and independent
registered public accounting firm to report on the effectiveness of our internal control over financial reporting. The continuous process
of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. As our business continues to
grow both domestically and internationally, our internal controls will become more complex and will require significantly more resources
and attention to ensure our internal controls remain effective overall.
During the course of our review
and testing of our internal controls, we may identify deficiencies and be unable to remediate them before we must provide the required
reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not
be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating
results, cause investors to lose confidence in our reported financial information and cause the trading price of our shares to fall.
Environmental, social
and corporate governance (“ESG”) issues, including those related to climate change and sustainability, may have an
adverse effect on our business, financial condition and results of operations and damage our reputation.
In recent years, certain investors,
customers, consumers, employees and other stakeholders have been focused on ESG matters, including climate change, energy and water use,
plastic waste and other sustainability concerns. If our ESG practices fail to meet regulatory requirements or investor, customer, consumer,
employee or other stakeholders’ expectations and standards for responsible corporate citizenship in areas including environmental
stewardship, support for local communities, Board of Directors and employee diversity, human capital management, employee health and safety
practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention
may be negatively impacted, and our suppliers may be unwilling to continue to do business with us. Further, if we do not adapt to or comply
with new regulations, or fail to meet investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may
reconsider their capital investment in our Company, we may become subject to penalties, and customers and consumers may choose to stop
purchasing our products, if approved for commercialization, which could have a material adverse effect on our reputation, business or
financial condition.
Risks Related to Our Reliance on Third Parties
We depend on third parties
to conduct our clinical trials.
We currently rely, and for
the foreseeable future, will continue to rely, on third parties, such as CROs, medical institutions, clinical investigators and contract
laboratories to oversee most of the operations of our clinical trials and to perform data collection and analysis. As a result, we may
face additional delays outside of our control if these parties do not fulfill their obligations in a timely fashion or in accordance with
regulatory requirements. If these third parties do not successfully carry out their contractual duties or obligations and meet expected
deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure
to adhere to our clinical protocols or for other reasons, our financial results and the commercial prospects for our product candidates
or any other potential product candidates could be harmed, our costs could increase and our ability to obtain regulatory approval and
commence product sales could be delayed.
We may rely on third
party manufacturers to manufacture our product candidates for purposes of clinical trials and commercial quantities of our product candidates,
if and when approved for marketing by the applicable regulatory authorities.
With respect to the production
of the starting material required for future clinical trials, we may rely either on our own manufacturing capabilities or on third parties.
We currently, and in the future will, rely upon blood banks and collection service facilities for the collection of starting material
for the production of Allocetra™. We plan to initially rely upon hospitals, other health care providers, contract manufacturers
and, potentially, collaboration partners, to manufacture commercial quantities of our product candidates, if and when approved for marketing
by the applicable regulatory authorities. Although we have not yet engaged any contract manufacturers or other service providers, if and
when we do, our contract manufacturers and service providers must complete technology transfer, process validation for the manufacturing
process and demonstrate successful manufacturing of comparable product. If our contract manufacturers and service providers, and their
respective facilities, as applicable, are not approved by EMA, or other applicable regulatory authorities, our commercial supply of the
product candidate will be significantly delayed and may result in significant additional costs. If we need to identify additional finished
product manufacturers, we would not be able to do so without significant delay and likely significant additional cost.
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Our and our contract manufacturers’
and other service providers’ failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory
requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or
withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business.
Contract manufacturers and service providers often encounter difficulties involving production yields, quality control and quality assurance,
as well as shortages of qualified personnel. Our future contract manufacturers and service providers may not perform as agreed or may
not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we
may be unable to replace our manufacturing capacity or a third-party manufacturer or provider in a timely manner and the production of
our product candidates would be interrupted, resulting in delays and additional costs. See also “Risk Factors—Risks Related
to our Business, Industry and Regulatory Requirements—Our manufacturing processes are complex, delicate and susceptible to contamination,
and involve biological intermediates that are subject to stringent regulations.”
We may rely primarily
on third parties to market and sell Allocetra™ and any other product candidate.
We have no sales or distribution
capabilities. To the extent we rely on third parties to commercialize our products, if marketing approval is obtained, we may receive
less revenue than if we commercialize such products ourselves. In addition, we would have less control over the sales efforts of any third
parties involved in our commercialization efforts. In the event we are unable to collaborate with a third-party marketing and sales organization
to commercialize our products, particularly for broader patient populations, our ability to generate revenue will be limited.
Although we currently do not
intend to market AllocetraTM ourselves, we may ultimately decide to develop a marketing and sales force with technical expertise
and supporting distribution capabilities in the longer term. To promote any of our potential products through third parties, we will have
to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms, and we may not be able
to do so. Any third-party arrangements we are able to enter into may result in lower revenues than we could achieve by directly marketing
and selling our potential products. In addition, to the extent that we depend on third parties for marketing and distribution, any revenues
we receive will depend upon the efforts of such third parties, as well as the terms of our agreements with such third parties, which cannot
be predicted in most cases at this time. As a result, we might not be able to market and sell our products in the United States or overseas,
which would have a material adverse effect on us.
Risks Related to Our Intellectual Property
The failure to obtain
or maintain patents, licensing agreements and other intellectual property could impact our ability to compete effectively.
To compete effectively, we
need to develop and maintain a proprietary position with regard to our own technologies, intellectual property, licensing agreements,
product candidates and business. Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical
fields are still evolving. Therefore, the degree of future protection for our proprietary rights in our core technologies and any product
candidates or products that might be developed using these technologies is also uncertain. The risks and uncertainties that we face with
respect to our patents and other proprietary rights include the following:
● while the patents we own have been issued, pending patent applications we have filed may not result in issued patents or may take longer than we expect to result in issued patents;
● we may be subject to interference or reexamination proceedings;
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● we may be subject to opposition proceedings in foreign countries;
● any patents that are issued may not provide meaningful protection for any significant period of time, if at all;
● we may not be able to develop additional proprietary technologies that are patentable;
● other companies may challenge and invalidate patents licensed or issued to us or our customers;
● other companies may independently develop similar or alternative technologies, or duplicate our technologies;
● other companies may design around technologies we have licensed or developed; and
● enforcement of patents is complex, uncertain and expensive, and our patents may be found invalid or enforceable.
We cannot be certain that
patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents, whether
issued pursuant to our pending applications or licensed from third parties, will give us adequate protection from competing products.
For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope, and changes in
the law may affect the utility of a pending patent application or issued patent. In addition, because publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions
or to file patent applications covering those inventions. If any of our composition of matter patents, or pending applications, was subject
to a successful challenge or failed to issue, our business and competitive advantage could be significantly affected. Our current patents
will expire or they may otherwise cease to provide meaningful competitive advantage, and we may be unable to adequately develop new technologies
and obtain future patent protection to preserve our competitive advantage or avoid adverse effects on our business.
Although we expect to do so,
we may not be able to submit a marketing application seeking approval of Allocetra™ prior to the applicable patents’ expiration
date, assuming all necessary patents are in fact issued. Moreover, we cannot be certain that we will be the first applicant to obtain
FDA and/or EMA approval for any indication of our product candidates, and we cannot be certain that we will be entitled to any other exclusivity
with respect to the same. Such a diminution of our proprietary position could have a material adverse effect on our business, results
of operation and financial condition.
Our ability to protect
and enforce our patents does not guarantee that we will secure the right to commercialize our patents.
A patent is a limited monopoly
right conferred upon its holder, and such holder’s successors in title, in return for the making and disclosing of a new and non-obvious
invention. This monopoly is of limited duration but, while in force, allows the patent holder to prevent others from making and/or using
his/her invention without the patent holder’s consent. While a patent gives the holder this right to exclude others, it is not a
license to commercialize the invention, where other permissions may be required for permissible commercialization to occur. Further, the
invention, even if patented itself, cannot be commercialized if it infringes the valid patent rights of another party.
Others may obtain issued patents
that could require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business.
As to those patents that we may license, our rights would depend on maintaining our obligations under the applicable license agreement,
and we may be unable to do so. The requirement to either obtain licenses or to maintain our obligations under license agreements, even
if successful, could be costly for us and there is no guarantee such licenses will permit us to commercialize the underlying patents.
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We may rely on trade
secrets and proprietary know-how to protect our proprietary technology, which can be difficult to trace and enforce and, if we are unable
to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We require our employees,
consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information
to any other party. We also require our employees and consultants to disclose and assign to us their ideas, developments, discoveries
and inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how or other proprietary information
in the event of any unauthorized use or disclosure. Despite these efforts, any of these parties may breach the agreements and disclose
our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing
a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome
is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have
no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed
to or independently developed by a competitor or other third party, our business and competitive position would be harmed.
We may not be able to
protect our intellectual property rights throughout the world.
Patents are of national or
regional effect, and filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively
expensive. As such, we may not be able to prevent third parties from duplicating our inventions, or from selling or importing products
made using our inventions, in countries outside those for which we have legally obtained patent protection. Further, the legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property
protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. In addition, certain developing countries,
including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties.
In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party,
which could materially diminish the value of those patents. This could limit our potential revenue opportunities, and could materially
adversely affect our competitive advantage, business and results of operations. Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop
or license.
The biotechnology industry has been characterized
by significant litigation and other proceedings regarding patents, patent applications, and other intellectual property rights.
The biotechnology industry
has been characterized by extensive and frequent litigation regarding patents and other intellectual property rights. The situations in
which we may become parties to such litigation or proceedings may include:
● litigation or other proceedings we may initiate against third parties to enforce the patent rights or other intellectual property rights;
● litigation or other proceedings we may initiate against third parties seeking to invalidate the patents held by such third-parties or to obtain a judgment that the technology does not infringe such third parties’ patents;
● litigation or other proceedings third parties may initiate against us seeking to invalidate the patents or to obtain a judgment that third-party technology or products do not infringe the patents; and
● if competitors file patent applications claiming technology also claimed by, we may be forced to participate in interference or opposition proceedings to determine the priority of invention.
The costs of resolving any
patent litigation, or other intellectual property proceeding, even if resolved in our favor, could be substantial. Such costs, or uncertainties
resulting from the initiation and continuation of patent litigation or other intellectual property proceedings, could materially adversely
affect our competitive advantage, business and results of operations.
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We cannot predict the
scope and extent of patent protection for our product candidates because the patent positions of pharmaceutical products are complex and
uncertain.
Any patents issued to us will
not ensure the protection of our intellectual property for a number of reasons, including, without limitation, the following:
● any issued patents may not be broad or strong enough to prevent competition from other products including identical or similar products;
● if we are not awarded patents or if issued patents expire or are declared invalid or not infringed, there may be no protections against competitors attempting to make “biosimilars;”
● there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;
● there may be other patents or pending patent applications existing in the patent landscape for our product candidates that will affect our freedom to operate;
● if our patents are challenged, a court could determine that they are not valid or enforceable;
● a court could determine that a competitor’s technology or product does not infringe our patents;
● our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations, or could be subject to compulsory licensing; and
● if we encounter delays in our development or clinical trials, the period of time during which we could market our products under patent protection would be reduced.
We may not be able to
enforce our intellectual property rights throughout the world. This risk is exacerbated because we expect that our product candidates
will be manufactured and used in a number of countries.
The laws of some foreign countries
do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant
problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This risk is exacerbated for us because
we expect our product candidates will be manufactured and used in a number of countries.
The legal systems of some
countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially
those relating to life sciences. This could make it difficult for us to stop the infringement of our other intellectual property rights.
For example, several foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties.
In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors.
In these countries, patents may provide limited or no benefit.
Certain countries may not
provide the same or similar protection as that provided in the United States. Additionally, due to uncertainty in patent protection law,
we have not filed applications in many countries where significant markets exist, including, without limitation, South American countries,
Eurasian countries, African countries and Taiwan.
Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our
business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes
in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection
for our technology and the enforcement of intellectual property.
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Changes in patent law
could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other
pharmaceutical and biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining
and enforcing patents in the pharmaceutical and biotechnology industries involve both technological and legal complexity. Therefore, obtaining
and enforcing related patents is costly, time-consuming and inherently uncertain. The U.S. Supreme Court and the U.S. Court of Appeals
for the Federal Circuit have ruled on several patent cases in recent years, and could do so again in the future, either narrowing the
scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition,
the USPTO has implemented patentability guidelines that may render the subject matter of a patent as non-patentable based on a lack of
utility. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by applicable courts and legislatures
in the countries in which we may pursue patent protection, including those of the U.S. Congress, the federal courts and the USPTO, the
laws and regulations governing patents and the interpretations of such laws could change in unpredictable ways that would weaken our ability
to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may be unable to
protect the intellectual property rights of the third parties from whom we license or may license certain of our intellectual property
or with whom we have entered into other strategic relationships, which could have a material adverse effect on our business, results of
operations and financial condition.
Certain of our intellectual
property rights are and may in the future continue to be licensed from third parties, including universities and/or strategic partners.
Such third parties may not protect the intellectual property rights that we license from them, and we may be unable to defend such intellectual
property rights on our own (even if we contractually agree to manage, maintain and defend such rights) or we may have to undertake costly
litigation to defend the intellectual property rights of such third parties. There can be no assurances that we will continue to have
proprietary rights to any of the intellectual property that we license from such third parties or otherwise have the right to use through
similar strategic relationships. Any loss or limitations on use with respect to such intellectual property licensed from third parties
or otherwise obtained from third parties with whom we have entered into strategic relationships could have a material adverse effect on
our business, results of operations and financial condition.
We may infringe on the
intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing, or
increase the costs of commercializing, our products.
Our commercial success depends
significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example,
there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do
not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until
patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date
on which the underlying discoveries were made, and patent applications were filed. Because patents can take many years to issue, there
may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For
example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued
patent that our product infringes.
Third parties may assert that
we are employing their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable
and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our product
candidates or products unless we obtained a license under the applicable patents, or until the patents expire. In addition to litigation
proceedings which may be filed against us, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable
cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of
our products or lead to prohibition of the manufacture or sale of products by us.
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We may be unable to
adequately prevent disclosure and unauthorized use of trade secrets and other proprietary information by third parties.
Our ability to obtain and
maintain patent protection and trade secret protection for our intellectual property and proprietary technologies, our products and their
uses is important to our commercial success. We rely on a combination of patent, copyright, trademark and trade secret laws, non-disclosure
and confidentiality agreements, licenses, assignment of inventions agreements and other restrictions on disclosure and use to protect
our intellectual property rights.
We also rely on trade secrets
to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information.
These agreements, to the extent they are in place and in effect, may not effectively prevent disclosure of confidential information and
may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine
the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary
information to develop products that compete with our product candidates or products or cause additional material adverse effects upon
our competitive business position.
We cannot be certain that
the steps that we have taken will prevent the misappropriation or other violation of our confidential information and other intellectual
property, particularly in foreign countries in which laws may not protect our proprietary rights as fully as in the United States and
other developed economies. Moreover, if we lose any key personnel, we may not be able to prevent these persons from impermissibly disclosing
or using our technical knowledge or other trade secrets. If we are unable to maintain the security of our proprietary technology, this
could materially adversely affect our competitive advantage, business and results of operations.
Under applicable U.S.
and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting
from the expertise of some of our former employees.
We generally enter into non-competition
agreements with our employees and certain key consultants, or our employment and consulting agreements contain non-competition provisions.
These agreements, to the extent they are in place and in effect, prohibit our employees and certain key consultants, if they cease working
for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce
these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors
from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have
required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of
the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts,
such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot
demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our
former employees or consultants and our ability to remain competitive may be diminished.
Any lawsuits relating
to infringement of intellectual property rights necessary to defend ourselves or enforce our rights will be costly and time consuming.
We may be required to initiate
litigation to enforce our rights or defend our activities in response to the alleged infringement of a third party. In addition, we may
be sued by others who hold intellectual property rights and who claim that their rights are infringed by our product candidates or any
of our future products or product candidates. These lawsuits can be very time-consuming and costly. There is a substantial amount of litigation
involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally.
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A third party may claim that
we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities,
such as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources.
There is a risk that such a court will decide that we are infringing the third-party’s patents and will order us to stop the activities
claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses, which may not be available on commercially
reasonable terms. In addition, there is a risk that a court will order us to pay the other party damages for infringement.
Moreover, there is no guarantee
that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or
that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the
future, assert other intellectual property infringement claims against us with respect to our product candidates, technologies or other
matters.
In addition, our patents and
patent applications could face other challenges, such as interference proceedings, opposition proceedings and re-examination proceedings.
Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and
patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time-consuming and expensive
to defend and resolve and would divert our management’s time and attention.
Obtaining and maintaining
our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign
governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the
patent process. There are situations in which non-compliance can result in abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market
earlier than would otherwise have been the case.
Risks Related to Our Cryptocurrency and Treasury Reserve Policy
We have established
a prediction markets-based token digital asset treasury through the purchase of RAIN and we may purchase other digital or cryptocurrency
assets, the prices of which have been, and will likely continue to be, highly volatile. Our operating results and share price may fluctuate
significantly, including due to the highly volatile nature of the price of such digital assets and erratic market movements.
We used substantially all
of the net proceeds from the Private Placement to purchase RAIN and may in the future purchase other digital or cryptocurrency assets
(collectively, such RAIN or other digital or cryptocurrency assets we may hold in our treasury operation pursuant to our Treasury Reserve
Policy (as defined below), our “Cryptocurrency”). Cryptocurrency is a highly volatile asset class, including as a result of
shifts in market sentiment, speculative trading, macroeconomic trends, technology-related disruptions and regulatory announcements, and
fluctuations in the prices of our Cryptocurrency are likely to influence our financial results and the market price of our ordinary shares.
Our financial results and the market price of our ordinary shares would be adversely affected, and our business and financial condition
would be negatively impacted, if the prices of our Cryptocurrency decreased substantially (as digital cryptocurrency assets as a whole
have in the past).
Our recently adopted
and implemented Cryptocurrency and Digital Asset Treasury Strategy (our “Treasury Reserve Policy”) has not been tested.
We adopted our Treasury Reserve
Policy in connection with the consummation of the Private Placement to govern the acquisition and management of our Cryptocurrency. There
is no assurance that we will be able to successfully implement this new strategy or operate at the scale or profitability currently anticipated.
Our Treasury Reserve Policy has not been tested. Although we believe our Cryptocurrency has the potential to serve as a hedge against
inflation in the long term, the short-term prices of our Cryptocurrency may decline, including during periods of increased inflation.
Some investors and other market participants may disagree with our Treasury Reserve Policy or actions we undertake to implement it. Further,
there is ongoing scrutiny and limited formal guidance from regulatory agencies, including Nasdaq and the SEC, with respect to the treatment
of public company cryptocurrency strategies. If the prices of our Cryptocurrency were to decrease or our Treasury Reserve Policy otherwise
proves unsuccessful, our financial condition, results of operations, and the market price of our ordinary shares could be materially adversely
impacted. As a result, our shift towards our Treasury Reserve Policy could have a material adverse effect on our business and financial
condition.
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Our Cryptocurrency holdings
will be less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same
extent as cash and cash equivalents.
Historically, the digital
cryptocurrency asset markets have been characterized by significant volatility in price, limited liquidity, and trading volumes compared
to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation,
compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized
network. During times of market instability, we may not be able to sell our Cryptocurrency at favorable prices or at all. As a result,
our Cryptocurrency holdings may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.
Further, our Cryptocurrency will not enjoy the same protections as are available to cash or securities deposited with or transacted by
institutions subject to regulation by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Additionally,
we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered Cryptocurrency or otherwise
generate funds using these holdings, including in particular during times of market instability or when the prices of our Cryptocurrency
have declined significantly. If we are unable to sell our Cryptocurrency, enter into additional capital raising transactions using our
Cryptocurrency as collateral, or otherwise generate funds using these holdings, or if we are forced to sell our Cryptocurrency at a significant
loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.
We may be subject to
regulatory developments related to our Cryptocurrency and the digital cryptocurrency asset markets, which could adversely affect our business,
financial condition, and results of operations.
Digital cryptocurrency assets
are relatively novel and are subject to significant uncertainty, and the application of state and federal securities laws and other laws
and regulations to these digital assets is unclear in certain respects, it is possible that regulators in the United States or foreign
countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of our Cryptocurrency. As
digital assets have grown in both popularity and market size, the U.S. Executive Branch, Congress and a number of U.S. federal and state
agencies, including the Financial Crimes Enforcement Network, the Commodities Futures Trading Commission (the “CFTC”),
the SEC, the Financial Industry Regulatory Authority, the Consumer Financial Protection Bureau, the Department of Justice, the Department
of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service and state financial regulators, have been examining
the operations of digital asset networks, digital asset users and digital asset exchanges, with particular focus on the extent to which
digital assets can be used to violate state or federal laws, including to facilitate the laundering of proceeds of illegal activities
or the funding of criminal or terrorist enterprises, and the safety and soundness and consumer-protective safeguards of exchanges or other
service-providers that hold, transfer, trade or exchange digital assets for users. Many of these state and federal agencies have issued
consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries
have issued rules or guidance regarding the treatment of digital asset transactions and requirements for businesses engaged in activities
related to digital assets.
The U.S. federal government,
states, regulatory agencies, and foreign countries may also enact new laws and regulations, or pursue regulatory, legislative, enforcement
or judicial actions, that could materially impact the price of digital cryptocurrency assets or the ability of individuals or institutions,
such as us, to own or transfer such digital cryptocurrency assets. The liquidity of our Cryptocurrency may also be impacted to the extent
that changes in applicable laws and regulatory requirements negatively impact the ability of digital asset markets to function or the
willingness of exchanges and trading venues to provide services for digital cryptocurrency assets.
If any of our Cryptocurrencies,
or certain transactions involving our Cryptocurrency, are determined to constitute a “security” for purposes of the federal
securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of such
Cryptocurrency, and in turn adversely affect the market price of our ordinary shares. Moreover, the risks of us engaging in our Treasury
Reserve Policy have created, and could continue to create complications due to the lack of experience that third parties have with companies
engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain
such coverage on acceptable terms in the future.
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Regulatory change classifying
certain digital cryptocurrency assets as “securities” could lead to our being subject to extensive regulation, which could
result in significant costs or force us to cease operations.
Under Sections 3(a)(1)(A) and
(C) of the Investment Company Act of 1940, as amended (the “1940 Act”), a company generally will be deemed to be an “investment
company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage
primarily, in the business of investing, reinvesting or trading in securities or (2) it is engaged, or proposes to engage, in the
business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities
having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated
basis. We do not believe that we are an “investment company,” as such term is defined in the 1940 Act, and are not registered
as an “investment company” under the 1940 Act as of the date of this Annual Report on Form 20-F.
While the SEC has not offered
formal or binding regulatory guidance as to whether digital cryptocurrency assets are or are not “securities” for purposes
of the federal securities laws, a determination by the SEC or a court of competent jurisdiction that digital cryptocurrency assets, or
certain transactions involving digital cryptocurrency assets, are investment securities could lead to our meeting the definition of “investment
company” under the 1940 Act if the portion of our assets that consists of investments in our Cryptocurrency exceeds the 40% limit
prescribed in the 1940 Act, which would subject us to significant additional regulatory requirements that could have a material adverse
effect on our resources and may also require us to change the manner in which we conduct our business. If the costs and regulatory burdens
become too great, we may be forced to modify or cease certain operations, which could be detrimental to our investors and could result
in a loss of all or a portion of your investment in us.
The SEC has previously indicated
that certain digital assets may be considered securities depending on their structure and use. Future developments could change the legal
status of digital assets that we may hold, requiring us to comply with securities laws. If we fail to do so, we may be forced to discontinue
some or all of our business activities, negatively impacting investments in our securities. Further, state regulators may conclude that
the digital assets we hold are securities under state laws, requiring us to comply with state-specific securities regulations. States
like California have stricter definitions of “investment contracts” than the Commission, increasing the risk of additional
regulatory scrutiny.
If any of our Cryptocurrencies
are determined to be investment securities for purposes of the 1940 Act, we may be required to change our operations, wind down our operations,
or register as an investment company under the 1940 Act. We could take steps to reduce our Cryptocurrency holdings as a percentage of
our total assets, which may include, among others, selling Cryptocurrency that we might otherwise hold for the long term and deploying
our cash in assets that are not considered to be investment securities under the 1940 Act, in which case we may be forced to sell Cryptocurrency
at unattractive prices. We may also seek to acquire additional assets that are not considered to be investment securities under the 1940
Act, and we may need to incur debt, issue additional equity or enter into other financing arrangements that are not otherwise attractive
to our business. Any of these actions could have a material adverse effect on our results of operations and financial condition. Moreover,
we can make no assurance that we would successfully be able to take the necessary steps to avoid meeting the definition of “investment
company” under the 1940 Act and becoming subject to its requirements. If any of our Cryptocurrencies are determined to constitute
securities for purposes of the federal securities laws, and if we are not able to come within an available exemption or exclusion under
the 1940 Act, then we would have to register as an investment company and change the manner in which we conduct our business, which may
not be feasible. In addition, such a determination could adversely affect the market price of our Cryptocurrency and in turn adversely
affect the market price of our ordinary shares.
Digital cryptocurrency
assets are subject to significant commercial and technical uncertainty.
The growth of the digital
assets industry in general, and the use and acceptance of digital cryptocurrency assets in particular, may also impact the price of our
Cryptocurrency and are subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of digital cryptocurrency
assets may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to digital cryptocurrency
assets, institutional demand for digital cryptocurrency assets as investment assets, the participation of traditional financial institutions
in the digital assets industry, consumer demand for digital cryptocurrency assets as means of payment, and the availability and popularity
of alternatives to digital cryptocurrency assets. Even if growth in digital cryptocurrency asset adoption occurs in the near or medium
term, there is no assurance that digital cryptocurrency asset usage will continue to grow over the long-term.
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Because digital cryptocurrency
assets that trade on a blockchain have no physical existence beyond the record of transactions on the given blockchain, a variety of technical
factors related to the underlying blockchain could also impact the price of our Cryptocurrency. For example, hard “forks”
of the blockchain into multiple blockchains and advances in digital computing, algebraic geometry, and quantum computing could undercut
the integrity of our Cryptocurrency and negatively affect the price of the cryptocurrency we intend to hold pursuant to our Treasury Reserve
Policy.
The liquidity of digital cryptocurrency
assets may also be reduced and damage to the public perception of digital cryptocurrency assets may occur, if financial institutions were
to deny or limit banking services to businesses that hold digital cryptocurrency assets, provide digital cryptocurrency asset-related
services or accept digital cryptocurrency assets as payment, which could also decrease the price of digital cryptocurrency assets. Similarly,
the open-source nature of our Cryptocurrency’s underlying blockchain means the contributors and developers of such blockchain are
generally not directly compensated for their contributions in maintaining and developing the blockchain, and any failure to properly monitor
and upgrade the underlying blockchain could adversely affect such blockchain and negatively affect the price of our Cryptocurrency.
The emergence or growth
of other digital assets, including those with significant private or public sector backing, including by governments, consortiums or financial
institutions, could have a negative impact on the price of our Cryptocurrency and, consequently, adversely affect the market price of
our ordinary shares.
The emergence or growth of
digital assets other than our Cryptocurrency following the deployment of our Treasury Reserve Policy may have a material adverse effect
on our financial condition. As of March 2026, Bitcoin and Ethereum were the largest digital assets by market capitalization. However,
there are numerous alternative digital assets, and many entities, including consortiums and financial institutions, are researching and
investing resources into private or permissioned blockchain platforms or digital assets that do not use “proof-of-stake” like
the Ethereum network. If the mechanisms for validating transactions in Bitcoin (which uses “proof-of-work”) and other alternative
digital assets are perceived as superior to “proof-of-stake” mining, those digital assets could gain market share relative
to our Cryptocurrency.
Any decrease in the fair value
of our Cryptocurrency we may hold below our carrying value for such assets could require us to incur a loss due to the decrease in fair
market value, and such change could be material to our financial results for the applicable reporting period, which may create significant
volatility in our reported earnings. Any decrease in reported earnings or increased volatility of such earnings could have a material
adverse effect on the market price of our ordinary shares. In addition, the application of GAAP with respect to digital cryptocurrency
assets may change in the future and could have a material adverse effect on our financial results and the market price of our ordinary
shares.
In addition, if investors
view the value of our ordinary shares as dependent upon or linked to the value or change in the value of our Cryptocurrency, the prices
of our Cryptocurrency may significantly influence the market price of our ordinary shares.
The expected concentration
of our Cryptocurrency holdings may enhance the risks inherent in utilizing our Treasury Reserve Policy.
The expected concentration
of our Cryptocurrency holdings limits the risk mitigation that we could take advantage of by purchasing a more diversified portfolio of
treasury assets, and the absence of diversification enhances the risks inherent in our Treasury Reserve Policy. Any significant future
decline in the value of our Cryptocurrency may have a more pronounced impact on our financial condition than if we used our cash to purchase
a more diverse portfolio of assets.
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Changes in regulatory
interpretations could require us, or the protocol associated with our Cryptocurrency, to register or obtain licenses to operate as a money
services business or money transmitter, leading to increased compliance costs or operational shutdowns.
The regulatory regime for
digital assets in the United States and elsewhere is uncertain. Depending on the regulatory characterization of RAIN, the markets for
cryptocurrency in general, and our activities in particular, our business and our RAIN acquisition strategy may be subject to regulation
by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, to a materially adverse
extent, the nature of digital assets markets, the participation of industry participants, including service providers and financial institutions
in these markets, and our ability to pursue our digital asset treasury strategy. Additionally, U.S. federal, state and foreign regulators
and legislatures have taken action against industry participants, including digital assets businesses, and enacted restrictive regimes
in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from digital assets activity. U.S. federal
and state energy regulatory authorities are also monitoring the total electricity consumption of cryptocurrency mining, and the potential
impacts of cryptocurrency mining to the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many
state legislative bodies have passed, or are actively considering, legislation to address the impact of cryptocurrency mining in their
respective states. We, or the protocol associated with our Cryptocurrency (the “Protocol”), may be unable to effectively react
to proposed legislation and regulation of digital assets, which could adversely affect the market price of our ordinary shares.
If regulatory changes or interpretations
require us, or the Protocol, to register as a money services business with the Financial Crimes Enforcement Network under the U.S. Bank
Secrecy Act, or as a money transmitter under state laws, we, or the Protocol, may be subject to extensive regulatory requirements, resulting
in significant compliance costs and operational burdens. In such a case, we, or the Protocol, may incur extraordinary expenses to meet
these requirements or, alternatively, may determine that continued operations are not viable. If we, or the Protocol, decide or are required
to cease certain operations in response to new regulatory obligations, such actions could adversely affect the market price of our ordinary
shares.
Multiple states have implemented
or proposed regulatory frameworks for digital asset businesses. Compliance with such state-specific regulations may increase costs or
impact our business operations. Further, if we, the Protocol, or our or its respective service providers, are unable to comply with evolving
federal or state regulations, we or the Protocol may be forced to dissolve or liquidate certain operations, which could materially impact
our investors.
The classification of
any of our Cryptocurrencies as a commodity could subject us to additional CFTC regulation, resulting in significant compliance costs or
the cessation of certain operations.
The CFTC takes the position
that some digital assets fall within the definition of a “commodity” under the Commodities Exchange Act of 1936, as amended
(the “CEA”) and are therefore subject to regulation by the CFTC. If our activities require CFTC registration, we may
be required to comply with extensive regulatory obligations, which could result in significant costs and operational disruptions. Additionally,
current and future legislative or regulatory developments, including new CFTC interpretations, could further impact how digital cryptocurrency
assets and digital cryptocurrency asset derivatives are classified and traded.
If our Cryptocurrency is further
regulated as a commodity, we may be required to register as a commodity pool operator and register the Company as a commodity pool with
the CFTC through the National Futures Association. Compliance with these additional regulatory requirements could result in substantial,
non-recurring expenses, adversely affecting an investment in our securities. If we determine not to comply with such regulations, we may
be forced to cease certain operations, which could negatively impact our shareholders.
Under the CEA, the CFTC has
broad enforcement authority to police market manipulation and fraud in spot digital assets markets in which we may transact. Beyond instances
of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges or transactions involving digital asset commodities
that do not utilize margin, leverage, or financing. In addition, CFTC regulations and CFTC oversight and enforcement authority apply with
respect to futures, swaps, other derivative products and certain retail leveraged commodity transactions involving digital asset commodities,
including the markets on which these products trade.
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Regulatory risks of
operating a prediction market are extensive and could lead to litigation, enforcement actions, criminal risks against the Protocol and
its operators.
The regulatory definitions
of “decentralization” are uncertain and developing, and whether a project is “decentralized” often is a matter
of degree. If the Protocol is determined by a regulator to not be a decentralized platform, the Protocol, and those involved in its operation,
may face significant regulatory risks.
Event contracts are deemed
to be derivatives by the CFTC, and the CFTC has taken the position that prediction market platforms need to register as Designated Contract
Markets (“DCMs”) or they need to qualify for an exemption. If the CFTC determines that the Protocol has failed to register
as a DCM or fails to qualify for an exemption, the CFTC could assert that the prediction market is an illegal off-exchange options market,
which may subject the Protocol to litigation, enforcement actions, penalties, a forced shutdown and referrals to criminal authorities
that may lead to criminal liability.
Additionally, many U.S. states
view prediction markets as gambling, which triggers state licensing obligations. Failing to register may lead to litigation, enforcement
actions and criminal risks, and may lead to an order to cease to operate. Certain U.S. states prohibit gambling altogether, and operating
an illegal gambling business could lead to penalties and felony charges. In addition, federally recognized Indian tribes may similarly
assert that prediction markets constitute gambling activities and therefore are subject to their sovereign regulatory authority, which
may lead to litigation. Numerous foreign jurisdictions also impose strict prohibitions or licensing regimes for gambling, and may classify
prediction markets as illegal gambling, subjecting the platform to further risks of litigation, penalties, enforcement actions or a forced
shutdown.
Furthermore, if a U.S. regulator
determined that the Protocol was a money services business or money transmitter, the Protocol and its founders could be subject to civil
and criminal “strict liability” violations for failing to register and obtain required licenses to operate as a money transmitted
in the U.S. or certain U.S. states.
Individually or collectively,
these risks could materially reduce the value of our Cryptocurrency and have a significant and adverse impact on the Company.
If we or our third-party
service providers experience a security breach or cyberattack and unauthorized parties obtain access to our Cryptocurrency, or if our
private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our Cryptocurrency and
our financial condition and results of operations would be materially adversely affected.
The cryptocurrency we acquired
pursuant to our Treasury Reserve Policy is held in custody accounts at a licensed custodian or self-custody with a leading provider. Our
Treasury Reserve Policy holdings may be concentrated with a single custodian from time to time. Our Cryptocurrency and other blockchain-based
cryptocurrencies and digital assets and the entities that provide services to participants in the cryptocurrency ecosystem have been,
and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack
could result in:
● a partial or total loss of any Cryptocurrency we hold at such time in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold such Cryptocurrency;
● harm to our reputation and brand;
● improper disclosure of data and violations of applicable data privacy and other laws; or
● significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.
Further, any actual or perceived
data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks,
regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader cryptocurrency ecosystem or
in the use of the cryptocurrency network to conduct financial transactions, which could negatively impact us.
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Attacks upon systems across
a variety of industries, including industries related to digital cryptocurrency assets, are increasing in frequency, persistence, and
sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including
state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data
and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and
often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those
of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance,
insider threats, system errors or vulnerabilities or other irregularities. In particular, we expect that unauthorized parties will attempt
to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means,
such as hacking, social engineering, phishing and fraud. Threats can come from a variety of sources, including criminal hackers, hacktivists,
state-sponsored intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems
are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time,
or until launched against a target and we may not be able to implement adequate preventative measures. Further, there has been an increase
in such activities due to the increase in work-from-home arrangements. The risk of cyberattacks could also be increased by cyberwarfare
in connection with current or future geopolitical conflicts, wars, and acts of aggression, including pursuant to the potential proliferation
of malware into systems unrelated to such conflicts. Any future breach of our operations or those of others in the digital cryptocurrency
asset industry, including third-party services on which we rely, could materially and adversely affect our financial condition and results
of operations.
The availability and
solvency of third-party digital cryptocurrency asset custodians pose a risk of illiquidity and asset loss, potentially impacting the success
of our Treasury Reserve Policy.
If there is a decrease in
the availability of digital asset custodians that we believe can safely provide custody arrangements for our Cryptocurrency holdings,
for example, if custodians discontinue or limit their services in the United States, we may need to enter into arrangements that are less
favorable than our current agreement or take other measures to custody such holdings, and our ability to seek a greater degree of diversification
in the use of custodial services would be materially adversely affected. In addition, holding our Cryptocurrency with regulated custodians
could affect the availability of receiving digital assets that may result from “forks” of the underlying blockchain if our
custodians are unable to support or otherwise provide us with such digital assets, thereby reducing the amount of digital assets we may
hold as a result. Moreover, our use of custodians exposes us to the risk that the cryptocurrencies our custodians hold on our behalf could
be subject to insolvency proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability
to exercise ownership rights with respect to such Cryptocurrency. Any loss associated with such insolvency proceedings is unlikely to
be covered by any insurance coverage we maintain related to our Treasury Reserve Policy holdings.
Our Cryptocurrency is controllable
only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which our Cryptocurrency
is held. While the underlying blockchain ledger requires a public key relating to a digital wallet to be published when used in a transaction,
private keys must be safeguarded and kept private in order to prevent a third party from accessing our Cryptocurrency held in such wallet.
If the private key(s) for a digital wallet are lost, destroyed, or otherwise compromised and no backup of the private key(s) is accessible,
neither we nor our custodians will be able to access our Cryptocurrency held in the related digital wallet. Furthermore, we cannot provide
assurance that our digital wallets, nor the digital wallets of our custodians held on our behalf, will not be compromised as a result
of a cyberattack. The blockchain ledger underlying our Cryptocurrency, as well as other digital assets and blockchain technologies, have
been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities.
Our Treasury Reserve
Policy exposes us to risk of non-performance by counterparties.
Our Treasury Reserve Policy
exposes us to the risk of non-performance by counterparties, whether contractual or otherwise. Risk of non-performance includes inability
or refusal of a counterparty to perform because of a deterioration in the counterparty’s financial condition and liquidity or for
any other reason. For example, our execution partners, custodians, or other counterparties might fail to perform in accordance with the
terms of our agreements with them, which could result in a loss of our Cryptocurrencies, a loss of the opportunity to generate funds,
or other losses.
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We expect our primary counterparty
risk with respect to our Cryptocurrency will be custodian performance obligations under the various custody arrangements we enter into.
A series of recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies
operating in the digital asset industry, the closure or liquidation of certain financial institutions that provided lending and other
services to the digital assets industry, SEC enforcement actions against other providers, or placement into receivership or civil fraud
lawsuit against digital asset industry participants have highlighted the perceived and actual counterparty risk applicable to digital
asset ownership and trading. Legal precedent created in these bankruptcy and other proceedings may increase the risk of future rulings
adverse to our interests in the event one or more of our custodians becomes a debtor in a bankruptcy case or is the subject of other liquidation,
insolvency or similar proceedings.
While our custodians will
be subject to regulatory regimes intended to protect customers in the event of a custodial bankruptcy, receivership or similar insolvency
proceeding, no assurance can be provided that our custodially-held Cryptocurrencies will not become part of the custodian’s insolvency
estate if one or more of our custodians enters bankruptcy, receivership or similar insolvency proceedings. Additionally, if we pursue
any strategies to create income streams or otherwise generate funds using our Cryptocurrency holdings, we would become subject to additional
counterparty risks. We will need to carefully evaluate market conditions, including price volatility as well as service provider terms
and market reputations and performance, among others, prior to implementing any such strategy, all of which could affect our ability to
successfully implement and execute on any such future strategy. These risks, along with any significant non-performance by counterparties,
including in particular the custodian or custodians with which we will custody substantially all of our Cryptocurrencies, could have a
material adverse effect on our business, prospects, financial condition, and operating results.
Our Treasury Reserve
Policy could create complications with third party service providers, such as insurance companies, banking entities and auditors, which
could have a materially adverse impact on our business.
Our Treasury Reserve Policy
could create complications with third party service providers that may place a high risk on companies engaging in such a treasury strategy.
For example, in 2023, the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation
issued supervisory statements that digital assets were a “significant risk” to banking organizations. Similarly, third-party
service providers began placing a high degree of risk on digital asset companies, including third-party providers such as insurance companies,
banking entities, auditors, payment processors, compliance vendors and public relationship firms.
While the current administration
has undertaken a coordinated policy shift across key financial regulatory agencies with respect to regulations of digital assets, the
implications of such proposed and future policy changes are uncertain at this time. If future regulations and policy changes were to impose
similar limitations as those in 2023, our service providers may refuse to enter into commercially acceptable contracts with us and other
companies that engage in similar treasury strategies with digital assets. This could have a number of adverse impacts on the operation
of our business. For example, with respect to insurance companies, the cost of our insurance may also increase, or our insurers may refuse
to underwrite policies or exclude digital asset liabilities from coverage. If we are unable to obtain directors and officers liability
insurance on acceptable terms, our directors and officers may be exposed to personal liability in connection with securities class actions,
regulatory investigations and other legal proceedings. This could also deter us from retaining key employees or may prevent us from hiring
talent. If we were to lose our banking services, it would severely disrupt our ability to maintain liquidity, process payroll, pay vendors
or access fiat currency, which would have a significantly adverse impact on our business, financial condition and results of operations.
Certain auditors may also consider custody, fair market valuation, impairment testing and other controls as high-risk. If our auditor
determined that it was unable to issue an unqualified opinion or could not engage with us altogether, it may adversely affect our ability
to meet our periodic reporting obligations under the Exchange Act and significantly affect our business, financial condition and the ability
to raise capital in the public markets.
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The due diligence procedures
conducted by us and our liquidity providers to mitigate transaction risk may fail to prevent transactions with a sanctioned individual,
entity, wallet or jurisdiction.
We will execute cryptocurrency
trades through liquidity providers, and rely on these third parties to implement controls and procedures to mitigate the risk of transacting
with sanctioned entities, or execute over-the-counter trades with different entities, and rely on our asset manager who is making the trades to
implement controls and procedures to mitigate the risk of transacting with sanctioned entities. While we expect our third-party service
providers to conduct their business in compliance with applicable laws and regulations and in accordance with our contractual arrangements,
there is no guarantee that they will do so. Accordingly, we will be exposed to risk that our due diligence procedures may fail. If we
are found to have transacted in cryptocurrencies with bad actors that have used cryptocurrencies to launder money or with persons subject
to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in cryptocurrencies by us may be restricted
or prohibited.
The Protocol may not
sufficiently mitigate the risk of individuals or entities subject to U.S. sanctions, including those located in sanctioned jurisdictions,
accessing or transacting through the Protocol.
RAIN is associated with the
Protocol, a decentralized blockchain network operating through smart contracts that enables peer-to-peer transactions without centralized
intermediaries. While decentralization is a core design feature, it also creates sanctions-related compliance risks under U.S. law, including
regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Individuals
or entities subject to U.S. sanctions— including those located in sanctioned jurisdictions—may attempt to access, use or transact
through the Protocol. U.S. sanctions laws broadly prohibit U.S. persons from engaging in, facilitating, or providing material support
for transactions involving sanctioned actors or embargoed jurisdictions. OFAC has repeatedly emphasized that digital asset protocols and
related service providers may be subject to enforcement if they cause, facilitate or fail to prevent prohibited dealings.
The Protocol may not have
implemented, or may not be capable of implementing, certain compliance and risk-mitigation controls commonly used in centralized financial
institutions or virtual asset service providers. Accordingly, the Protocol faces a heightened risk that sanctioned persons or jurisdictions
could exploit the network, and the current governance, technical or operational structure may not fully mitigate such risks.
If OFAC or another sanctions
authority determines that the Protocol (or persons or entities involved in its development, governance or promotion) has engaged in prohibited
dealings or insufficiently mitigated sanctions risks, the Protocol, its developers, governance participants and other affiliated parties
may face adverse consequences, including civil and criminal penalties.
In the event the Protocol
or individuals or entities associated with its development, governance, or operation themselves become subject to sanctions, the price
and/or liquidity of our Cryptocurrency may be negatively impacted and/or may need to be frozen, and the U.S. government may seek to seize
and/or forfeit such Cryptocurrency. Furthermore, any sanctions-related inquiry, enforcement action, designation, or perceived regulatory
exposure may materially and adversely affect: (i) the price and market liquidity of our Cryptocurrency; (ii) developer participation,
funding and community activity; (iii) protocol upgrades, integrations or partnerships; and/or (iv) the overall utility and adoption of
the Protocol’s ecosystem. Finally, sanctions-driven restrictions can be sudden, unilateral, and without advance notice, and may
result in loss of access, functionality or value.
The Protocol may be
exploited for money laundering, terrorist financing, fraud, or other illicit financial activity.
The Protocol may be used by
bad actors seeking anonymity, pseudonymity, or obfuscation to move or conceal proceeds of crime. Decentralized environments have historically
been leveraged by money launderers, terrorist financiers, fraudsters, market manipulators or other illicit actors. Unlike traditional
financial institutions, money services businesses, or centralized virtual asset service providers, the Protocol may lack many of the core
components of an anti-money laundering or countering the financing of terrorism program. The absence of these features materially increases
the likelihood that illicit actors could use the Protocol without detection, and that the Protocol may be viewed by regulators or enforcement
authorities as posing elevated financial-crime risk. For example, because transactions in RAIN provide a degree of anonymity, they are
susceptible to misuse for criminal activities, such as money laundering. If regulators, law-enforcement agencies, or supervisory bodies
determine that the Protocol has been used to facilitate illicit finance—or that its design or governance attributes materially contributed
to such misuse—the Protocol, its developers, contributors, governance participants and other affiliated parties may be subject to,
among other things, investigations or subpoenas from authorities; orders preventing U.S. financial institutions from engaging with the
Protocol; and civil or criminal liability, any of which may negatively impact the price, market value, and liquidity of our Cryptocurrency.
Further, the misuse, or the perception of misuse of the Protocol, could lead to greater regulatory oversight of RAIN and RAIN platforms,
and there is the possibility that law enforcement agencies could close RAIN platforms or other RAIN-related infrastructure with little
or no notice and prevent users from accessing or retrieving RAIN held via such platforms or infrastructure.
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The launch of central
bank digital currencies (“CBDCs”) may adversely impact the value of our digital asset treasury.
The introduction of a government-issued
digital currency could eliminate or reduce the need or demand for private-sector issued digital cryptocurrency assets or significantly
limit their utility. National governments around the world could introduce CBDCs, which could in turn limit the value of our Cryptocurrencies.
Intellectual property
disputes related to the open-source structure of digital asset networks expose us to risks related to software development, security vulnerabilities
and potential disruptions to digital asset technology could threaten our ability to operate.
Digital asset networks are
open-source projects and, although there may be an influential group of leaders in the network community, generally there is no official
developer or group of developers that formally controls the digital asset network. Without guaranteed financial incentives, there may
be insufficient resources to address emerging issues, upgrade security or implement necessary improvements to the network in a timely
manner. If the digital asset network’s software is not properly maintained or developed, it could become vulnerable to security
threats, operational inefficiencies and reduced trust, all of which could negatively impact the digital assets’ long-term viability
and our business.
The irreversibility
of digital asset transactions exposes us to risks of theft, loss and human error, which could negatively impact our business.
Digital asset transactions
are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction
or, in theory, control or consent of a majority of the processing power on that digital asset network. Once a transaction has been verified
and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally
will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft.
We plan to regularly transfer
digital assets, and it is possible that, through computer or human error, or through theft or criminal action, such assets could be transferred
in incorrect amounts or to unauthorized third parties.
If we are unable to seek a
corrective transaction to identify the third party which has received our digital assets through error or theft, we will be unable to
revert or otherwise recover the impacted digital assets, and any such loss could adversely affect our business, results of operations
and financial condition.
We may be subject to
additional tax liability, interest and penalties if regulation or policy changes adversely affect the tax treatment of rewards from staking
digital cryptocurrency assets.
U.S. federal income tax treatment
of rewards received from staking digital cryptocurrency assets remains uncertain in several respects. Under Rev. Rul. 2023-14, a cash-method
taxpayer generally must include in gross income the fair market value of staking rewards at the time the taxpayer gains dominion and control
over those rewards, and such rewards are generally treated as ordinary income for U.S. federal income tax purposes. A later disposition
of the rewarded units may also result in additional taxable gain or loss under general tax principles. Rev. Rul. 2023-14 does not address
the timing of income recognition for accrual-method taxpayers. Under general tax rules, an accrual-method taxpayer may be required to
recognize income earlier than a cash-method taxpayer, potentially before the taxpayer is able to sell, exchange, or otherwise monetize
the rewards, if the right to receive the rewards is fixed and the amount can be determined with reasonable accuracy. This could result
in cash-tax mismatches and adversely affect the liquidity.
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The U.S. Internal Revenue
Service (“IRS”) or other taxing authorities may issue new or additional guidance, or apply existing guidance, in ways
that are adverse to us, including with retroactive effect, affecting the timing, character or valuation of staking income, or imposing
information-reporting or withholding requirements on us or our counterparties. If future legislation, regulation, audits, or enforcement
activity results in adverse tax treatment of staking, we could be subject to increased audits by the IRS or required to pay additional
taxes, and potentially interest and penalties, experience increased audit exposure and compliance costs. In addition, state, local and
non-U.S. taxing authorities may adopt different or more aggressive positions, further increasing our tax exposure and administrative burden.
We are not subject to
legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations
applicable to investment advisers.
Mutual funds, exchange-traded
funds and their directors and management are subject to extensive regulation as “investment companies” and “investment
advisers” under U.S. federal and state law, which is intended for the benefit and protection of investors. We are not subject
to, and do not otherwise voluntarily comply with, these laws and regulations. This means, among other things, that the execution of, or
changes to, our Treasury Reserve Policy, our use of leverage, the manner in which our Cryptocurrency is custodied, our ability to engage
in transactions with affiliated parties and our operating and investment activities generally will not be subject to the extensive legal
and regulatory requirements and prohibitions that apply to investment companies and investment advisers.
The IRS or other taxing authorities
may issue new or additional guidance, or apply existing guidance, in ways that are adverse to us, including with retroactive effect, affecting
the timing, character or valuation of staking income, or imposing information-reporting or withholding requirements on us or our counterparties.
If future legislation, regulation, audits, or enforcement activity results in adverse tax treatment of staking, we could be required to
pay additional taxes, and potentially interest and penalties, experience increased audit exposure and compliance costs. In addition, state,
local and non-U.S. taxing authorities may adopt different or more aggressive positions, further increasing our tax exposure and administrative
burden.
Risks Related to the Ownership of Our Ordinary
Shares
We do not know whether
a market for our ordinary shares will be sustained or what the market price of our ordinary shares will be and as a result it may be difficult
for you to sell your shares.
The trading price of our ordinary
shares is likely to continue to be volatile. The following factors, some of which are beyond our control, in addition to other risk factors
described in this section, may have a significant impact on the market price of our ordinary shares:
● our Treasury Reserve Policy;
● inability to obtain the approvals necessary to commence further clinical trials;
● unsatisfactory results of clinical trials;
● announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;
● announcements of therapeutic innovations or new products by us or our competitors;
● adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
39
● changes or developments in laws or regulations applicable to our product candidates and/or Cryptocurrency;
● any adverse changes to our relationship with manufacturers or suppliers;
● any product liability actions or intellectual property infringement actions in which we may become involved;
● announcements concerning our competitors or the pharmaceutical or biotechnology industries in general;
● achievement of expected product sales and profitability or our failure to meet expectations;
● our commencement of, or involvement in, litigation;
● any major changes in our Board, management or other key personnel;
● legislation in the United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals;
● announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;
● expiration or terminations of licenses, research contracts or other collaboration agreements;
● public concern as to the safety of therapeutics we, our licensees or others develop;
● success of research and development projects;
● variations in our and our competitors’ results of operations;
● changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts;
● developments by our licensees, if any;
● future issuances of ordinary shares or other securities; and
● general political, economic, market and security conditions, including in Israel and the region.
These factors may materially
and adversely affect the market price of our ordinary shares, which could result in substantial losses by our investors.
In addition, the stock market
in general, and the Nasdaq Capital Market and the market for biotechnology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like ours. Broad market
and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. Further,
a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.
The price volatility of our ordinary shares might be worse if the trading volume of our ordinary shares is low.
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Moreover, the liquidity of
our ordinary shares is limited. Among other factors, the number of ordinary shares that can be bought and sold at a given price, potential
delays in the timing of executing transactions in our ordinary shares and a reduction in security analyst and media coverage of our company,
if any, may result in lower prices for our ordinary shares and a larger spread between the bid and ask prices therefor. In addition, without
a large float, our ordinary shares are less liquid than the stock of companies with broader public ownership and, as a result, the trading
prices of our ordinary shares may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate
its investment in our ordinary shares. Trading of a relatively small volume of our ordinary shares may have a greater impact on the trading
price of our shares than would be the case if our public float were larger. We cannot predict the prices at which our ordinary shares
will trade in the future.
We may be subject to
securities litigation, which may be expensive and could divert management attention.
Companies that have experienced
volatility and other negative fluctuations in the market price of their stock have been subject to securities class action litigation.
We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion
of management’s attention and resources from our business, which could materially harm our business, even if we were to successfully
defend against such litigation. Any adverse determination in litigation could also subject us to significant liabilities.
Our principal shareholders,
directors and officers currently own approximately 83.97% of our outstanding ordinary shares. They will therefore be able to exert significant
influence over matters submitted to our shareholders for approval.
Our principal shareholders,
directors and officers beneficially own approximately 83.97% of our outstanding ordinary shares. As a result, these shareholders, if they
acted together, could significantly influence matters requiring approval by our shareholders, including the election of directors and
the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our
interests or the interests of other shareholders.
Raising additional capital
could result in dilution of our existing shareholders and may restrict our operations or require us to relinquish rights.
We may seek additional capital
through a combination of private and public equity offerings, debt financings, collaborations and licensing arrangements. To the extent
that we raise additional capital through the sale of equity, convertible debt or other equity-linked securities, your ownership interest
will be diluted, and the terms of the equity or equity-linked securities that we issue may include liquidation or other preferences that
adversely affect your rights as a shareholder. Debt financing, if available, would result in increased payment obligations and may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements
with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant
licenses on terms that are not favorable to us.
Our U.S. shareholders
may suffer adverse tax consequences if we were to be characterized as a passive foreign investment company, or PFIC.
Generally, if for any taxable
year 75% or more of our gross income is passive income, or at least 50% of the average value of our assets are held for the production
of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax
purposes. There can be no assurance that we will not be classified as a PFIC in any year. If we were to be characterized as a PFIC for
U.S. federal income tax purposes in any taxable year during which a U.S. Holder, as defined in “Taxation — United States Federal
Income Tax Consequences,” owns ordinary shares, such U.S. Holder could face adverse U.S. federal income tax consequences (regardless
of whether we continue to be characterized as a PFIC in subsequent years), including having gains realized on the sale of our ordinary
shares classified as ordinary income, rather than as capital gains, and subject to tax at the highest marginal ordinary income tax rate,
a loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders, having interest
charges apply to distributions by us and the proceeds of share sales, and additional reporting requirements. Certain elections exist that
may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment)
of our ordinary shares; however, we do not intend to provide the information necessary for U.S. Holders to make “qualified electing
fund elections,” or QEF elections, if we are classified as a PFIC, and, accordingly, such elections would not be available to U.S.
Holders. See “Taxation—United States Federal Income Tax Consequences.”
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If securities or industry
analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their
recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could be negatively
impacted.
The trading market for our
ordinary shares may be influenced by research and reports that industry or securities analysts may publish about us, our business, our
market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover
us or, if they do, provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding
our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could negatively impact our share price or trading volume.
Because we do not intend
to declare cash dividends on our ordinary shares in the foreseeable future, shareholders must rely on appreciation of the value of our
ordinary shares for any return on their investment.
We have never declared or
paid cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings, if any, for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Moreover,
the Israeli Companies Law, 1999 (the “Companies Law”), imposes certain restrictions on our ability to declare and pay
dividends. Payment of dividends may also be subject to Israeli withholding taxes. See Item 10.E
“Additional Information—Taxation—Israeli Taxation Considerations” for more information. As a result,
capital appreciation, if any, of our ordinary shares will be your sole source of gain for the foreseeable future. Consequently, in the
foreseeable future, you will likely only experience a gain from your investment in our ordinary shares if the price of our ordinary shares
increases beyond the price in which you originally acquired the ordinary shares.
We are a “foreign
private issuer” under the Exchange Act, and our disclosure and reporting requirements are different than those of a U.S. domestic
reporting company.
We are a “foreign private
issuer” under the Exchange Act and the rules of the SEC promulgated thereunder. As a result, we are subject to the reporting requirements
under the Exchange Act applicable to foreign private issuers. meaning that, among other things, we are required to file our Annual Report
on Form 20-F with the SEC within four months following our fiscal year end. In addition, we are not subject to quarterly financial reporting,
as would be the case for a U.S. domestic reporting company; therefore, we are not required to file periodic reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. We are additionally
not required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material non-public information.
Also, while our officers and directors are, effective March 18, 2026, required to file
insider reports under Section 16(a) of the Exchange Act with respect to any purchases and sales of our ordinary shares, our principal
shareholders are exempt from such reporting obligations under Section 16(a) of the Exchange Act, and our officers, directors and principal
shareholders are exempt from the “short-swing” profit recovery provisions of Section 16(b) of the Exchange Act with respect
to their purchases and sales of our ordinary shares. If we lose our status as a foreign private issuer, we will no longer be exempt from
such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated
in the United States.
As a “foreign
private issuer,” we are permitted to follow certain home country corporate governance practices instead of otherwise applicable
Nasdaq Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic
U.S. issuers.
As a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the listing rules
of the Nasdaq Capital Market (the “Nasdaq Listing Rules”) for U.S. issuers. For instance, we follow home country practice
in Israel with regard to, among other things, director nomination procedures, quorum requirements, approval of compensation of officers
and distribution of periodic reports. In addition, we generally follow our home country law instead of the Nasdaq Listing Rules that require
that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity-based compensation
plans, an issuance that will result in a change of control of the Company, the issuance of more than 20% of the equity in the Company,
and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the
requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection to you than
what is accorded to investors under the Nasdaq Listing Rules applicable to domestic U.S. issuers. See “Item 16G — Corporate
Governance.”
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Our ordinary shares
are traded on more than one market, and this may result in price variations.
Our ordinary shares are traded
on the Nasdaq Capital Market and, until April 23, 2026, are also traded on the Tel Aviv Stock Exchange (“TASE”).
Trading in our ordinary shares on these markets takes place in different currencies (U.S. dollars on Nasdaq and NIS on the TASE) and at
different times, as a result of different time zones and public holidays in the United States and Israel. The trading prices of our ordinary
shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could
contribute to a decrease in the trading price of our ordinary shares on Nasdaq, and a decrease in the price of our ordinary shares on
Nasdaq could likewise contribute to a decrease in the trading price of our ordinary shares on the TASE. In January 2026, we initiated
the process to voluntarily delist our ordinary shares from the TASE. In accordance with applicable Israeli law and the rules of the TASE,
the last day our ordinary shares will trade on the TASE is expected to be April 23, 2026, and our ordinary shares are expected to be delisted
from the TASE on or about April 26, 2026.
Risks Related to Israeli Law and Our Operations in Israel
Our headquarters and
other significant operations are located in Israel and, therefore, our business and operations may be adversely affected by political,
economic and military instability in Israel.
Our executive offices are
located in Ness Ziona, Israel. In addition, our officers and several of our directors are residents of Israel. Accordingly, political,
economic and military conditions in Israel may directly affect our business and operations. Since the establishment of the State of Israel
in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries and terrorist organizations active
in the region, including Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group
that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. These conflicts have involved missile
strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel, and abduction of soldiers and citizens.
On October 7, 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. These attacks resulted in extensive deaths,
injuries and kidnapping of civilians and soldiers. In response, Israel’s security cabinet declared war against Hamas and, as a result
of attacks by Hezbollah along Israel’s northern border with Lebanon that commenced following the commencement of the war with Hamas,
launched attacks against Hezbollah in Lebanon. Israel was subsequently involved in military conflicts with Hamas, Hezbollah (a terrorist
organization based in Lebanon), and Iran, both directly and through Iranian proxies such as the Houthi movement in Yemen and armed groups
in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel conducted limited military
operations targeting the Assad-led Syrian army, Iranian military assets, and infrastructure linked to Hezbollah and other Iran-supported
groups. In November 2024, a ceasefire agreement was reached with Hezbollah in Lebanon.
In June 2025, in light of
continued nuclear threats and intelligence assessments, Israel launched a military operation directly targeting military and nuclear infrastructure
inside Iran, aimed at disrupting Iran’s capacity to coordinate or launch further hostilities against Israel and to degrade its nuclear
program. In response, Iran launched multiple waves of drones and ballistic missiles at Israeli cities. While most of these attacks were
intercepted, several caused civilian deaths and casualties, as well as some damage to infrastructure and property. A ceasefire was declared
between Israel and Iran in June 2025 after 12 days of hostilities.
In October 2025, a ceasefire
in the conflict with Hamas came into effect; however, the situation remains fragile, with isolated incidents of fighting.
43
On February 28, 2026, Israel
and the United States commenced coordinated military air strikes against targets in Iran, including military and strategic infrastructure
in response to ongoing regional tensions and recent escalations involving Iran’s nuclear and military activities. In response, Iran
launched a series of retaliatory attacks against Israel, targeting major cities and strategic sites. While most of these attacks have
been intercepted to date, some resulted in civilian casualties and damage to property. Subsequently, Hezbollah launched attacks against
Israel in retaliation for the killing of Ali Hosseini Khamenei, the Supreme
Leader of Iran, and in response, Israel launched attacks against Lebanon and Israeli ground forces have entered into Southern Lebanon,
and hostilities between Israel and Hezbollah are ongoing. Iran subsequently began launching retaliatory strikes on U.S. and other targets
in the Gulf region . The Israeli government has declared a state of emergency, and the situation remains highly unstable, with ongoing
exchanges of fire and heightened risk of further escalation. Regional and international responses are ongoing, and the risk of broader
conflict in the Middle East has increased.
In connection with the Israeli
security cabinet’s declaration of war against Hamas in October 2023 and hostilities with other organizations, several hundred thousand
Israeli military reservists were drafted to perform immediate military service. While we were not materially adversely impacted by any
absences of our personnel due to military reserve to date, our operations could be disrupted by the absence of a significant number of
our employees related to their, or their spouse’s, military service or the absence for extended periods of one or more of our key
employees for military service, which disruption may materially and adversely affect our business and results of operations.
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, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully
for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business.
The continuation of the war
has also led to a deterioration of certain indicators of Israel’s economic standing, for instance, a downgrade in Israel’s
credit rating by rating agencies such as by Moody’s, S&P Global, and Fitch. We cannot predict if and to what extent any ceasefire
agreements will be reached or upheld.
While we have not been materially
impacted by the conditions in Israel since the war broke out in October 2023 to date, hostilities continue to exist and the situation
in Israel and the region remains volatile, with the potential for further escalation or deterioration of regional conditions, and we cannot
predict how such conflicts will ultimately affect our business and operations or Israel’s economy in general. These events could
lead to increased costs, risks to employee safety, and challenges to business continuity, potentially resulting in financial losses.
The global perception of Israel
and Israeli companies, influenced by actions by international judicial bodies, may lead to increased sanctions and other negative measures
against Israel and Israeli companies, including boycotts of Israeli goods and services or restrictions on doing business with Israel and
Israeli companies. These restrictions may limit materially our ability to obtain raw materials from these countries or sell our products
to companies in these countries (if approved). In addition, the political and security situation in Israel may result in parties with
whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those
agreements pursuant to force majeure provisions in such agreements. Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its trading partners could adversely affect our operations and product development, make it more difficult
for us to do business and raise capital and adversely affect the share price of publicly traded companies having operations in Israel,
such as us.
Furthermore, political conditions
within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the
Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest, and
has recently renewed its efforts to effect such changes. In response to the foregoing developments, certain individuals, organizations,
and institutions, both within and outside of Israel, voiced concerns that such proposed changes, if adopted, may negatively impact the
business environment in Israel. Such proposed changes may also lead to political instability or civil unrest. Actual or perceived political
instability in Israel or the region or any negative changes in the political environment, may individually or in the aggregate adversely
affect the Israeli economy and, in turn, our business, financial condition, results of operations, growth prospects, and share price as
well as our ability to raise additional funds.
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Exchange rate fluctuations
between the U.S. dollar, Euro and the NIS may negatively affect our earnings.
Our functional currency is
the U.S. dollar because the U.S. dollar is the currency of the primary economic environment in which we operate and expect to continue
to operate for the foreseeable future. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars
using exchange rates in effect at the applicable balance sheet date. Because we incur expenses denominated in currencies other than the
U.S. dollar, predominantly the NIS and Euro, fluctuations in exchange rates among these currencies may negatively impact our earnings,
particularly if the NIS or Euro appreciates against the U.S. dollar. The average exchange rate for the year ended December 31, 2025 was
$1.00 = Euro 0.85 and $1.00 = NIS 3.19.
Enlivex Therapeutics
R&D Ltd., our primary operating subsidiary, received Israeli government grants for certain of our research and development activities.
The terms of those grants may require us, in addition to payment of royalties, to satisfy specified conditions in order to manufacture
products and transfer technologies outside of Israel. We may be required to pay penalties in addition to repayment of the grants.
The
research and development efforts of our primary operating subsidiary, Enlivex Therapeutics R&D Ltd., a company organized under
the laws of the State of Israel (“Enlivex R&D”), have been financed in part
through royalty-bearing grants, in the aggregate amount of approximately $8.0 million, from the IIA, pursuant to the Encouragement of
Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Encouragement of Industrial Research
and Development Law, 5744-1984) (the “Innovation Law”). As of December 31, 2024, Enlivex
R&D had not paid any royalties to the IIA and had a contingent obligation to the IIA, including interest, of $10 million.
Under
the Innovation Law as currently in effect, we are committed to pay royalties at a rate of 3% to 5% on our sales proceeds from any products
or services based on know-how funded by the IIA research and development grants Enlivex R&D
received (which rates may be increased under certain circumstances) up to the total amount of grants received (which may be increased
under certain circumstances), linked to the U.S. dollar and bearing interest. Until October 25, 2023, the interest was calculated at a
rate based on the last published 12-month LIBOR applicable to U.S. dollar deposits. On October 25, 2023, the IIA published a directive
concerning changes in royalties to address the expiration of the LIBOR, according to which, (a) for IIA grants approved between January
1, 1999 and June 30, 2017 – the annual interest will be the interest in effect at the time of the grant approval; (b) for IIA grants
approved between July 1, 2017 and December 31, 2023 – for the period prior to December 31, 2023, the interest shall be calculated
based on the 12-month LIBOR applicable to U.S. dollar deposits, as published on the first trading day of each year or in an alternative
publication of the Bank of Israel; and for periods as of January 1, 2024, the annual interest shall be calculated at a rate based on the
12-month secured overnight financing rate (“SOFR”), or at an alternative rate published by the Bank of Israel plus
0.71513%; and (c) for IIA grants approved on or following January 1, 2024, the annual interest shall be the higher of (i) the 12 months
SOFR interest rate, plus 1%, and (ii) a fixed annual interest rate of 4%.
Regardless of any royalty
payment, we are required to comply with the requirements of Innovation Law with respect to those past grants. The terms of such IIA grants
and the Innovation Law restrict the transfer of IIA-funded know-how and rights related thereto, technology and products to a third party
or the transfer of manufacturing or manufacturing rights of the same outside of Israel (except for the transfer of up to 10% of the manufacturing
capacity in the aggregate which requires only a notice to the IIA), without the prior IIA approval. Therefore, if deemed IIA-funded, the
discretionary approval of an IIA committee would be required for any such transfer to third parties outside of Israel, which could, if
we receive such approvals, result in the payment of increased royalties (both increased royalty rates and increased royalties ceilings)
in cases of transfer of manufacturing outside of Israel (up to three times the amount of the IIA
grants received, depending on the manufacturing volume performed outside Israel, plus accrued interest) and/or payment of additional
amounts to the IIA in cases of transfer of IIA-funded know-how outside of Israel (calculated according
to a formula under the Innovation Law, which may be in the amount of up to six times the amount of the grants received (less paid royalties,
if any, and depreciation, but no less than the total grants received), plus accrued interest).
These restrictions and requirements
for payment may impair our ability to sell our IIA funded technology assets outside of Israel or to outsource or transfer development
or manufacturing activities with respect to any such product or technology outside of Israel. Furthermore, the consideration available
to our shareholders in a transaction involving the transfer outside of Israel of IIA-funded know-how, technology or products (such as
a merger or similar transaction) may be reduced by any amounts that we may be required to pay to the IIA.
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Our obligations and limitations
pursuant to the Innovation Law are not limited in time and may not be terminated by us at will and remain in force even after we have
paid all required royalties. Such restrictions and payments could materially restrict or limit our ability to perform or outsource manufacturing
outside of Israel or otherwise transfer or license our IIA-supported know-how, technology or products, which could materially affect our
business, results of operations and financial position.
Provisions of Israeli
law and our Amended and Restated Articles of Association may delay, prevent or otherwise impede a merger with, or an acquisition of, our
company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Provisions of Israeli law
and our Amended and Restated Articles of Association could have the effect of delaying or preventing a change in control and may make
it more difficult for a third-party to acquire us or our shareholders to elect different individuals to our Board of Directors, even if
doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay
in the future for our ordinary shares. Among other things, Israeli corporate law regulates mergers, requires tender offers for acquisitions
of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders
and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at
least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies
and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition,
a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s
issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the
issued share capital. Completion of the tender offer also requires the approval of a majority of the offerees that do not have a personal
interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s
outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time
within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition,
unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.
Further, Israeli tax considerations
may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel
exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent
as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent
on the fulfilment of numerous conditions, including a holding period of two years from the date of the transaction during which sales
and dispositions of shares of the participating companies are restricted. 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 actual disposition of the shares has
occurred.
Furthermore, our Amended and
Restated Articles of Association, as amended at the extraordinary general meeting of shareholders held in February 2026 and currently
in effect, provide that our directors (other than external directors, if any) are elected on a staggered basis, such that a potential
acquirer cannot readily replace our entire Board of Directors at a single annual general shareholder meeting. Instead, at least two annual
meetings of shareholders will generally be required to effect a change in a majority of our Board of Directors. Any amendment to the provision
in our Articles of Association dividing our directors into three classes and certain related provisions requires the following approval:
(i) during the first three years following the adoption of the classified board of directors, the affirmative vote of at least 95% of
the ordinary shares represented at a meeting of shareholders (whether in person, by proxy, or via the Israel Security Authority’s
electronic voting system) and voting on the matter; and (ii) thereafter, the affirmative vote of at least 65% of the ordinary shares represented
at a meeting of shareholders (whether in person, by proxy, or via the Israel Security Authority’s electronic voting system) and
voting on the matter.
In addition, our Amended and
Restated Articles of Association do not provide for cumulative voting in the election of directors, which limits the ability of minority
shareholders to elect director candidates, and provide that director vacancies may be filled by our Board of Directors, which may prevent
shareholders from being able to fill vacancies on our Board of Directors.
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It may be difficult
to enforce a judgment of a United States court against us, our officers and directors in Israel or the United States, to assert United
States securities laws claims in Israel or to serve process on our officers and directors.
We are organized in Israel.
All of our executive officers and the majority of our directors reside outside of the United States. Therefore, a judgment obtained against
us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not
be collectible in the United States. It also may be difficult for you 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 or obtain a judgment based on the civil liability provisions
of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on an alleged violation of U.S securities laws reasoning
that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will
also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. Additionally,
Israeli courts might not enforce judgments obtained in the United States against us or our non-U.S. directors and executive officers,
which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.
Your rights, liabilities
and responsibilities as a shareholder will be governed by Israeli law and will differ in some material respects from those under U.S.
law.
Because we are an Israeli
company, the rights and responsibilities of our shareholders are governed by our Amended and Restated Articles of Association and Israeli
law, including the Companies Law. These rights, liabilities and responsibilities differ in some material respects from the rights, liabilities
and responsibilities of shareholders in a U.S. corporation. In particular, 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 his, her or its power in the company, including, among other things, in voting at the general meeting of shareholders
on certain matters. Israeli law provides that these duties are applicable to shareholder votes on, among other things, amendments to a
company’s articles of association, increases in a company’s authorized share capital, mergers and interested party transactions
requiring shareholder approval under Israeli law. In addition, a controlling shareholder of an Israeli
company or a shareholder who is aware that it possesses the power to determine the outcome of a shareholders’ vote or to
appoint or prevent the appointment of a director or executive officer in the company or has other powers towards the company, has a duty
of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. There is limited case law
available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions
may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on
shareholders of U.S. corporations.