UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

☐   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

OR

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-37381

Medigus Ltd.

(Exact name of Registrant as specified in its charter)

Israel

(Jurisdiction of incorporation or organization)

3 HaNechoshet Street, Building B,

6971068, Israel

(Address of principal executive offices)

Tali Dinar

3 HaNechoshet Street, Building B

Tel Aviv, Israel, 6971068 Tel: +972-73-370-4691

Fax: +972 72 260-2249

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:  None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2021: [316,442,738] Ordinary Shares, of no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:  

Yes ☐        No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

Yes ☐        No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒        No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒        No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.  See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark the basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐        Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐        No ☒

TABLE OF CONTENTS

INTRODUCTION

Certain Definitions

In this annual report, unless the context otherwise requires:

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included or incorporated by reference in this annual report on Form 20-F may be deemed to be “forward-looking statements”. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.

These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, statements relating to the research, development and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20-F, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

In addition, the section of this annual report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Any forward-looking statements in this annual report are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected financial data

Reserved.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer, and the price of our shares could decline.

Risks Related to Our Business

Starting 2019, we made material changes to our business strategy. We cannot guarantee that any of these changes will result in any value to our shareholders.

Since 2019, we have materially changed our business model, adjusted our exclusive focus on the medical device industry to include other industries, abandoned our strategy to commercialize the MUSE^™ system, transferred our ScoutCam^™ activity into our subsidiary, ScoutCam Ltd., and consummated a securities exchange agreement in relation to ScoutCam Ltd. As a result of these changes, we have acquired substantial stakes in a number of ventures, including but not limited to online business activities such as ad-tech, e-commerce, drone technology and online event management. We cannot guarantee that these strategic decisions will derive the anticipated value to our shareholders, or any value at all.  

We have a history of operating losses, we may incur additional losses in the future and our ability to grow sales and achieve profitability are unpredictable.

As of December 31, 2021, we had an accumulated deficit of 73.9 million and incurred total operating loss of approximately $9.8 million in the year ended on December 31, 2021 and total operating losses of approximately $7.4 million and 14.2 million in the years ended December 31, 2020 and 2019, respectively. Our losses have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. Any failure to achieve and maintain profitability would continue to have an adverse effect on our shareholders’ equity and working capital and could result in a decline in our share price or cause us to cease operations.

Our ability to reach profitability depends on many factors, which include:

There can be no assurance that we will be able to successfully implement our business plan, meet our challenges and become profitable in the future.

We will need additional funding. If we are unable to raise capital, we will be forced to reduce or eliminate our operations.

During the year ended December 31, 2021, the Group incurred income of $4 million mainly due to deconsolidation of ScoutCam from our consolidated financial reports and an operating loss of approximately 9 million and a negative cash flow from operating activities of approximately $5.2 million. Furthermore, in the recent years, the Group has suffered recurring losses from operations, negative cash flows from operating activities and has an accumulated deficit of $74.2 million as of December 31, 2021.

As of December 31, 2021, we had a total cash and cash equivalents balance of approximately $24 million. Our management expects that we will continue to generate operating losses. Our management plans to continue to fund its operations primarily through utilization of its financial resources. In addition, we may raise additional capital or realize some of our investments in other entities in order to fund our operating needs. Our management is of the opinion that based on our current operating plan it will be able to carry out its plan for more than a year after the issuance date of this annual report on Form 20-F. However, we anticipate that we are likely to continue to incur significant losses for at least the next year. There is no assurance however, that we will be successful in obtaining the level of financing needed for our operations. If we are unable to obtain additional sufficient financing our business and results of operations will be materially harmed.

Even if we are able to continue to finance our business, the sale of additional equity or debt securities could result in dilution to our current shareholders and could require us to grant a security interest in our assets. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our Ordinary Shares and could contain covenants that could restrict our operations. In addition, we may require additional capital beyond our currently forecasted amounts to achieve profitability. Any such required additional capital may not be available on reasonable terms, or at all.

The COVID-19 (coronavirus) may adversely affect our operating results in a material manner

The COVID-19 pandemic, including the efforts to combat it, has had and may continue to have a widespread effect on our business.

For example, travel restrictions have adversely affected our ability to timely achieve certain milestones included in our Golden Grand Agreement and has delayed the recognition revenues deriving therefrom. These travel restrictions have also impacted our sales and marketing efforts and those of our subsidiaries.

In addition, a substantial portion of Eventer’s business relates to leisure event management, the scope of which was greatly reduced as a result of governmental policies and measures tailored to address to spread of COVID-19. To the extent that these measures remain in place, Eventer’s business and result of operations could be harmed.

Furthermore, as a consequence of the COVID-19 outbreak, Jeffs’ Brands have experienced occasional supply constraints, primarily in the form of delays in shipment of inventory. Jeffs’ Brands have also experienced increases in the cost of certain products, as well as a decrease in promotions by some manufacturers. While we consider such events to be relatively minor and temporary, continued supply chain disruptions could lead to delayed receipt of, or shortages in, inventory and higher costs, and negatively impact sales in fiscal year 2022 and beyond.

Additionally, concerns over the economic impact of the pandemic have caused extreme volatility in financial markets, which has adversely impacted and may continue to adversely impact our share price and our ability to access capital markets. To the extent the pandemic or any worsening of the global business and economic environment as a result adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this annual report.

Our ability to freely operate our business is limited as a result of certain covenants included in our Series C Warrants.

The Series C Warrant Agreement, or the Series C Warrant, contains a number of covenants that limit our operating activities, and may prevent our acquisition by a third party, including a provision setting forth that in the event of a fundamental transaction (other than a fundamental transaction not approved by the our board of directors), we or any successor entity may at the Series C Warrant holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the fundamental transaction, purchase the Series C Warrants from the holder by paying to the Series C Warrant holder an amount of cash equal to the Black Scholes value of the remaining unexercised portion of the Series C Warrants on the date of the consummation of such fundamental transaction. These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

Certain of our subsidiaries each rely on key employees and highly skilled personnel, and, if they are unable to attract, retain or motivate qualified personnel, they may not be able to operate its business effectively.

The success of certain of our subsidiaries depends largely on the continued employment of their senior management and key personnel who can effectively operate its business and its ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development, and other employees is intense, and our subsidiaries may not be able to attract or retain highly qualified personnel in the future. If any of the key employees of these subsidiaries leave or are terminated, and such companies fail to manage a transition to new personnel effectively, or if they fail to attract and retain qualified and experienced professionals on acceptable terms, the business, financial condition and results of operations of these subsidiaries could be adversely affected.

We, and our subsidiaries, are subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. The actual or perceived failure to comply with such obligations could harm our business.

Our subsidiaries and we receive, collect, store, process, transfer, and use personal information and other data relating to users of our products, our employees and contractors, and other persons. We have legal and contractual obligations regarding the protection of confidentiality and appropriate use of certain data, including personal information. We are subject to numerous federal, state, local, and international laws, directives, and regulations regarding privacy, data protection, and data security and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other data, the scope of which are changing, subject to differing interpretations, and may be inconsistent among jurisdictions or conflict with other legal and regulatory requirements. We are also subject to certain contractual obligations to third parties related to privacy, data protection and data security. We strive to comply with our applicable policies and applicable laws, regulations, contractual obligations, and other legal obligations relating to privacy, data protection, and data security to the extent possible. However, the regulatory framework for privacy, data protection and data security worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other legal obligations or our practices. Further, any significant change to applicable laws, regulations or industry practices regarding the collection, use, retention, security or disclosure of data, or their interpretation, or any changes regarding the manner in which the consent of users or other data subjects for the collection, use, retention or disclosure of such data must be obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process user data or develop new services and features.

If our subsidiaries or we were found in violation of any applicable laws or regulations relating to privacy, data protection, or security, our business may be materially and adversely affected and we would likely have to change our business practices and potentially the services and features available through our platform. In addition, these laws and regulations could impose significant costs on us and could constrain our ability to use and process data in manners that may be commercially desirable. In addition, if a breach of data security were to occur or to be alleged to have occurred, if any violation of laws and regulations relating to privacy, data protection or data security were to be alleged, or if we had any actual or alleged defect in our safeguards or practices relating to privacy, data protection, or data security, our solutions may be perceived as less desirable, and our business, prospects, financial condition, and results of operations could be materially and adversely affected.

We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. For example, the data protection landscape in the European Union (“EU”) is currently evolving, resulting in possible significant operational costs for internal compliance and risks to our business. The EU adopted the General Data Protection Regulation or GDPR, which became effective in May 2018, and contains numerous requirements and changes from previously existing EU laws, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Among other requirements, the GDPR regulates the transfer of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. Failure to comply with the GDPR could result in penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global annual turnover for the preceding financial year for the most serious violations, as well as the right to compensation for financial or non-financial damages claimed by individuals under Article 82 of the GDPR).

In addition to the GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation is still being negotiated.

Additionally, in June 2018, California passed the California Consumer Privacy Act, or CCPA, which provides new data privacy rights for California consumers and new operational requirements for covered companies. Specifically, the CCPA provides that covered companies must provide new disclosures to California consumers and afford such consumers new data privacy rights that include the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to request to opt-out of certain sales of such personal information. The CCPA became operative on January 1, 2020. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches expected to increase data breach litigation. The CCPA may require us to modify our data practices and policies and to incur substantial costs and expenses in order to comply. On November 3, 2020, California voters passed the California Privacy Rights Act (“CPRA”) into law, which will take effect in January 2023 and will significantly modify the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. More generally, some observers have noted the CCPA and CPRA could mark the beginning of a trend toward more stringent United States federal privacy legislation, which could increase our potential liability and adversely affect our business.

In addition, failure to comply with the Israeli Privacy Protection Law 5741-1981, and its regulations as well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class actions), and in certain cases, criminal liability. Current pending legislation may result in a change in the current enforcement measures and sanctions.

Any failure or perceived failure by our subsidiaries or by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or data security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws, regulations, or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.

Risks Related to ScoutCam’s, ScoutCam^™ Business

Because of its limited operating history, ScoutCam may not be able to successfully operate its business or execute its business plan.

Given the limited operating history, it is hard to evaluate ScoutCam’s proposed business and prospects. ScoutCam’s proposed business operations is subject to numerous risks, uncertainties, expenses and difficulties associated with early-stage enterprises. Such risks include, but are not limited to, the following

If ScoutCam is unable to establish sales, marketing and distribution capabilities or enter into successful relationships with business targets and third parties to perform these services, ScoutCam may not be successful in commercializing its products and technology.

Given that ScoutCam is currently as a B2B company, its business is reliant on its ability to successfully attract potential business targets. Furthermore, ScoutCam has a limited sales and marketing infrastructure and have limited experience in the sale, marketing, or distribution of our technologies beyond the B2B model. To achieve commercial success for its technologies or any future developed product, ScoutCam will need to establish a sales and marketing infrastructure or to out-license such future products.

In the future, ScoutCam may consider building a focused sales and marketing infrastructure to market any future developed products and potentially other products in the United States or elsewhere in the world. There are risks involved with establishing our own sales, marketing, and distribution capabilities. For example, recruiting and training a sales force could be expensive and time consuming and could delay any product launch. This may be costly, and ScoutCam’s investment would be lost if it cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit ScoutCam’s efforts to commercialize any future products on our own include:

If ScoutCam is unable to establish our own sales, marketing, and distribution capabilities or enter into successful arrangements with third parties to perform these services, ScoutCam’s revenues and profitability may be materially adversely affected.

In addition, ScoutCam may not be successful in entering into arrangements with third parties to sell, market, and distribute our products inside or outside of the United States or may be unable to do so on terms that are favorable to ScoutCam. ScoutCam likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If ScoutCam doesn’t establish sales, marketing, and distribution capabilities successfully, either on its own or in collaboration with third parties, ScoutCam will not be successful in commercializing our technologies or any future products we may develop.

ScoutCam may require substantial additional funding, which may not be available to it on acceptable terms, or at all.

ScoutCam’s cash and short-term deposit balance as of December 31, 2021 was $19.6 million. ScoutCam may require additional funding to fund and grow its operations and to develop certain products. There can be no assurance that financing will be available in amounts or on terms acceptable to ScoutCam, if at all. In the event ScoutCam required additional capital, the inability to obtain such capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If ScoutCam is required and is unable to obtain additional financing, ScoutCam will likely be required to curtail ScoutCam’s development plans. In that event, current stockholders would likely experience a loss of most or all of their investment in ScoutCam. Additional funding that ScoutCam does obtain may be dilutive to the interests of existing stockholders.

Our failure to effectively manage growth could impair our business.

ScoutCam’s business strategy contemplates a period of rapid growth which may put a strain on our administrative and operational resources, and our funding requirements. ScoutCam’s ability to effectively manage growth will require us to successfully expand the capabilities of our operational and management systems, and to attract, train, manage, and retain qualified personnel. There can be no assurance that ScoutCam will be able to do so, particularly if losses continue and we are unable to obtain sufficient financing. If ScoutCam is unable to appropriately manage growth, its business, prospects, financial condition, and results of operations could be adversely affected.

ScoutCam’s commercial success depends upon the degree of market acceptance by the medical community as well as by other prospective markets and industries.

ScoutCam’s current business model is that of a B2B approach in which ScoutCam seeks to identify target businesses interested in integrating its technology, or commissioning individual projects using its technology. Any product that ScoutCam commission or that is brought to the market may or may not gain market acceptance by prospective customers. The commercial success of our technologies, commissioned products, and any future product that ScoutCam may develop depends in part on the medical community as well as other industries for various use cases, depending on the acceptance by such industries of our commissioned products as a useful and cost-effective solution compared to current technologies. During 2021, ScoutCam commenced proactive market penetration into industries other than the biomedical sector. If ScoutCam’s technology or any future product that it may develop does not achieve an adequate level of acceptance, or does not garner significant commercial appeal, we may not generate significant revenue and may not become profitable. The degree of market acceptance will depend on a number of factors, including:

ScoutCam’s efforts to penetrate industries and educate the marketplace on the benefits of its technology, and reasons to seek the commissioning of products based on its technology, may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional technologies.

ScoutCam’s reliance on third-party suppliers for most of the components of our products, including miniature video sensors which are suitable for our CMOS technology products mainly in the medical domain, could harm its ability to meet demand for its products in a timely and cost-effective manner.

ScoutCam relies on its third-party suppliers to obtain an adequate supply of quality components on a timely basis with favorable terms to manufacture its commissioned products. Some of those components that ScoutCam sells are provided to it by a limited number of suppliers. ScoutCam will be subject to disruptions in its operations if its sole or limited supply contract manufacturers decrease or stop production of components or do not produce components and products of sufficient quantity or quality. Alternative sources for its components will not always be available.

Though ScoutCam attempts to ensure the availability of more than one supplier for each important component in any product that it commissions, the number of suppliers engaged in the provision of miniature video sensors which are suitable for its CMOS technology mainly in the medical domain is very limited, and therefore in some cases ScoutCam engages with a single supplier, which may result in it dependency on such supplier. This is the case regarding sensors for the CMOS type technology that are produced by a single supplier in the United States. As ScoutCam does not have a contract in place with this supplier, there is no contractual commitment on the part of such supplier for any set quantity of such sensors. The loss of ScoutCam’s sole supplier in providing it with miniature sensors for our CMOS technology products mainly in the medical domain, and ScoutCam’s inability or delay in finding a suitable replacement supplier, could negatively affect its business, financial condition, results of operations, and reputation.

ScoutCam is also subject to other risks inherent in the manufacturing of its products and their supply chain, including industrial accidents, natural disasters (including as a result of climate change), environmental events, strikes, and other labor disputes, capacity constraints, disruptions in material or packaging supplies, as well as global shortages, disruptions in supply chain or information technology, loss or impairment of key manufacturing sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as other external factors over which we have no control. If such an event were to occur, it could have an adverse effect on ScoutCam’s business, financial condition, and results of operations. In addition, ScoutCam may experience interruptions with our suppliers and other supply chain disruptions as a result of the COVID-19 pandemic, or any other international disorder. In recent months, global supply chain disruptions have slowed receipt of some of our supplies and delayed some of ScoutCam’s deliveries, although as yet not materially, and increased some of ScoutCam’s product costs. Although such cost increases have been fully covered by ScoutCam’s customers to date, there is no assurance that this will continue in the future.

In addition, if ScoutCam cannot supply commissioned products or future potentially developed products due to a lack of components, or are unable to utilize other components in a timely manner, ScoutCam’s business will be significantly harmed. If inventory shortages occur, they could be expected to have a material and adverse effect on our future revenues and ability to effectively project future sales and operating results.

ScoutCam may not be able to manage our strategic partners effectively.

ScoutCam has entered into, and may continue to enter into, strategic alliances with third parties to gain access to new and innovative technologies and markets. These parties are often large, established companies. Negotiating and performing under these arrangements involves significant time and expense, and ScoutCam may not have sufficient resources to devote to its strategic alliances, particularly those with companies that have significantly greater financial and other resources than it does. The anticipated benefits of these arrangements may never materialize, and performing under these arrangements may adversely affect its results of operations.

Failure to manage its current partners effectively or enter into new strategic alliances may affect ScoutCam’s success in executing its business plan and may adversely affect our business, financial condition, and results of operation. ScoutCam may not realize the anticipated benefits of any or all partnerships, or may not realize them in the time frame expected.

ScoutCam may not have sufficient manufacturing capabilities to satisfy any growing demand for its commissioned products. ScoutCam may be unable to control the availability or cost of producing such products.

ScoutCam’s current manufacturing capabilities may not reach the required production levels necessary in order to meet growing demands for any products we may commission or future products we may develop. There can be no assurance that our commissioned products can be manufactured at its desired commercial quantities, in compliance with our requirements, and at an acceptable cost. Any such failure could delay or prevent us from shipping said products and marketing our technologies in accordance with our target growth strategies.

Risks Related to Jeffs’ Brands Business

Jeffs’ Brands have a short operating history in an evolving industry and, as a result, Jeffs’ Brands past results may not be indicative of future operating performance.

Jeffs’ Brands have a short operating history in a rapidly evolving industry that may not develop in a manner favorable to our business. Jeffs’ Brands relatively short operating history makes it difficult to assess future performance.

Jeffs’ Brands future success depends in large part upon the ability to, among other things:

Jeffs’ Brands may not be able to manage growth effectively, and such rapid growth may adversely affect Jeffs’ Brands corporate culture.

Jeffs’ Brands expect to rapidly and significantly expand their operations and anticipate expanding further as Jeffs’ Brands pursue growth strategies. Such expansion increases the complexity of Jeffs’ Brands business and places a significant strain on Jeffs’ Brands management, operations, technical systems, financial resources and internal control over financial reporting functions. Jeffs’ Brands current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage Jeffs’ Brands future operations, especially as Jeffs’ Brands employ personnel in several geographic locations.

Jeffs’ Brands is currently in the process of transitioning certain of Jeffs’ Brands business and financial systems to systems on a scale reflecting the increased size, scope and complexity of their operations, and the process of migrating the legacy systems could disrupt our ability to timely and accurately process information, which could adversely affect results of operations and cause harm to Jeffs’ Brands reputation. As a result, Jeffs’ Brands may not be able to manage Jeffs’ Brands expansion effectively.

We believe that Jeffs’ Brands entrepreneurial and collaborative culture has been a major contributor to its success. Jeffs’ Brands may have difficulties maintaining such culture or adapting it sufficiently to meet the needs of Jeffs’ Brands future and evolving operations as it’s continue to grow, in particular as Jeffs’ Brands grows internationally.

In addition, Jeffs’ Brands expect to experience some challenges in developing and maintaining Jeffs’ Brands culture as a public company, with the attendant changes in policies, practices, and corporate governance and management requirements. Failure to successfully develop or maintain such a culture could have a material adverse effect on Jeffs’ Brands business, results of operations, financial condition and prospects.

Jeffs’ Brands e-commerce operations are reliant on the Amazon marketplace and fulfillment by Amazon and changes to the marketplace, Amazon services and their terms of use may harm Jeffs’ Brands business.

Jeffs’ Brands products are sold predominantly on the Amazon marketplace and orders are fulfilled entirely by Amazon utilizing the fulfilled by Amazon, or FBA, model. In order to continue to utilize the Amazon marketplace and FBA, Jeffs’ Brands must comply with the applicable policies and terms of use relating to these services. Such policies and terms of use may be altered or amended at Amazon’s sole discretion, including changes regarding the cost of securing these services, and changes that increase the burden of compliance with its requirements, may cause Jeffs Brands to significantly alter Jeffs’ Brands business model or incur additional costs in order to comply, which could negatively impact Jeffs’ Brands results of operations. Non-compliance with applicable terms of use and policies can result in the removal of one or more products from the marketplace and suspension of fulfillment services either of which could have a material adverse effect on Jeffs’ Brands business and results of Jeffs’ Brands operations. Although Jeffs’ Brands exert efforts in order to ensure ongoing compliance and no notices of non-compliance have been received to date, we cannot assure you that events of this kind will not occur in the future.

Potential growth of Jeffs’ Brands is based on international expansion, making Jeffs’ Brands susceptible to risks associated with international sales and operations.

Jeffs’ Brands historically mainly sold products in the U.S., and in 2021 also began selling products in the United Kingdom and Germany. Jeffs’ Brands intend to expand their operations to reach new markets and localities. For example, Jeffs’ Brands expect to increase sales in the United Kingdom and Germany and have completed the requisite processes in order to offer certain of their products through the Amazon marketplace in other major European countries, Singapore and Australia. Jeffs’ Brands may not be successful in increasing sales in the United Kingdom and Germany and currently do not have an estimated starting date for sales in these other major European countries, Australia and Singapore. Conducting international operations subjects us to certain risks, which include localization of solutions and products and adapting them to local practices and regulatory requirements, exchange rate fluctuations and unexpected changes in tax, trade laws, tariffs, governmental controls and other trade restriction. To the extent that Jeffs’ Brands do not succeed in expanding our operations internationally and managing the associated legal and operational risks, their results of operations may be adversely affected.

Jeffs’ Brands operating results are subject to seasonal fluctuations.

The e-commerce business is seasonal in nature and the fourth quarter is a significant period for Jeffs’ Brands operating results due to the holiday season. As a result, revenue generally declines and loss from operations generally increases in the first quarter sequentially from the fourth quarter of the previous year. Any disruption in our ability to process and fulfill customer orders during the fourth quarter could have a negative effect on Jeffs’ Brands quarterly and annual operating results. For example, if a large number of customers purchase Jeffs’ Brands products in a short period of time due to increased holiday demand, inefficient management of Jeffs’ Brands inventory may prevent Jeffs’ Brands from efficiently fulfilling orders, which may reduce sales and harm Jeffs’ Brands’ brands.

Risks Related to of Eventer’s Business

If Eventer fails to maintain and improve the quality of its platform, it may not be able to attract clients seeking to manage their online and offline events or facilitate ticket sales for events.

To satisfy both clients seeking to manage online and offline events through Eventer’s platform, Eventer needs to continue to improve the user experience and innovate and introduce features and services that both event managers and ticket purchasers find useful cause them to use Eventer’s platform more frequently. In addition, Eventer needs to adapt, expand and improve its platform and user interfaces to keep up with changing user preferences. Eventer invests substantial resources in researching and developing new features and enhancing its platform by incorporating these new features, improving the functionality, and adding other improvements to meet users’ evolving demands. The success of any enhancements or improvements to Eventer’s platform or any new features depends on several factors, including timely completion, adequate quality testing, integration with technologies on the platform and overall market acceptance. Because further development of Eventer’s platform is complex, challenging, and dependent upon an array of factors, the timetable for the release of new features and enhancements to Eventer’s platform is difficult to predict, and it may not offer new features as rapidly as users of its platform require or expect.

It is difficult to predict the problems Eventer may encounter in introducing new features to its platform. Eventer may need to devote significant resources to creating, supporting, and maintaining these features. Eventer provides no assurance that its initiatives to improve the user experience will be successful. Eventer also cannot predict whether users will well receive any new features or whether improving its platform will be successful or sufficient to offset the costs incurred to offer these new features. If Eventer is unable to improve or maintain its platform’s quality, its business, prospects, financial condition, and results of operations could be materially and adversely affected.

Eventer’s business is highly sensitive to public tastes. It is dependent on its ability to secure popular artists and other live music events. Eventer’s ticketing clients may be unable to anticipate or respond to consumer preferences changes, which may result in decreased demand for its services.

Eventer’s business is highly sensitive to rapidly changing public tastes and is dependent on the availability of popular artists and events. Eventer’s live entertainment business depends on its ability to anticipate the tastes of consumers and offer events that appeal to them. Since Eventer relies on unrelated parties to create and perform at live music events as well as online events, any lack of availability of popular artists could limit its ability to generate revenue. If artists do not choose to perform, or if Eventer cannot secure performances and events to be managed and ticketed through its platform, Eventer’s business would be adversely affected. Furthermore, Eventer’s business could be adversely affected if artists utilizing its platform do not tour or perform as frequently as anticipated, or if such tours or performances are not as widely attended by fans as anticipated due to changing tastes, general economic conditions or otherwise.

Eventer faces intense competition in the online and offline event and ticketing industries. It may not be able to maintain or increase its current revenue, which could adversely affect its business, financial condition, and operations results.

Eventer is active in highly competitive industries, and it may not be able to maintain or increase its current revenue due to such competition. Online and offline leisure events compete with other entertainment forms for consumers’ discretionary spending and within this industry, Eventer faces competition from other promoters and venue operators. Eventer’s competitors compete for relationships with popular music artists and other service providers who have a history of being able to book artists for concerts and events. These competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential artists. Due to increasing artist influence and competition to attract and maintain artist clients for events managed on Eventer’s platform, it may enter into agreements on terms that are less favorable to it, which could negatively impact the number of commissions collected from ticket sales which may adversely affect its financial results. Eventer’s competitors may develop services and advertising options equivalent to or superior to those they provide or achieve greater market acceptance and brand recognition than it achieves. Across the live music and entertainment industry, it is possible that new competitors may emerge and rapidly acquire significant market share.

Eventer’s business faces significant competition from other ticketing service providers to continuously secure new and retain existing clients. Additionally, it faces significant and increasing challenges from companies that sell self-ticketing systems and clients who choose to self-ticket by integrating such systems into their existing operations or the acquisition of primary ticket services providers. The advent of new technology, particularly as it relates to online ticketing, has amplified this competition. The intense competition that Eventer faces in the ticketing industry could cause the volume of ticketing services to decline.

If our Eventer subsidiary fails to offer high-quality customer service, their brand and reputation could suffer.

Eventer’s clients rely on the platform to plan and manage online and offline events and expect a high level of user experience and customer service relating to both the event management functions of the platform as well as ticket sales. Providing such quality service is imperative for ensuring customer success, sustaining sales growth, and developing Eventer’s business. To the extent that Eventer cannot provide real-time support for users of its platforms, the platform may become less attractive to potential users, and its results of operations may be harmed.

The success of Eventer’s event management and ticketing solutions and other operations depends, in part, on the integrity of its systems and infrastructure, as well as affiliate and third-party computer systems, Wi-Fi, and other communication systems. System interruption and the lack of integration and redundancy in these systems and infrastructure may have an adverse impact on its business, financial condition, and operations results.

System interruption and the lack of integration and redundancy in the information systems and infrastructure, utilized for Eventer’s platform as well as other computer systems and third-party software, Wi-Fi and other communications systems service providers on which Eventer relies, may adversely affect its ability to operate the platform, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disasters, malicious actions such as hacking or acts of terrorism or war, or human error. In addition, the loss of some or all of certain key personnel could require Eventer to expend additional resources to continue to maintain its software and systems and could subject it to systems interruptions. The infrastructure required to operate Eventer’s platform requires an ongoing investment of time, money, and effort to maintain or refresh hardware and software and ensure it remains at a level capable of servicing the demand and volume of business it receives. Failure to do so may result in system instability, degradation in performance, or unfixable security vulnerabilities that could adversely impact both the business and the consumers utilizing Eventer’s services.

While Eventer has backup systems for certain aspects of its operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In addition, Eventer may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these adverse events were to occur, it could adversely affect Eventer’s business, financial condition, and operations results.

Eventer’s success depends, in significant part, on entertainment and leisure events and economic and other factors adversely affecting such events could have a material adverse effect on its business, financial condition and results of operations.

A decline in attendance at or reduction in the number of entertainment and leisure events may have an adverse effect on Eventer’s revenue and operating income. In addition, during periods of economic slowdown and recession, many consumers have historically reduced their discretionary spending and advertisers have reduced their advertising expenditures. The impact of economic slowdowns on Eventer’s business is difficult to predict, but they may result in reductions in ticket sales and the ability to generate revenue. The risks associated with Eventer’s businesses may become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in attendance at entertainment and leisure events. Many of the factors affecting the number and availability of entertainment and leisure events are beyond Eventer’s control. For example, COVID-19 has led to lockdowns and governmental restrictions on live entertainment and leisure events as well as restrictions regarding the attendance of such events. Although Eventer’s platform supports the management and ticketing of online events, there is no assurance that online events will generate demand on par with live events, which could adversely affect Eventer’s operations results.

Eventer’s business depends on discretionary consumer and enterprise spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as unemployment levels, fuel prices, interest rates, changes in tax rates and tax laws that impact companies or individuals, and inflation can significantly impact Eventer’s operating results. Business conditions, as well as various industry conditions, including corporate marketing and promotional spending and interest levels, can also significantly impact Eventer’s operating results. These factors can affect attendance at online and offline events, advertising, and spending, as well as the financial results of venues, events, and the industry. Negative factors such as challenging economic conditions and public concerns over terrorism and security incidents, particularly when combined, can impact corporate and consumer spending and one negative factor can result in more than another. There can be no assurance that consumer and corporate spending will not be adversely impacted by current economic conditions or by any future deterioration in economic conditions, thereby possibly impacting Eventer’s operating results and growth.

Errors, defects, or disruptions in Eventer’s platform could diminish its brand, subject it to liability, and materially and adversely affect its business, prospects, financial condition, and operations results.

Any errors, defects, or disruptions in Eventer’s platform or other performance problems with its platform could harm its brand and may damage the businesses of artists and clients that manage events on its platform. Eventer’s online systems, including its website and mobile apps, could contain undetected errors, or “bugs,” that could adversely affect their performance. Additionally, Eventer regularly updates and enhances its website, platform, and other online systems and introduces new versions of its software products and apps. These updates may contain undetected errors when first introduced or released, which may cause disruptions in its services and may, as a result, cause Eventer to lose market share, and its brand, business, prospects, financial condition and results of operations could be materially and adversely affected.

Eventer is subject to escrow, payment services, and money transmitter regulations that may materially and adversely affect its business.

Eventer relies on third-party to collect funds from ticket purchasers, remit payments to clients that manage events on its platform, and hold funds in connection with ticket purchases. Although Eventer believes that by working with third parties, its operations comply with existing applicable laws and regulatory requirements related to escrow, money transmission, handling or moving of money, existing laws or regulations may change, and interpretations of existing laws regulations may also change.

As a result, Eventer could be required to be licensed as an escrow agent or a money transmitter (or other similar licensees) in jurisdictions in which it is active or may choose to obtain such a license even if not required. As a result, Eventer may be required to register as a money services business under applicable laws and regulations. It is also possible that Eventer could become subject to regulatory enforcement or other proceedings in those jurisdictions with escrow, money transmission, or other similar statutes or regulatory requirements related to the handling or moving of money, which could, in turn, have a significant impact on its business, even if we were to ultimately prevail in such proceedings. Any developments in the laws or regulations related to escrow, money transmission, or the handling or moving of money or increased scrutiny of its business may lead to additional compliance costs and administrative overhead.

Eventer faces payment and fraud risks that could materially and adversely affect its business.

Requirements applicable to Eventer’s platform relating to user authentication and fraud detection are complex. If Eventer’s security measures do not succeed, Eventer’s business may be adversely affected. In addition, bad actors worldwide use increasingly sophisticated methods to engage in illegal activities involving personal data, such as unauthorized use of another’s identity or payment information, unauthorized acquisition or use of credit or debit card details, and other fraudulent use of another’s identity or information. This could result in any of the following, each of which could adversely affect Eventer’s business:

Despite measures taken by Eventer to detect and reduce the risk of this kind of conduct, it cannot ensure that any of its measures will stop illegal or improper uses of its platform. Eventer may receive complaints from users and other third parties concerning misuse of its platform in the future. Even if these claims do not result in litigation or are resolved in Eventer’s favor, these claims, and the time and resources necessary to resolve them, could divert the resources of Eventer’s management and materially and adversely affect its business, prospects, financial condition and results of operations.

Eventer uses open source software, which could negatively affect its ability to offer its platform and subject it to litigation or other actions.

Eventer uses substantial amounts of open source software in its platform and may use more open source software in the future. From time to time, there have been claims challenging both the ownership of open source software against companies that incorporate open source software into their products and whether such incorporation is permissible under various open source licenses. U.S. and Israeli courts have not interpreted the terms of many open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on its ability to commercialize its platform. As a result, Eventer could be subject to lawsuits by parties claiming ownership of what we believe to be open source software, or breach of open source licenses. Litigation could be costly for Eventer to defend, have a negative effect on its results of operations and financial condition, or require it to devote additional research and development resources to change its platform. In addition, if Eventer were to combine its proprietary source code or software with open source software in a certain manner, it could, under certain of the open source licenses, be required to release the source code of its proprietary software to the public. This would allow its competitors to create similar products with less development effort and time. If Eventer inappropriately uses open source software or the license terms for open source software that its uses change, Eventer may be required to re-engineer its platform, or certain aspects of it, incur additional costs, discontinue the availability of certain features, or take other remedial actions.

In addition to risks related to license requirements, open source software usage can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated and could, if not properly addressed, negatively affect Eventer’s business. Eventer has established processes to help alleviate these risks, but it cannot be sure that all of its use of open source software is in a manner that is consistent with its current policies and procedures or will not subject Eventer to liability.

To the extent Eventer’s security measures are compromised, its platform may be perceived as not being secure. This may result in customers curtailing or ceasing their use of Eventer’s platform, its reputation being harmed, Eventer incurring significant liabilities, and adverse effects on its results of operations and growth prospects.

Eventer’s operations involve the storage and transmission of artist and ticket purchaser data or information. Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of services are expected to continue to be targeted. Threats include traditional computer “hackers,” malicious code (such as viruses and worms), employee theft or misuse and denial-of-service attacks. Sophisticated nation-states and nation-state supported actors now engage in such attacks, including advanced persistent threat intrusions. The ticket sales solution included in Eventer’s platform stores credit card data and other customer personal information. Hackers and malicious actors may target Eventer in order to obtain credit card information. Despite significant efforts to create security barriers to such threats, it is virtually impossible for Eventer to entirely mitigate these risks. If Eventer’s security measures are compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials, or otherwise, Eventer’s reputation could be damaged, its business may be harmed, and it could incur significant liability. Eventer may be unable to anticipate or prevent techniques used to obtain unauthorized access or to compromise its systems because they change frequently and are generally not detected until after an incident has occurred. As Eventer relies on third-party and public-cloud infrastructure, it will depend in part on third-party security measures to protect against unauthorized access, cyberattacks, and the mishandling of customer data. A cybersecurity event could have significant costs, including regulatory enforcement actions, litigation, litigation indemnity obligations, remediation costs, network downtime, increases in insurance premiums, and reputational damage. Many companies that provide cloud-based services have reported a significant increase in cyberattack activity since the beginning of the COVID-19 pandemic.

Risks Related to Gix’s Business and Industry

Gix’s advertising customers as well as exchanges through which ad inventory is sold may reduce or terminate their business relationship with Gix at any time. If customers or exchanges representing a significant portion of Gix’s revenue reduce or terminate their relationship with Gix, it could have a material adverse effect on Gix’s business, its results of operations and financial condition.

Gix generally does not enter into long-term contracts with its advertising customers, and such customers do business with Gix on a non-exclusive basis. In most cases, Gix’s customers may terminate or reduce the scope of their agreements with little or no penalty or notice. Accordingly, Gix’s business is highly vulnerable to adverse economic conditions, market evolution, development of new or more compelling offerings by Gix’s competitors and development by Gix’s advertising customers of in-house replacement services. Any reduction in spending by, or loss of, existing or potential advertisers by Gix would negatively impact Gix’s revenue and operating results.

Due to rapid changes in the Internet and the nature of services, it is difficult to accurately predict Gix’s future performance and may be difficult to increase revenue or profitability.

As the digital advertising ecosystem is dynamic, seasonal and challenging, it is hard to predict Gix’s future performance and make predictions, particularly regarding the effect of Gix’s efforts to aggressively increase the distribution and profitability of its services and products. If Gix is unable to continuously improve its systems and processes, adapt to the changing and dynamic needs of its customers and align its expenses with the revenue level, it will impair Gix’s ability to structure its offerings to be compelling and profitable.

Increased availability of advertisement-blocking technologies could limit or block the delivery or display of advertisements by Gix solutions, which could undermine Gix’s business’s viability.

Advertisement-blocking technologies, such as mobile apps, anti-virus software or browser extensions that limit or block the delivery or display of advertisements, are currently available for desktop and mobile users. Furthermore, new browsers and operating systems, or updates to current browsers or operating systems, offer native advertisement-blocking technologies to their users. The more such technologies become widespread, Gix’s ability to serve advertisements to users may be impeded, and its business financial condition and results of operations may be adversely affected.

Large and established internet and technology companies, such as Google and Facebook, play a substantial role in the digital advertising market and may significantly impair Gix’s ability to operate in this industry.

Google and Facebook are substantial players in the digital advertising market and account for a large portion of the digital advertising budgets, along with other smaller players. Such high concentration subjects Gix to unilateral changes with respect to advertising on their respective platforms, which may be more lucrative than alternative methods of advertising or partnerships with other publishers that are not subject to such changes. Furthermore, Gix could have limited ability to respond to, and adjust for, changes implemented by such players.

These companies, along with other large and established Internet and technology companies, may also leverage their power to make changes to their web browsers, operating systems, platforms, networks or other products or services in a way that impacts the entire digital advertising marketplace.

The consolidation among participants within the digital advertising market could have a material adverse impact on Gix and accordingly, its business and results of operations.

The digital advertising industry has experienced substantial evolution and consolidation in recent years and Gix expects this trend to continue, increasing the capabilities and competitive posture of larger companies, particularly those that are already dominant in various ways, and enabling new or stronger competitors to emerge. This consolidation could adversely affect Gix’s business in a number of ways, including: (i) Gix’s customers or partners could acquire or be acquired by Gix’s competitors causing them to terminate their relationship with Gix; (ii) Gix’s competitors could improve their competitive position or broaden their offerings through strategic acquisitions or mergers.

The advertising industry is highly competitive. If Gix cannot compete effectively in this market, Gix’s revenues are likely to decline.

Gix faces intense competition in the marketplace. Gix operates in a dynamic market that is subject to rapid development and introduction of new technologies, products and solutions, changing branding objectives, evolving customer demands and industry guidelines, all of which affect Gix’s ability to remain competitive. There are a large number of digital media companies and advertising technology companies that offer products or services similar to Gix’s and that compete with Gix for finite advertising budgets and for limited inventory from publishers. There is also a large number of niche companies that are competitive with Gix, as they provide a subset of the services that Gix provides. Some of Gix’s existing and potential competitors may be better established, benefit from greater name recognition may offer solutions and technologies that Gix does not offer or that are more evolved than Gix, and may have significantly more financial, technical, sales, and marketing resources than Gix does. In addition, some competitors, particularly those with a larger and more diversified revenue base and a broader offering, may have greater flexibility than Gix does to compete aggressively on the basis of price and other contract terms as well as respond to market changes. Additionally, companies that do not currently compete with Gix in this space may change their services to be competitive if there is a revenue opportunity, and new or stronger competitors may emerge through consolidations or acquisitions. If Gix’s digital advertising platform and solutions are not perceived as competitively differentiated or Gix fails to develop adequately to meet market evolution, Gix could lose customers and market share or be compelled to reduce Gix’s prices and harm Gix’s operational results.

If the demand for digital advertising does not continue to grow or customers do not embrace Gix’s solutions, this could have a material adverse effect on Gix’s business and financial condition.

If customers do not embrace Gix’s solutions, or if Gix’s integration with advertising networks is not successful, or if there is a reduction in general demand for digital advertising, in spend for certain channels or solutions, or the demand for Gix’s specific solutions and offerings is decreased, Gix’s revenues could decline or otherwise, Gix’s business may be adversely affected.

Gix’s business is susceptible to seasonality, unexpected changes in campaign size, and prolonged cycle time, which could affect its business, results of operations and ability to repay indebtedness when due.

The revenue of Gix’s advertising business is affected by a number of factors, and, as a result, Gix’s profit from these operations is seasonal, including:

Gix’s advertising business depends on Gix’s ability to collect and use data, and any limitation on the collection and use of this data could significantly diminish the value of Gix’s solutions and cause Gix to lose customers, revenue and profit.

In most cases, when Gix delivers an advertisement, Gix is often able to collect certain information about the content and placement of the ad, the relevancy of such ad to a user, and the interaction of the user with the ad, such as whether the user viewed or clicked on the ad or watched a video. As Gix collects and aggregates data provided by billions of ad impressions and third-party providers, Gix analyzes the data in order to measure and optimize the placement and delivery of Gix’s advertising inventory and provide cross-channel advertising capabilities.

Gix publishers or advertisers might decide not to allow Gix to collect some or all of this data or might limit Gix’s use of this data. Gix’s ability to either collect or use data could be restricted by new laws or regulations, including the General Data Protection Regulation (the “GDPR”), in the European Union, which entered into effect in May 2018, and presumably broaden the definition of personal data to include location data and online identifiers, which are commonly used and collected parameters in digital advertising, and impose more stringent user consent requirements, changes in technology, operating system restrictions, requests to discontinue using certain data, restrictions imposed by advertisers and publishers, industry standards or consumer choice.

If this happens, Gix may not be able to optimize ad placement for the benefit of Gix’s advertisers and publishers, which could render Gix’s solutions less valuable and potentially result in loss of clients and a decline in revenues. For more information on privacy regulation and compliance, see also – “We are subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our or our subsidiaries’ actual or perceived failure to comply with such obligations could harm our business”.

Risks related to our MUSE^™ Technology Business

We are currently proposing our MUSE^™ system business for sale or grant of license. If we are unable to sell or license our MUSE^™ business or unable to sell or license it in terms acceptable to us, we will have to write off our investment in the MUSE^™ system, which will adversely affect our business.

We are currently proposing our MUSE^™ system business for sale or license. If we are unable to sell or license our MUSE™ business or unable to sell or license it in terms acceptable to us, we could not derive any value from the sale and will lose significant cash flow, which, in turn, will adversely affect our financial results.

Several factors may delay or prevent us from selling or granting license to our MUSE^™ system business:

Further, we have only limited clinical data to support the value of the MUSE^™ system, which may make patients, physicians and hospitals reluctant to accept or purchase our products, and as such a potential purchaser may be reluctant to purchase our MUSE^™ business or such lack of data will be reflected in the purchase price.

Moreover, various modifications to our MUSE^™ system regulator-cleared products may require new regulatory clearances or approvals or require a recall or cease marketing of the MUSE^™ system until clearances or approvals are obtained. Clearances and approvals by the applicable regulator are subject to continual review, and the later discovery of previously unknown problems can result in product labeling restrictions or withdrawal of the product from the market. The potential loss of previously received approvals or clearances, or the failure to comply with existing or future regulatory requirements could reduce the potential sales, profitability and future growth prospects of the MUSE^™.

We have entered into a Licensing and Sale Agreement with Shanghai Golden Grand-Medical Instruments Ltd. (“Golden Grand”) for the know-how licensing and sale of goods relating to the Medigus Ultrasonic Surgical Endostapler (MUSE^™) system in China with a substantial amount of the consideration subject to milestone achievements.

We entered into a Licensing and Sale Agreement with Shanghai Golden Grand, or Golden Grand Agreement, for the know-how licensing and sale of goods relating to the Medigus Ultrasonic Surgical Endostapler (MUSE^™) system in China, Hong Kong, Taiwan and Macao. The payment of a substantial amount of the consideration is contingent on achievement of certain milestones such as establishing a MUSE^™ assembly line in China. In the event that we are not able to meet such milestones, due to various factors including natural disasters, public health crises, political crises and trade wars which are not under our control, our entitlement to the aggregate consideration under the agreement may be impaired. During 2021 we recognized revenues of $2.4 million due to completion 80% of the milestones.

Risks Related to Our Intellectual Property

If we are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.

Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection for the technologies used in our products. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. Furthermore, we might in the future opt to license intellectual property from other parties. If we, or the other parties from whom we may license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that we own or have rights to.

U.S. patents and patent applications may be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, re-examination and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain. 

Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.

If we are unable to prevent unauthorized use or disclosure of our proprietary trade secrets and unpatented know-how, our ability to compete will be harmed.

Proprietary trade secrets, copyrights, trademarks and unpatented know-how are also very important to our business. We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our office holders, employees, consultants and distributers of our products and most third parties (such as contractors or clinical collaborators) to execute confidentiality agreements in connection with their relationships with us. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our office holders, employees, consultants and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.

We could become subject to patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.

Our industry is characterized by competing intellectual property and a substantial amount of litigation over patent and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. No assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Furthermore, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the endoscopic procedure market grows, and as the number of patents issued in this area grows, the possibility of patent infringement claims against us increases.

Infringement actions and other intellectual property claims and proceedings brought against or by us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources. 

We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to pay damages. We could also be prevented from selling our products unless we could obtain a license to use technology or processes covered by such patents or will be able to redesign the product to avoid infringement. A license may not be available at all or on commercially reasonable terms or we may not be able to redesign our products to avoid infringement. Modification of our products or development of new products could require us to conduct clinical trials and to revise our filings with the applicable regulatory bodies, which would be time consuming and expensive. In these circumstances, we may be unable to sell our products at competitive prices or at all, our business and operating results could be harmed.

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

Certain of our employees and personnel were previously employed at universities, medical institutions, or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Furthermore, universities or medical institutions who employ some of our key employees and personnel in parallel to their engagement by us may claim that intellectual property developed by such person is owned by the respective academic or medical institution under the respective institution intellectual property policy or applicable law.

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

We may be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. Ownership disputes may arise in the future, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. 

Disruptions to the Group’s information technology systems due to cyber-attacks or the Group’s failure to upgrade and adjust our information technology systems, may materially impair the Group’s operations, hinder our growth and materially and adversely affect our business and results of operations.

We believe that an appropriate information technology, or IT, infrastructure is important in order to support the Group’s daily operations and the growth of our business. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify the Group’s management information systems or respond to changes in our business needs, we may not be able to effectively manage the Group’s business, and we may fail to meet our reporting obligations. Additionally, if our current back-up storage arrangements and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely affect our business and results of operations.

In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can provide no assurance that the Group’s current IT system or any updates or upgrades thereto and the current or future IT systems of our distributors use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt the Group’s IT systems or to manage the IT systems of third parties to accommodate these changes. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT networks. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.

Risks Related to Regulatory Compliance

If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability to develop, market and sell our products in the medical field and any other or future products that we may develop and may harm our reputation in the medical field.

If we or our manufacturers or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, including with respect to healthcare and data privacy, we could be subject to regulatory actions, which could affect our ability to develop, market and sell our current products or any future products which we may develop in the future and could harm our reputation and lead to reduced demand for or non-acceptance of our proposed products by the market.

Regulatory reforms may adversely affect our ability to sell our products profitably.

From time to time, legislation is drafted and introduced in the United States, European Union or other countries in which we operate, that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of our products, including in the medical devices industry. In addition, regulations and guidance may often be revised or reinterpreted by the regulatory authorities in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted or interpretations changed, and what the impact of such changes, if any, may be.

If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.

The application of our MUSE^™ system as a medical device is subject to extensive regulation by the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, and various other federal, state and foreign governmental authorities. Government regulations and requirements specific to medical devices are wide ranging and govern, among other things:

We are subject to annual regulatory audits in order to maintain our quality system certifications, CE mark permissions, FDA Clearance and Canadian medical device license. We do not know whether we will be able to continue to affix the CE mark for new or modified products or that we will continue to meet the quality and safety standards required to maintain the permissions and license we have already received. If we are unable to maintain our quality system certifications and permission to affix the CE mark to our products, we will no longer be able to sell our products in member countries of the European Union or other areas of the world that require CE’s or FDA’s approval of medical devices. If we are unable to maintain our quality system certifications and Canadian medical device license, we will not be able to sell our products in Canada.

Our medical device products and operations are also subject to regulation by the Medical Devices and Accessories Division in the Israeli Ministry of Health, or AMAR, which is responsible for the registration of medical devices in Israel, issuance of import licenses and monitoring marketing of medical equipment. We have received an AMAR approval in Israel. If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.

Risks Related to Our Operations in Israel

Our headquarters and administrative offices are located in Israel and, therefore, our results may be adversely affected by military instability in Israel.

Our employees, including management members operate from our offices that are located in Israel. In addition, a number of our officers and directors are residents of Israel. Accordingly, political, economic, and military conditions in Israel and the surrounding region may directly affect our business and operations. In recent years, Israel has been engaged in sporadic armed conflicts with 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. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Some of these hostilities were accompanied by missiles being fired from the Gaza Strip against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business.

In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business, prospects, financial condition and results of operations.

Exchange rate fluctuations between foreign currencies and the U.S. Dollar may negatively affect our earnings.

Our reporting and functional currency is the U.S. dollar. Our, ScoutCam and Jeffs’ Brands revenues are currently primarily payable in U.S. dollars and we expect our future revenues to be denominated primarily in U.S. dollars. However, Eventer’s revenues and certain amount of our expenses and investments are in NIS and as a result, we are exposed to the currency fluctuation risks relating to the recording of our expenses and Eventer’s revenues in U.S. dollars. We may, in the future, decide to enter into currency hedging transactions. These measures, however, may not adequately protect us from material adverse effects.

The government tax benefits that we currently are entitled to receive require us to meet several conditions and may be terminated or reduced in the future.

Some of our operations in Israel may entitle us to certain tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investments Law, once we begin to produce taxable income. From time to time, the government of Israel has considered reducing or eliminating the tax benefits available to Benefitted Enterprise programs such as ours. If we do not meet the requirements for maintaining these benefits, they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which was set at 23% in 2018 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that our current “Benefitted Enterprise” is entitled to may not be continued in the future at their current levels, or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we would have to pay if we produce revenues would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs. See “Item 10. Additional Information - E. Taxation.” 

In the past, we 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, including increase of the amount of our liabilities in connection with such grants. If we fail to comply with the requirements of the Innovation Law (as defined below), we may be required to pay penalties in addition to repayment of the grants, and may impair our ability to sell our technology outside of Israel.

Some of our research and development efforts were financed in part through royalty-bearing grants, in an amount of $0.2 million that we received from the Israeli Innovation Authority of the Israeli Ministry of Economy and Industry, or IIA. When know-how is developed using IIA grants, the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 and the regulations thereunder, restricts our ability to manufacture products and transfer technology and know-how, developed as a result of IIA funding, outside of Israel.

Under the Innovation Law and the regulations thereunder, a recipient of IIA grants is required to return the grants by the payment of royalties of 3% to 6% on the revenues generated from the sale of products (and related services) developed (in whole or in part) under IIA program up to the total amount of the grants received from IIA, linked to the U.S. dollar and bearing interest at an annual rate of LIBOR applicable to U.S. dollar deposits, as published on the first business day of each calendar year.

The United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced that it will no longer persuade or require banks to submit rates for LIBOR after January 1, 2022. The grants received from the IIA bear an annual interest rate based on the 12-month LIBOR. Accordingly, there is considerable uncertainty regarding the publication of LIBOR beyond 2022. While it is not currently possible to determine precisely whether, or to what extent, the withdrawal and replacement of LIBOR would affect us, the implementation of alternative benchmark rates to LIBOR may increase our financial liabilities to the IIA. To date, IIA has not published a decision regarding an alternative benchmark to be used in the LIBOR’s stead.

Transfer of IIA funded know-how and related intellectual property rights outside of Israel, including by way of license for research and development purpose requires pre-approval by IIA and imposes certain conditions, including, requirement of payment of a redemption fee calculated according to the formula provided in the Innovation Law which takes into account, among others, the consideration for such know-how paid to us in the transaction in which the technology is transferred, research and development expenses, the amount of IIA support, the time of completion of IIA supported research project and other factors, while the redemption fee will not exceed 600% of the grants amount plus interest. No assurance can be given that approval to any such transfer, if requested, will be granted and what will be the amount of the redemption fee payable.

Transfer of IIA funded know-how and related intellectual property rights to an Israeli company requires a pre-approval by IIA and may be granted if the recipient undertakes to fulfil all the liabilities to IIA and undertakes to abide by the provisions of Innovation Law, including the restrictions on the transfer of know-how and the manufacturing rights outside of Israel and the obligation to pay royalties (note that there will be an obligation to pay royalties to IIA from the income received by us in connection with such transfer transaction as part of the royalty payment obligation). No assurance can be given that approval to any such transfer, if requested, will be granted.

In addition, the products may be manufactured outside Israel by us or by another entity only if prior approval is received from IIA (such approval is not required for the transfer outside of Israel of less than 10% of the manufacturing capacity in the aggregate, and in such event only a notice to IIA is required). As a condition for obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, which usually amount to 1% in addition to the standard royalties rate, and also the total amount of our liability to IIA will be increased to between 120% and 300% of the grants we received from IIA, depending on the manufacturing volume that is performed outside Israel (less royalties already paid to IIA). This restriction may impair our ability to outsource manufacturing rights abroad, however, it does not restrict export of our products that incorporate IIA funded know-how. 

A company also has the option of declaring in its IIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval. Such declaration may affect the increased royalties cap.

The restrictions under the Innovation Law (such as with respect to transfer of manufacturing rights abroad or the transfer of IIA funded know-how and related intellectual property rights abroad) will continue to apply even our liabilities to IIA in full and will cease to exist only upon payment of the redemption fee described above.

Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with IIA funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to IIA. Any approval, if given, will generally be subject to additional financial obligations. Failure to comply with the requirements under the Innovation Law may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings.

In May 2017, IIA issued new rules for licensing know how developed with IIA funding outside of Israel, or the Licensing Rules, allowing us to enter into licensing arrangements or grant other rights in know-how developed under IIA programs outside of Israel, subject to the prior consent of IIA and payment of license fees to IIA, calculated in accordance with the Licensing Rules. The payment of the license fees will not discharge us from the obligations to pay royalties or other payments to IIA.

We were members of an IIA-related consortium, in which certain of our technologies were developed. We are required to provide licenses to the other members of the consortium to use such technologies for no consideration, which could reduce our profitability.

Certain of our miniaturized imaging equipment may be based on technological models developed as part of the Bio Medical Photonic Consortium in the framework of Magnet program of the IIA. We received $2.3 million from IIA in the framework of the Consortium. The property rights in and to “new information” (as such term is defined therein) which has been developed by a member of the Consortium, in the framework of a research and development program conducted as part of the Consortium, belongs solely to the Consortium member that developed it. The developing member is obligated to provide the other members in the Consortium a non-sublicensable license to use of the “new information” developed by such member, without consideration, provided that the other members do not transfer such “new information” to any entity which is not a member of the Consortium, without the consent of such member. No royalties from this funding are payable to the Israeli government, however, the provisions of the Innovation Law and related regulations regarding, inter alia, the restrictions on the transfer of know-how outside of Israel do apply, mutatis mutandis.

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

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

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax.  

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

It may be difficult to enforce a judgment of a U.S. court against us and our officers and directors and the Israeli experts named in this annual report on Form 20-F in Israel or the United States, to assert United States securities laws claims in Israel or to serve process on our officers and directors and these experts.

We are incorporated in Israel. Certain of our executive officers and directors reside in Israel and most of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It may also be difficult to affect service of process on these persons in the United States or to assert United States securities law claims in original actions instituted in Israel.

Even if an Israeli court agrees to hear such claim, it may determine that Israeli law, and not U.S. law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such claim, 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, and certain matters of procedure would also be governed by Israeli law. There is little binding case law in Israel that addresses the matters.

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

The rights and responsibilities of the holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-registered corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the company and other shareholders, and to refrain from abusing its power in the company. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations.

The ability of any Israeli company to pay dividends is subject to Israeli law and the amount of cash dividends payable may be subject to devaluation in the Israeli currency.

The ability of an Israeli company to pay dividends is governed by Israeli law, which provides that cash dividends may be paid only out of retained earnings or earnings derived over the two most recent fiscal years, whichever is higher, as determined for statutory purposes in Israeli currency, provided that there is no reasonable concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become due. In the event of a devaluation of the Israeli currency against the U.S. dollar, the amount in U.S. dollars available for payment of cash dividends out of prior years’ earnings will decrease.

The termination or reduction of tax and other incentives that the Israeli Government provides to domestic companies may increase the costs involved in operating a company in Israel.

The Israeli government currently provides major tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce or eliminate the benefits of those programs. We currently take advantage of these programs. There is no assurance that such benefits and programs would continue to be available in the future to us. If such benefits and programs were terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, will determine whether the employee is entitled to remuneration for his inventions. Recent case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

Risks Related to an Investment Our Securities

We may be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2021 or in any subsequent year. This may result in adverse U.S. federal income tax consequences for U.S. taxpayers that are holders of our securities.

We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value (generally determined on the basis of a quarterly average) produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. There can be no assurance that we are not a PFIC in 2022 and will not be a PFIC in subsequent years, as our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2022, or any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of our securities will be subject to special rules. Under these rules: (1) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold or have held our securities during a period when we were or are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election. A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto.

If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each controlled foreign corporation, or CFC, in our group (if any). Because our group includes a U.S. subsidiary, certain of our non-U.S. subsidiaries will be treated as CFCs (regardless of whether or not we are treated as a CFC). A United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by CFCs, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether we are or any of our non-U.S. subsidiaries is treated as CFC or whether any investor is treated as a United States shareholder with respect to any such CFC or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and tax paying obligations with respect to foreign-controlled CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.

Changes in U.S. and foreign tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.

We are subject to taxation in several countries, including the United States and Israel; changes in tax laws or challenges to our tax positions could adversely affect our business, results of operations, and financial condition. As such, we are subject to tax laws, regulations, and policies of the U.S. federal, state, and local governments and of comparable taxing authorities in foreign jurisdictions. Changes in tax laws, including the U.S. federal tax legislation enacted in 2017, commonly referred to as the Tax Cuts and Jobs Act of 2017, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates in the future and otherwise adversely affect our tax positions and/or our tax liabilities. There can be no assurance that our effective tax rates, tax payments, tax credits, or incentives will not be adversely affected by changes in tax laws in various jurisdictions.

The market prices of our securities are subject to fluctuation, which could result in substantial losses by our investors.

The stock market in general and the market prices of our ADSs on Nasdaq, in particular, are or will be subject to fluctuation, and changes in these prices may be unrelated to our operating performance. We anticipate that the market prices of our securities will continue to be subject to wide fluctuations. The market price of our securities is, and will be, subject to a number of factors, including:

These factors may materially and adversely affect the market price of our securities s and result in substantial losses by our investors.

We do not know whether a market for the ADSs will be sustained or what the trading price of the ADSs will be and as a result it may be difficult for you to sell your ADSs.

Although our ADSs trade on Nasdaq, an active trading market for the ADSs may not be sustained. It may be difficult for you to sell your ADSs without depressing the market price for the ADSs. As a result of these and other factors, you may not be able to sell your ADSs. Further, an inactive market may also impair our ability to raise capital by selling ADSs and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ADSs as consideration.

We do not know whether a market for our Series C Warrants will be sustained or what the trading price of the Series C Warrants will be and as a result it may be difficult for you to sell your Series C Warrants.

Even though our Series C Warrant are listed on Nasdaq, there is no assurance that a market will be sustained or maintain a high enough per warrant trading price to maintain the national exchange listing requirements in the future. Without an active market, the liquidity of the Series C Warrants will be limited.

Our Series C Warrants are speculative in nature.

The Series C Warrants do not confer any rights of ownership of ordinary shares or ADSs on their holders, such as voting rights or the right to receive dividends, but only represent the right to acquire ADSs at a fixed price for a limited period of time. Holders of the Series C Warrants may exercise their right to acquire ADSs and pay the exercise price per ADS of $3.50, subject to adjustment upon certain events, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value.

Future sales of our securities could reduce their market price.

Substantial sales of our securities on Nasdaq, may cause the market price of our securities to decline. Sales by us or our security holders of substantial amounts of our securities, or the perception that these sales may occur in the future, could cause a reduction in the market price of our securities.

The issuance of any additional Ordinary Shares, ADSs, warrants or any securities that are exercisable for or convertible into our Ordinary Shares or ADSs, may have an adverse effect on the market price of our securities and will have a dilutive effect on our existing shareholders and holders of ADSs.

Holders of ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive dividends or other distributions on our Ordinary Shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Ordinary Shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company.

Holders of our ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the Deposit Agreement. Under Israeli law and our articles of association, the minimum notice period required to convene a shareholders meeting is no less than 21 or 35 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the Depositary and its agents may not be able to send voting instructions to holders of ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the Depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the Depositary to vote their Ordinary Shares underlying the ADSs. Furthermore, the Depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote and they may lack recourse if their Ordinary Shares underlying the ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting. 

We incur additional increased costs as a result of the listing of the ADSs for trading on Nasdaq, and our management is required to devote substantial time to new compliance initiatives and reporting requirements.

As a public company in the United States, we incur significant accounting, legal and other expenses as a result of the listing of the ADSs on Nasdaq. These include costs associated with corporate governance requirements of the Securities Exchange Commission, or the SEC, and the Marketplace Rules of the Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities more time consuming and costly. Any future changes in the laws and regulations affecting public companies in the United States and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the rules of the Nasdaq Stock Market may result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the rules of the Nasdaq for domestic issuers. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq, may provide less protection than is accorded to investors under the rules of the Nasdaq applicable to domestic issuers. For more information, see “Item 16G. Corporate Governance - Nasdaq Stock Market Listing Rules and Home Country Practices.”

In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2022.

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the SEC forms applicable to foreign private issuers permit them to disclose compensation information on an aggregate basis if executive compensation disclosure on an individual basis is not required or otherwise has not been provided in the issuer’s home jurisdiction. We disclose individual compensation information, but this disclosure is not as comprehensive as that required of U.S. domestic issuers since we are not required to disclose more detailed information in Israel. We intend to continue this practice as long as it is permitted under the SEC’s rules and Israel’s rules do not require more detailed disclosure. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that is listing on a U.S. exchange for the first time, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned, and our securities price may suffer.

Section 404 of the Sarbanes-Oxley Act requires a company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal control over financial reporting. As such, we are required to document and test our internal control procedures and our management is required to assess and issue a report concerning our internal control over financial reporting. In addition, when applicable to comply with this statute, our independent registered public accounting firm may be required to issue an opinion on the effectiveness of our internal control over financial reporting at a later date.

The continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, 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 its testing, our management may identify weaknesses or deficiencies, which may not be remedied in a timely manner. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or if our independent registered public accounting firm identifies material weaknesses in our internal control, investor confidence in our financial results may weaken, and the market price of our securities may suffer.

We may not satisfy Nasdaq’s requirements for continued listing. If we cannot satisfy these requirements, Nasdaq could delist our securities. 

Our ADSs are listed on Nasdaq under the symbol “MDGS”. To continue to be listed on Nasdaq, we are required to satisfy a number of conditions, including, among others, a minimum bid price of at least $1.00 per ADS, a market value of our publicly held shares of at least $1 million and shareholders’ equity of at least $2.5 million. As of April 14, 2022, the last trading day of our ADSs prior to the filing of this annual report, the closing bid price of our ADSs was $1.01. Accordingly, there exists a potential risk that we will not maintain a minimum bid price of at least $1.00 per ADS.

If we are delisted from Nasdaq, trading in our securities may be conducted, if available, on the OTC Markets or, if available, via another market. In the event of such delisting, our shareholders would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our securities, and our ability to raise future capital through the sale of our securities could be severely limited. In addition, if our securities were delisted from Nasdaq, our ADSs could be considered a “penny stock” under the U.S. federal securities laws. Additional regulatory requirements apply to trading by broker-dealers of penny stocks that could result in the loss of an effective trading market for our securities. Moreover, if our securities were delisted from Nasdaq, we will no longer be exempt from certain provision of the Israeli Securities Law, and therefore will have increased disclosure requirements. 

General Risk Factors

We do not intend to pay any cash dividends on our ordinary shares in the foreseeable future and, therefore, any return on your investment in our securities must come from increases in the value and trading price of our securities.

We have never declared or paid cash dividends on our securities and do not anticipate that we will pay any cash dividends on our securities in the foreseeable future, therefore, any return on your investment in our securities must come from increases in the value and trading price of our securities.

We intend to retain our earnings to finance the development and expenses of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant.

Raising additional capital by issuing securities may cause dilution to existing shareholders.

We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures. If we raise additional funds through collaboration, strategic alliance or 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.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our securities will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our share or change their opinion of our securities, the price of our securities would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

The ongoing conflict in Ukraine may result in market volatility that could adversely affect our stock price.

In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the west, including the U.S. Russia’s invasion, the responses of countries and political bodies to Russia’s actions, the larger overarching tensions, and Ukraine’s military response and the potential for wider conflict may increase financial market volatility and could have severe adverse effects on regional and global economic markets.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

 We were incorporated in the State of Israel on December 9, 1999, as a private company pursuant to the Israeli Companies Ordinance (New Version), 1983. In February 2006, we completed our initial public offering in Israel, and our ordinary shares traded on the TASE until January 25, 2021. In May 2015, we listed the ADSs on Nasdaq and since August 2015 the ADSs have been traded on Nasdaq under the symbol “MDGS”. Each ADS represents twenty (20) Ordinary Shares. Our Series C Warrants have been trading on Nasdaq under the symbol “MDGSW” since July 2018. Each Series C Warrant is exercisable into one ADS at an exercise price of $3.50 and will expire in July 2023.

Principal Capital Expenditures

Our Group had capital expenditures of approximately $141,000, $324,000 and $62,000 in the years ended on December 31, 2021, 2020, and 2019, respectively. Our capital expenditures are primarily for network infrastructure, computer hardware, purchase of machinery and software and leasehold improvements of our facilities. We have financed our capital expenditures from our available cash. We expect to maintain our capital expenditures in 2022 with a consistent volume.

There are no significant capital expenditures or divestitures currently in progress by the Company.

B. Business Overview

Overview

The activities carried out by us, and our subsidiaries are focused on medical-related devices and products, internet and other online-related technologies, e-commerce, safety systems for drones and the electric vehicle (EV) sector.

Our medical related activities include; innovative surgical devices with direct visualization capabilities for the treatment of Gastroesophageal Reflux Disease by the Company using Medigus Ultrasonic Surgical Endostapler, or MUSE and licensing arrangement with Polyrizon in connection with its development of biological gels designed to protect patients against biological threats and reduce intrusion of allergens and viruses through the upper airways and eye cavities.

Our internet-related activities include ad-tech operations through our stake in Gix, and its subsidiary, Gix Media. We have also entered into agreements to acquire stakes in Eventer, an online event management and ticketing platform, in which we currently hold 47.69%.

Our e-commerce activity includes the operations of Jeffs’ Brands Ltd., a subsidiary in which we hold 50.03%, and which operates online stores for the sale of various consumer products on the Amazon online marketplace.

Our activity in the EV sector includes our full ownership of Charging Robotics and its 19.99% subsidiary Revoltz, both develop three modular EVs and wireless vehicle battery charging technology.

Our activity in the drones operations field thorough our stake in Parazero Ltd. In which we hold 40.35%.

We are also engaged in the development, production and marketing of innovative miniaturized imaging equipment, custom-tailored visualization solutions based on small and highly resistant cameras, through ScoutCam, of which we hold 27.02% on a beneficial ownership basis.  

Medical Activity Overview

Our MUSE‎™‎ System

We have been engaged in the development, production and marketing of innovative surgical devices with direct visualization capabilities for the treatment of Gastroesophageal Reflux Disease, a common ailment, which is predominantly treated by medical therapy (e.g. proton pump inhibitors) or in chronic cases, conventional open or laparoscopic surgery. Our product, the MUSE™ system for transoral fundoplication is a single use innovative device for the treatment of GERD disorder. The MUSE™ system is an endoscopic, incisionless solution that is used to perform a procedure as an alternative to a surgical fundoplication.

On June 3, 2019, we entered into the Golden Grand Agreement for the know-how licensing and sale of good relating to the MUSE™ system in China, Hong Kong, Taiwan and Macao. The final milestones will be completed, and the final installment paid upon completion of a MUSE™ assembly line in China. Due to COVID-19, the implementation of certain actions required to be achieved under the milestones have been delayed and expects to be completed during 2022.

Polyrizon – Protective Biological Gels

Polyrizon is a clinical development biotech company specializing on the development of innovative nasal gels to provide preventative treatment against a wide cross section of viruses, as well as bacteria, allergens, and other toxins. Polyrizon’s proprietary Capture and Contain hydrogel platform is delivered in the form of nasal sprays, and forms a thin gel-based protective shield containment barrier in the nasal cavity.

In July 2020, we entered into an ordinary share purchase agreement with Polyrizon, and on March 9, 2021 and on September 2, 2021 we increased our stakes in Polyrizon through additional investments, pursuant to such investments we currently own 37.03% of Polyrizon’s issued and outstanding capital on a fully diluted basis.

ClearMind – Psychedelic Medicine

On February 8, 2022, we entered into a share purchase agreement with ClearMind Medicine, Inc. (“CleaqrMind”), following which we hold 5.02% of ClearMind’s share capital. ClearMind is a psychedelic pharmaceutical biotech company focused on the discovery and development of novel psychedelic-derived therapeutics to solve widespread and underserved health problems, including mental health, alcohol use disorder, binge eating and depression. ClearMind’s patent portfolio consists of four utility patent families, which includes seven approved patents and 13 pending applications.

Internet Activity Overview

Gix– Ad-Tech and Online Advertising

Gix Media operates in the field of software development, marketing, and distribution to internet users. Gix recently announced its intention to focus its efforts on Gix Media, which is the primary source of Gix’s revenues and operations, with a goal of expanding its product portfolio in the field of technological solutions for advertising and media. On June 19, 2019, entered into a securities purchase agreement with Gix and its subsidiary Gix Media (the “Investment Agreement”).

During 2021, we exercised our right to convert Gix’s Media shares into Gix shares under the Investment Agreement. In October 2021 and February 2022 we purchased additional shares, following which we currently hold 38.03% in Gix.

On October 14, 2021, Gix Media entered into a purchase agreement with Cortex Media Group Ltd. (“Cortex”), a media-content company, following which Gix (through its holdings in Gix Media) obtained control of Cortex. As a result Gix consolidated Cortex’ financial statements as of October 14, 20201.

Eventer Technologies Ltd. – Online Event Management

Eventer is a technology company engaged in the development of unique tools for automatic creation, management, promotion, and billing of events and ticketing sales. Eventer seeks to tap the growing demand for enterprise and private online communication. As such, Eventer’s systems offer and enable advanced, user-friendly solutions for online events such as online concerts, enterprise events and online conferences, in addition to management and ticket sales for events carried out in offline venues. In addition, Eventer’s platform provides individuals with the ability to create and sell tickets to custom small-scale private or public events. Eventer’s revenues are derived from commissions from sales of tickets for online and offline events planned and managed through its platform. We acquired 47.69% of Eventer’s share capital following an investment of $750,000 on October 14, 2020 and an additional investment of $300,000 on April 8, 2021.

E-commerce Activity Overview

Jeffs’ Brands Ltd.

Jeffs’ Brands is an e-commerce consumer products goods company, operating primarily on the Amazon platform. Jeffs’ Brands is the owner of Smart Repair Pro, Inc., or Pro, Purex, Corp., or Purex, and Top Rank Ltd. that operate online stores for the sale of various consumer products on the Amazon online marketplace. On October 8, 2020, we acquired 50.01% of Pro’s and 50.03% of Purex’ issued and outstanding share capital on a fully diluted a common stock purchase agreement with Pro, Purex and their respective stockholders, and Vicky Hacmon, through a combination of cash investments in the companies and acquisition of additional shares from the then current shareholders of the two companies in consideration for the Company’s restricted ADSs and a cash component. The Company agreed to invest an aggregate amount of $1,250 thousand in Pro and Purex, pay $150 thousand in cash consideration to the current stockholders, and issue up to $500 thousand worth of restricted ADSs to the current stockholders of Pro and Purex subject to EBITDA milestones. Following the achievement of such EBITDA results, the Company issued to the stockholders of Pro and Purex $71 thousand worth of restricted ADSs in June 2021.

On May 16, 2021, we entered into a stock exchange and plan of restructuring agreement with Victor Hacmon, the other shareholder of Pro and Purex, and Jeffs’ Brands Ltd., or Jeffs’ Brands, a newly incorporated entity, following which Pro and Purex became wholly-owned subsidiaries of Jeffs’ Brands. The share exchange transaction was accounted in a manner similar to Pooling-of-Interests (“As Pooling”). To date, we invested approximately USD 5.4 million in Jeffs’ Brands and hold 50.03% of its shares.

On February 18, 2022, Jeffs’ Brands, submitted a registration statement on Form F-1 to the SEC relating to a potential initial public offering of its ordinary shares in the United States.

Electric Vehicle Activity Overview

Charging Robotics Ltd.

Charging Robotics, our wholly owned subsidiary, which was incorporated on February 1, 2021, is a developer of an automatic wireless charging system for public parking lots. On January 7, 2021, we entered into an agreement to purchase a provisional patent filed with the United States Patent and Trademark Office and know-how relating to wireless vehicle battery charging technology in consideration for $75,000.

During 2021, we invested an additional $423,000 in Charging Robotics.

Revoltz Ltd.

On February 19, 2021, we entered into a joint venture agreement with Amir Zaid, Weijian Zhou and Charging Robotics, for the purpose of developing and commercializing three modular electric vehicle (EV) micro mobility vehicles for urban individual use and “last mile” cargo delivery. Pursuant to the terms of such agreement, Charging Robotics currently hold 19.99% of the issued and outstanding share capital of the Revoltz Ltd.

On April 12, 2021, we invested through Charging Robotics an additional $250,000 in Revoltz.  

Other Activities

ScoutCam – Miniaturized Imaging Equipment

We currently hold 27.02% of ScoutCam, which is engaged in the development, production and marketing of innovative visual solutions composed of imaging equipment, cloud and software based image processing (artificial intelligence (AI), machine learning (ML), and additional algorithm methodologies). Some of ScoutCam’s products that utilize its micro ScoutCam™ technology are used in medical procedures as well as various applications in other industries. See Item 7.B “Related Party Transactions” for more information about certain of our transactions with ScoutCam.

Automax Ltd.

We currently hold approximately 5.63% of the outstanding share capital of Global Automax Ltd., or Automax (formerly known as Matomy Media Group Ltd., or Matomy), a public company listed on the TASE.

On November 9, 2020, Matomy signed a binding agreement for a merger with Automax, and on March 24, 2021 the preconditions under the merger agreement were met to complete the merger. Following the closing of the merger, Automax’ shareholders held approximately 53% of the outstanding share capital of Matomy, which amount may increase to 73% if certain milestone achievements are met.

On December 31, 2020, as a result of exercise of Matomy’s option during the year, we held 24.92% of Matomy Media Group Ltd.

On January 19, 2021 and March 9, 2021, we sold 2,300,000 and 11,000,000 shares of Matomy Ltd., respectively. Subsequently, following such sales and the merger of Matomy with Automax, our aggregate holdings in Automax decreased to 4.73% of its issued and outstanding share capital. Following several purchases made through 2021, we currently hold 5.63% of Automax.

Elbit Imaging Ltd.

On June 14, 2021, we completed a number of transactions to purchase 460,409 ordinary shares of Elbit Imaging Ltd., representing 5.04% of its issued and outstanding share capital. We currently hold approximately 5.72 % of the outstanding share capital of Elbit Imaging Ltd.

Safee Cyber Technologies Ltd.

On October 13, 2021, we entered into a share purchase agreement with Safee Cyber Technologies Ltd., or Safee, a blockchain company, pursuant to which we invested $400,000 in exchange for approximately 2.35% of Safee’s share capital on a fully diluted basis.

Parazero Ltd.

On February 4, 2022, we entered into a share purchase agreement with Parazero Ltd., or Parazero, a company which is engaged in the field of safety systems for drones, pursuant to which we invested $1.6 million in exchange for approximately 40% of the outstanding share capital of Parazero’s share capital on a fully diluted basis. On February 28, 2022, we entered into a SAFE agreement pursuant to which we invested an additional $203,000 in Parazero.

Our Strategy

Our primary goal is to generate revenues through the activities of our consolidated subsidiaries, each in their respective market and field. In addition, we seek to generate revenues by pursuing potential opportunities to sell our MUSE^™ technology, or alternatively grant a license or licenses for the use of the MUSE^™ technology. Our strategy includes the following key elements:

Commercialization of the products and services provided by our consolidated subsidiaries. Our board of directors has determined that we invest in the growth, development and expansion of our consolidated subsidiaries businesses.

Sell or License MUSE‎^™ technology. Our board of directors has determined to examine potential opportunities to sell our MUSE^™ technology, or alternatively grant a license or licenses for the use of the MUSE^™ technology.

General Pursuit of Opportunities. Our board of directors and management are constantly seeking and pursuing opportunities through which to leverage our assets and capabilities.

Substantially material portion of our revenues in 2019 and 2020 was derived from the sale of miniature cameras which is currently developed and manufactured by ScoutCam. In 2021, the material portion of revenues was derived from Jeff’s’ brands, Eventer and from the licensing and sale agreement with Golden Grand. The following data reflects our total revenue arising from the following services:

The following data reflects our total revenue broken down by geographic region:

Seasonality of Business

During the last few years we have not seen any seasonality in our sales. However, our subsidiaries experience certain effects of seasonality in their operations.

In connection with our subsidiary, Eventer, there is an increase in events scheduled during the holiday season in Israel, which typically occurs in September and October, and which corresponds to an increase in ticket sales.

In connection with our subsidiary, Jeffs’ Brands, the fourth quarter of each fiscal year typically yields significant activity due to the holiday season. As a result, revenue generally declines and loss from operations generally increases in the first quarter sequentially from the fourth quarter of the previous year.

Marketing and Distribution

Sale or License of MUSE^™ System

As part of our board of directors decision to examine potential opportunities to sell our MUSE^™ technology, or alternatively grant a license or licenses for the use of the MUSE^™ technology, our board of directors has reexamined the efforts and resources previously invested by us in our MUSE^™ technology distribution agreements as well as the revenues obtained through such agreements in order to assess their financial viability. As a result of this analysis, our board of directors resolved to terminate our distribution agreements in order to redirect our resources to securing licensing agreements, which may in turn generate significant income in the short term, reduce operating expenses and lower our company’s burn rate. On May 5, 2021 the company engaged with a contractor into service agreement, which the contractor Seek, develop, evaluate, filter and recommend suitable business opportunities for the Company in the fields of the Muse products and technology, and also Communicate and meet potential customers and introduce the Company and the Company’s products thereto, and, to the extent required by the Company from time to time, assistance and support with respect to negotiations with potential customers.

Intellectual Property

Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection, in the United States and internationally, for the technologies used in our products. We cannot be sure that any of our patents will be commercially useful in protecting our technology. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. For additional information see “Item 3. Key information—D. Risk Factors—Risks Related to Our Intellectual Property.”

We, ScoutCam, Charging Robotics and GERD IP (hereinafter in this paragraph: “We” or “Us”) own 18 U.S. patents and 1 allowed US patent application and have 4 additional pending patent applications in the U.S. and 4 U.S. Provisional Patent Applications. In addition, We own 36 patents that were granted in other countries, including 17 European patent assets, which are not valid on their own unless validated in specific European countries as indeed were validated according to our list of chosen European countries and 8 pending patent applications in such other countries. We also own three pending Paris Convention Treaty (PCT) patent applications. Following opposition proceedings initiated by a third party, the Opposition Division of the EU Patent Office decided to revoke two patents (each validated in 4 countries) of the abovementioned European patent assets and to maintain one patent (validated in 4 countries) of the abovementioned European patent assets – all these decisions are pending appeals filed by Us and the third party, which are expected to be decided in 2023.

We cannot be sure that any patents will be granted with respect to any the pending patent applications or with respect to any patent applications filed by us in the future. There is also a significant risk that any issued patents will have substantially narrower claims than those that are currently sought.

Competition

 Competition with the MUSE‎^™ system

We have several competitors in the medical device and pharmaceutical industries. Patients and physicians may opt for more established existing therapies to treat GERD, including PPI pharmaceutical treatment or laparoscopic fundoplication surgery. PPIs are currently being offered by several large pharmaceutical manufacturers, most of whom have significantly greater financial, clinical, manufacturing, marketing, distribution and technical resources and experience than we have.

Over the last few years a number of different medical devices and treatments have been introduced to address the “treatment gap” in GERD treatments and therapies which is found between long-term pharmaceutical therapy on one hand and surgery on the other. These devices and treatments seek to treat GERD less invasively than fundoplication and without the need for long-term use of drug therapy. 

Competition related to our Subsidiary Jeffs’ Brands

The consumer goods and e-commerce market is a highly competitive environment. Jeffs’ competitive landscape consists of various types of companies such as traditional and non-traditional consumer good companies, discount stores, traditional retailers, independent retail stores, the online platforms of these traditional retail competitors and e-commerce companies. Such competitors include: Thrasio Holdings, Inc., Aterian, Inc. (Nasdaq: ATER), Amazon.com, Helen of Troy Ltd., Newell Brands (NASDAQ: NWL), Frigidaire Appliance Company, and Trademark Global Inc.

Competition related to our Subsidiary Eventer

Eventer’s competitors are traditional ticketing offices and digital ticketing companies that operate an online platform similar to Eventer’s platform and/or offer ticket marketing and distribution services. There are many companies outside of Israel that offer event management services similar to Eventer. Specifically in Israel, however, competitors that operate in the digital ticket sales platform space include Eventbuzz and TickChak Ltd., and companies that market events include Kupat and Eventim. Likewise, there are three large companies in Israel engaged in the field of marketing and distribution of events, including Leaan Tickets LTD, CTS Eventim New Co (Eventim), and Kupot Tel-Aviv Tickets and Shows LTD. Eventer also enables the sale of tickets to various attractions and activities, such as skydiving, glamping and motorsport. For these types of events and activities, Eventer competes with companies, including BUYME and Groupon, which sell vouchers to consumers and businesses and generates revenue from such sales commissions.

Government Regulation

The healthcare industry, and, therefore, our business, is subject to extensive federal, state, local and foreign regulation. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. In addition, these laws and their interpretations are subject to change.

Both federal and state governmental agencies continue to subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement efforts. As indicated by work plans and reports issued by these agencies, the federal government will continue to scrutinize, among other things, the billing practices of healthcare providers and the marketing of healthcare products.

We believe that we have structured our business operations and relationships with our customers to comply with all applicable legal requirements. However, it is possible that governmental entities or other third parties could interpret these laws differently and assert otherwise. In addition, because there is a risk that our products are used off label, we believe we are subject to increased risk of prosecution under these laws and by these entities even if we believe we are acting appropriately. We discuss below the statutes and regulations that are most relevant to our business and most frequently cited in enforcement actions.

U.S. Food and Drug Administration

All of our medical device products sold in the U.S. are subject to regulation as medical devices under the FDA, as implemented and enforced by the FDA. The FDA governs the following activities that we perform or that are performed on our behalf, to ensure that medical device we manufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:

FDA Premarket Clearance and Approval Requirements

Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k) marketing clearance or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices, considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials (General Controls). Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (Special Controls). Manufacturers of most class II and some class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. This process is generally known as 510(k) marketing clearance. Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use for these purposes, are placed in class III and require approval of a PMA. Device without predicate to compare with, may also follow the PMA pathway.

510(k) Marketing Clearance Pathway

To obtain 510(k) marketing clearance, we must submit a premarket notification demonstrating that the proposed device is “substantially equivalent” to a legally marketed “predicate device” that is either in class I or class II, or to a class III device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a PMA. A Special 510(k) is an abbreviated 510(k) application which can be used to obtain clearance for certain types of device modification such as modifications that do not affect the intended use of the device or alter the device’s fundamental scientific technology. A Special 510(k) generally requires less information and data than a complete, or Traditional 510(k). In addition, a Special 510(k) application often takes a shorter period of time, which could be as short as 30 days, than a Traditional 510(k) marketing clearance application, which can be used for any type of 510(k) device. The FDA’s 510(k) marketing clearance pathway usually takes from three to twelve months, but may take significantly longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. There is no guarantee that the FDA will grant 510(k) marketing clearance for our future products and failure to obtain necessary clearances for our future products would adversely affect our ability to grow our business.

Medical devices can be marketed only for the indications for which they are cleared or approved. After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety, performance or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval. The FDA requires each manufacturer to determine whether the proposed changes requires submission of a 510(k) or a PMA, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing or recall the modified device until 510(k) marketing clearance or PMA approval is obtained. Also, in these circumstances, we may be subject to significant regulatory fines or penalties. We have made product enhancements to MUSE^™ system and other products that we believe do not require new 510(k) marketing clearances. We cannot be assured that the FDA would agree with any of our decisions not to seek 510(k) marketing clearance or PMA approval. For risks related to 510(k) marketing clearance, see “Item 3. Key information—D. Risk Factors – Risks Related to Regulatory Compliance.”

PMA Approval Pathway

A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process or is not otherwise exempt from the FDA’s premarket clearance and approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.

Pervasive and Continuing Regulation

After a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reporting, or MDR, regulations require that we report to the FDA any incident in which our products may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. See “Item 4. Information on the Company —D. Risk Factors – Risks Related to Regulatory Compliance,” for further information regarding our reporting obligations under MDR regulations. Additional regulatory requirements include:

We must also register with the FDA as a medical device manufacturer and must obtain all necessary state permits or licenses to operate our business.

Failure to comply with applicable regulatory requirements, including delays in or failures to report incidents to the FDA as required under the MDR regulations, can result in enforcement action by the FDA, which may include any of the following sanctions:

In January 2016, we performed an FDA mock audit by an FDA veteran specialist, following which we implemented improvements in our quality management system. We cannot be assured that we have adequately complied with all regulatory requirements or that one or more of the referenced sanctions will not be applied to us as a result of a failure to comply.

Marketing Approvals Outside the United States

Sales of medical devices outside the United States are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.

The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Each European Union member state has implemented legislation applying these directives and standards at the national level. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with the requirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear CE conformity marking and, accordingly, can be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror these directives. The method of assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a “Notified Body,” an independent and neutral institution appointed to conduct conformity assessment. This third-party assessment consists of an audit of the manufacturer’s quality system and clinical information, as well as technical review of the manufacturer’s product. An assessment by a Notified Body in one country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union. In addition, compliance with ISO 13845 on quality systems issued by the International Organization for Standards, among other standards, establishes the presumption of conformity with the essential requirements for a CE marking. In addition, many countries apply requirements in their reimbursement, pricing or health care systems that affect companies’ ability to market products.

We are entitled to print the CE Mark on our products, after having examined the EU Technical File for each new product.

Israeli Government Programs

Under the Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984, or the Innovation Law, research and development programs which meet specified criteria and are approved by a committee of the Israeli Innovation Authority of the Israeli Ministry of Economy and Industry, or IIA are eligible for grants from the IIA. The grant amounts are determined by the research committee, and are typically a percentage of the project’s expenditures. Under most programs, the grantee is required to pay royalties to the State of Israel from the sale of products developed under the program. Regulations under the Innovation Law generally provide for the payment of royalties of 3% to 6% on sales of products and services based on or incorporating technology developed using grants or know-how deriving therefrom, up to 100% of the grant, linked to the dollar and bearing interest at the LIBOR rate, is repaid. The royalty rates and the aggregate repayment amount may be higher if manufacturing rights are transferred outside of Israel, as further detailed below. The manufacturing rights of products incorporating technology developed thereunder may not be transferred outside of Israel, unless approval is received from the IIA and additional royalty payments are made to the State of Israel, as further detailed below. However, this does not restrict the export of products that incorporate the funded technology.

The United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced that it will no longer persuade or require banks to submit rates for LIBOR after January 1, 2022. The grants received from the IIA bear an annual interest rate based on the 12-month LIBOR. Accordingly, there is considerable uncertainty regarding the publication of LIBOR beyond 2021. While it is not currently possible to determine precisely whether, or to what extent, the withdrawal and replacement of LIBOR would affect us, the implementation of alternative benchmark rates to LIBOR may increase our financial liabilities to the IIA.

The pertinent obligations under the Innovation Law are as follows:

Approval to manufacture products outside of Israel or consent to the transfer of technology, if requested, might not be granted. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.

 Grants Received from the IIA (formerly the OCS)

We have received grants from the IIA as part of our participation in two programs as described below:

Membership in the Activities of the Bio Medical Photonic Consortium

The Bio Medical Photonic Consortium, or the Consortium, commenced its activities in June 2007, and concluded its activities on December 31, 2012. The purpose of the Consortium was to develop generic photonic technologies in the field of diagnostics and therapeutics in the biomedical industry in Israel, and specifically on the subject of the digestive system. The activities of the Consortium were performed under our management and the management of Given Imaging Ltd., where each would develop technological models which are based on their internal developments and on developments of the members of the Consortium.

Within the framework of the activities of the Consortium, the Company worked to develop the next generation technology of miniature cameras. The cameras were integrated, within the framework of the Consortium, in technological models for minimally invasive procedures which were developed by the members of the Consortium. The various combinations of surgical tools and advanced visual capabilities with miniature endoscopes are innovative, and we predict that the Consortium framework will continue serving as a fruitful basis for the development of innovative medical procedures through the creation of intellectual property. Additionally, we will cooperate with research groups which develop indicators for early detection of colorectal cancer, with the aim of integrating the visualization techniques and key products in this field. The Company received an amount of approximately US $2.3 from the IIA in the framework of the Consortium.

In February 2019, the IIA approved a transfer of IIA know-how developed by the Company in the framework of the Consortium to ScoutCam Ltd., a company incorporated under the laws of the State of Israel, a wholly owned subsidiary of the Company. In November 2019, the IIA approved a transfer of the know-how from ScoutCam Ltd. back to the Company in exchange for a license to the ScoutCam Ltd. to access, and develop the know-how. Accordingly all rights and obligations to the IIA under the Innovation Law in connection with such know-how apply to both the Company and ScoutCam Ltd.

The following are details regarding the rights and obligations within the framework of our activity in the Consortium, which will apply to the Company and the indirect subsidiary notwithstanding the conclusion of the program:

Collaboration Grant for the Development of a Miniature Diameter Endoscope for Use in Dental Implants

In July 2011, the IIA approved our application for support for a joint project regarding the development of an innovative, miniature diameter endoscopic product in the field of dental surgery, or the Dental Project. In October 2012, the Company received a notice according to which approval was given for continued support for the Dental Project for a second year. The IIA support for the Dental Project concluded on July 31, 2013.

The Dental Project was performed in collaboration with Qioptiq GmbH, a German corporation, or Qioptiq, in the field of sophisticated medical micro-optics, including in the medical and life sciences sector. The collaboration between the Company and Qioptiq was performed within the framework of the Eureka organization, a Pan-European organization which includes approximately 40 member states, including the State of Israel, and which acts to coordinate and to finance research and development enterprises in and outside of Europe.

In accordance with the outline of the Dental Project, we collaborated with Qioptiq on the development of an innovative miniature-diameter endoscope, with side viewing capabilities, intended for use in various dental implant procedures, the Dental Endoscope. During the Dental Project, each of the parties developed different parts of the Dental Endoscope. In accordance with the terms of the collaboration, the intellectual property which originated from the development of the Dental Endoscope remained the exclusive property of the party which developed it. Subject to the completion of the project, the parties agreed to conduct negotiations regarding the method used to produce and market the Product. The foregoing negotiations have not been conducted. In January 2019 we have notified the IIA that the Dental Project had failed due to technological reasons and that there are no revenues to be expected from this project.

Grants and Royalty Obligations

We received various grants from the IIA in connection with our participation in its programs. We received a grant of approximately $2.3 million in connection with our participation in the Bio Medical Photonics Consortium in the production of generic technology related to the partial development of miniature or the Consortium Grant. Under the terms of the Consortium Grant, we are not required to pay royalties. In addition, we received a grant of approximately $0.2 million in connection with a collaboration within the framework of the Eureka organization related to miniature endoscope for dental implants, or the Eureka Grant. Under the terms of the Eureka Grant, we would have to pay royalties at a rate of 3%-5% from the actual sales of the relevant device, up to the repayment of the grant, with the addition of interest and linkage. In January 2018 we have notified the IIA that the project that received the Eureka Grant has failed due to technological reasons and that there are no revenues to be expected from this project.

C. Organizational Structure

As of December 31, 2021, we have four significant subsidiaries, (i) Jeffs’ Brands, a company incorporated under the laws of the State of Israel, in which we hold 50.03%, (ii) Eventer Technologies, a company incorporated under the laws of the State of Israel in which we hold 47.69% of its outstanding share capital, (iii) ScoutCam, a company incorporated under the laws of the State of Nevada, in which we hold 27.02% of its outstanding share capital, and (iv) our wholly owned subsidiary, Charging Robotics Ltd., a company incorporated under the laws of the State of Israel.

D. Property, Plant and Equipment

Our offices and research and development facility are located at 3 HaNechoshet Street, Building B, Tel Aviv, Israel, 6971068, where we occupy approximately 45 square meters. We sub-lease our facilities from Jeffs’ Brands. While we do intend to expend our offices in the future, we believe our sub-leased facilities sufficiently meets our current needs.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this annual report on Form 20-F. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.

Certain information called for by this Item 5, including a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019 has been reported previously in our annual report on May 14, 2021 under Item 5 “Operating and Financial Review and Prospects”.

For the purpose of this Item 5., references to “Medigus”, the “Company”, “us”, “we” and “our” refer to Medigus and its consolidated subsidiaries.

Overview

Our legal and commercial name is Medigus Ltd. We were incorporated in the State of Israel on December 9, 1999, as a private company pursuant to the Israeli Companies Ordinance (New Version), 1983. In February 2006, we completed our initial public offering in Israel, and until January 25, 2021, our Ordinary Shares were traded on the TASE, under the symbol “MDGS”. On January 25, 2021, we delisted our Ordinary Shares from trading on TASE. In May 2015, we listed our ADSs on Nasdaq, and since August 2015 our ADSs have been traded on the Nasdaq under the symbol “MDGS”. Each ADS represents 20 Ordinary Shares. In July 2018, we listed our Series C Warrants on the Nasdaq, and since then our Series C Warrants have been traded on Nasdaq under the symbol “MDGSW”. Each Series C Warrant is exercisable into one ADS for an exercise price of $3.50, and will expire five years from the date of issuance.

ScoutCam Ltd. was formed in Israel on January 3, 2019, as a wholly owned subsidiary of Medigus, and commenced operations on March 1, 2019. ScoutCam Ltd. was incorporated as part of the reorganization of Medigus, which was designed to distinguish ScoutCam’s miniaturized imaging business, or the micro ScoutCam^™ portfolio, from Medigus’ other operations and to enable Medigus to form a separate business unit with dedicated resources focused on the promotion of such technology. In December 2019, Medigus and ScoutCam Ltd. consummated an Amended and Restated Asset Transfer Agreement, effective March 1, 2019, which transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business. On March 1, 2019, 12 employees moved from Medigus to ScoutCam. The vast majority of these employees were from the Production and R&D departments. Therefore, their transfer caused large changes in the data of these two line items in the year 2018 and 2019. Following ScoutCam’s private placement of USD 20 million in March 2021, in which we did not participate, our holdings in ScoutCam reduced to 28.06%. Accordingly ScoutCam was deconsolidated as of such date and accounted for as an equity investment as of April 1, 2021. 

On October 14, 2020, we signed a share purchase agreement and a revolving loan agreement with Eventer. The Eventer transaction closed on October 26, 2020. Pursuant to the share purchase agreement, we invested $750,000 and were issued an aggregate of 325,270 ordinary shares of Eventer, representing 58.7% of Eventer’s then issued and outstanding share capital. On April 8, 2021 Eventer consummated an additional share purchase agreement with certain investors in connection with the sale and issuance of $2.25 million worth of its ordinary shares for an aggregate amount of $2.25 million. Following such round and our additional investment of $300,000 we hold approximately 47.69% of Eventer outstanding share capital.

On October 8, 2020, we entered into a common stock purchase agreement with Pro, Inc., Purex, and their respective stockholders pursuant to which we acquired 50.01% of Pro’s and 50.03% of Purex’s issued and outstanding share capital on a fully diluted basis through a combination of cash investments in the companies and acquisition of additional shares from the then current shareholders of the two companies in consideration for our restricted ADSs and a cash component. We agreed to; invest an aggregate amount of $1,250 thousand in Pro and Purex, pay $150 thousand in cash consideration to the current stockholders, and issue up to $500 thousand worth of restricted ADSs to the current stockholders of such companies subject to EBITDA milestones. Following the EBITDA results, the Company issued $71 thousand worth of restricted ADSs in June 20201. The transactions contemplated in the definitive agreements closed on January 4, 2021.

On May 16, 2021, we entered into a stock exchange and plan of restructuring agreement with Victor Hacmon, the other shareholder of Pro and Purex, and Jeffs’ Brands. Pursuant to which, among other things, we and Victor Hacmon transferred all our holdings in Pro and Purex to Jeffs’ Brands, in return for a consideration of Jeffs’ Brands ordinary shares that were issued respectively. As a result, Pro and Purex became wholly-owned subsidiaries of Jeffs’ Brands. The share exchange transaction was accounted in a manner similar to Pooling-of-Interests (“As Pooling”). To date, we invested approximately $ 5.4 million in Jeffs’ Brands and holds 50.03% of its shares.

A. Operating results:

The following table sets forth a summary of our operating results:

Year ended December 31, 2021 compared to year ended December 31, 2020

Revenues

Revenues for the year ended December 31, 2021 were $10,118,000 representing an increase of $9,587,000 or 1,806%, compared to total revenues of $531,000 for the year ended December 31, 2020.

The increase in revenues was primarily due to the consolidate revenues of Jeffs’ Brands, Eventer and in Medigus in connection with the Golden Grand Agreement

The tables below set forth our revenues, by region and by product for the periods presented:

U.S. dollars; in thousands

U.S. dollars; in thousands

Our revenues in recent years were primarily derived from the sale of miniature camera and related equipment which we develop and manufacture and from development services. The decrease in revenues of Miniature camera and related equipment, in 2021 is primarily due to the deconsolidation of ScoutCam starting April 1, 2021.

The increase in revenues from Products on the Amazon Online Marketplace was primarily due to the sale in Amazon store by Jeffs’ Brands which was consolidated commencing January 4, 2021.

The increase in revenues from Products-others was due to revenues from the Golden Grand Agreement.

The increase in revenues from commissions derives from our subsidiary Eventer, which was consolidated commencing October 15, 2020.

Cost of revenues

Cost of revenues for the year ended December 31, 2021, were $5,317,000 representing an increase of $4,283,000, or 414%, compared to cost of revenues and of $1,034,000 for the year ended December 31, 2020. The increase was primarily due to the increase in cost of revenues related to the consolidation of Jeffs’ Brands and Eventer.

Gross Profit (Loss)

Gross profit for the year ended December 31, 2021 was $4,801,000, representing an increase of $5,304,000 compared to gross loss of $503,000 for the year ended December 31, 2020. The gross profit increase is a result of consolidation of Jeffs’ Brands and Eventer in 2021 and revenues derived from the Golden Grand Agreement.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2021, were $1,045,000, representing an increase of $48,000, or 5%, compared to $997,000 for the year ended December 31, 2020. The increase was primarily due to the consolidation of Eventer offset by the deconsolidation of ScoutCam.

Sales and Marketing Expenses

Sales and marketing expenses for the year ended December 31, 2021, were $1,988,000, representing an increase of $1,517,000, or 322%, compared to $471,000 for the year ended December 31, 2020. The increase was primarily due to the consolidation of Jeffs’ Brands and Eventer.

General and Administrative Expenses

General and Administrative expenses for the year ended December 31, 2021, were $9,964,000, representing an increase of $4,470,000, or 81%, compared to $5,494,000, for the year ended December 31, 2020. The increase was primarily due to:

Net change in fair value of financial assets at fair value through profit or loss

During 2021 we recognized income of $713,000 from net change in the fair value of financial assets derived from income related to Gix Media shares and conversion right, $516,000 from Polyrizon option offset by expenses from Save Foods, Inc. - warrants and shares, and from Automax shares.

Share of net loss of accounted for using the equity method

As described above the investment in Gix, Automax (until March 9, 2021), Polyrizon, Revoltz and ScoutCam (starting March 29, 2021) are accounted for using the equity method. Share of net loss of accounted for using the equity method the Company recognized at 2021 was $2,149 thousand.

Amortization of excess purchase price of an associate

In 2021 upon acquisition Fuel Doctor shares the difference between the cost of the investment and Medigus’ share of the net fair value of Fuel Doctor equity’ amounted to $263,000 and was recognized as an amortization of excess purchase price of an associate.

In 2020 upon acquisition Matomy’s shares the difference between the cost of the investment and Medigus’ share of the net fair value of Matomy’s equity’ amounted to $546,000 and was recognized as an amortization of excess purchase price of an associate.

Operating loss

We incurred an operating loss of $9,895,000 for the year ended December 31, 2021, representing an increase of $2,511,000, or 34%, compared to operating loss of $7,384,000 for the year ended December 31, 2020. The increase in operating loss was mainly due to increase in operating expenses as mentioned above and due to increase in share of net loss associated for using the equity method of $1,979,000.

Change in Fair Value of Warrants Issued to Investors

Profit from change in the fair value of warrants issued to investors for the year ended December 31, 2021, was $484,000, representing an increase of $146,000, compared to profit of $338,000 for the year ended December 31, 2020.

Warrants issued to investors classified as either liabilities or as part of the shareholders’ equity based on the accounting guidance established in connection with the rights attached to the warrants. The warrants that were classified as liabilities due to a cashless exercise mechanism are subject to adjustment to fair value each statement of financial position cut-off date. This adjustment is presented separately within the consolidated statement of loss and other comprehensive loss.

Gain upon loss of control in a subsidiary

On March 29, 2021, ScoutCam consummated a private placement of USD 20 million. As the Company did not participate in the March 2021 funding, its interest in ScoutCam Inc. reduced to 28.06%, which resulted in loss of control in ScoutCam as of April 2021. Accordingly, ScoutCam was deconsolidated as of such date and accounted for as an equity investment, and the fair value of ScoutCam’s shares held by the Company as of such date were amounted according to the purchase price. As a result of deconsolidation of ScoutCam and initial recognition of the investment in ScoutCam using the equity method, the Company recorded a gain upon loss of control in a subsidiary of USD 11,465,000 in its statement of income.

Gain from sale of an investment

On January 19, 2021, and March 9, 2021, the Company sold 2,300,000 and 11,000,000 shares of Matomy, respectively. Subsequently, following such sales and the merger of Matomy with Automax, which is now traded on TASE (AMX.TA), the Company’s aggregate holdings in Automax decreased to 4.73% of its issued and outstanding share capital, therefore since March 9,2021 the investment was treated as fair value through profit and loss. The total gained recognized through profit and loss related to these sales sum to USD 2,025 thousand.

Financial expenses (income) in respect of deposits, bank commissions and exchange differences, net

Finance expenses, net for the year ended December 31, 2021, was $347,000, representing a decrease of $552,000, compared to finance income of $205,000 for the year ended December 31, 2020, primarily due to interest of loans and liability to third parties in Jeffs’ and Eventer.

Profit (Loss) for the year

We incurred net Profit of $4,046,000 for the year ended December 31, 2021, representing an increase of $10,896,000, or 159%, compared to loss of $6,850,000 for the year ended December 31, 2020. The increase was primarily due to increase of $11,465,000 in Gain upon loss of control in a subsidiary, increase of $2,025,000 in Gain from sale of an investment and, an increase of $494,000 in other income, offset with increase of $2,511,000 in operating loss and increase of $552,000 in financial expenses net.

Year ended December 31, 2020 compared to year ended December 31, 2019

The discussion and analysis regarding the results of operations from the fiscal years ended December 31, 2020, and December 31, 2019, is contained in our annual report on Form 20-F, filed with the SEC, on May 14, 2021.

Effective Corporate Tax Rate

Our effective consolidated tax rate for the years ended December 31, 2021 and 2020 was almost zero percent (0%), primarily due to the fact that the Company did not record a tax asset, Eventer did not record a deferred tax asset in connection with the losses incurred in Israel, since it is not probable that we will be able to utilize such losses in the foreseeable future against taxable income. Jeffs’ Brands recorded deferred tax in connection with its losses and on cumulative net basis recorded a tax liability. Jeffs’ Brands also did not record a deferred tax asset in connection with the losses incurred since it is not probable that we will be able to utilize such losses in the foreseeable future against taxable income, but recorded a tax liability on a net basis.

Impact of Inflation, Devaluation and Fluctuation in Currencies on Results of Operations, Liabilities and Assets

We generate part of our revenues in different currencies than our functional currency (U.S. dollars), such as NIS and Euro. As a result, some of our financial assets are denominated in these currencies, and fluctuations in these currencies could adversely affect our financial results. A considerable amount of our expenses are generated in U.S. dollars, but a significant portion of our expenses such as salaries are generated in other currencies such as NIS. In addition to our operations in Israel, we are expanding our international operations in the European Union. Accordingly, we incur and expect to continue incurring additional expenses in non-U.S. dollar currencies, such as described above. Due to the mentioned, our results could be adversely affected as a result of a strengthening or weakening of the U.S. Dollar compared to these other currencies.

The inflation in Israel during the last several years was relatively immaterial and, therefore, had immaterial effect on our results of operations.

Effective January 1, 2016, we changed our functional currency to the U.S. dollar from NIS. This change was based on management’s assessment that the U.S. dollar is the primary currency of the economic environment in which we operate. Accordingly, the functional and reporting currency of our consolidated financial statements is the U.S. dollar.

B. Liquidity and Capital Resources

Liquidity

During the year ended December 31, 2021, we incurred a total comprehensive income of approximately $4.2 million and a negative cash flow used in operating activities of approximately $5.2 million. As of December 31, 2021, we incurred accumulated deficit of approximately $74.2 million.

We will need to seek additional sources of funds, including selling additional equity, debt or other securities or entering into a credit facility, take costs reduction steps or modify our current business plan to achieve profitability. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our ordinary shares and could contain covenants that could restrict our operations and ability to issue dividends. We may also require additional capital beyond our currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could materially harm our business and results of operations.

Because of the numerous risks and uncertainties associated with the development of our products and the current economic situation, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our products and successfully deliver commercial products to the market. Our future capital requirements will depend on many factors, including but not limited to the following:

Cash Flows

Net cash used in operating activities for the year ended December 31, 2021, was $5,067,000, compared to $6,263,000 for the year ended December 31, 2020. For the year ended December 31, 2021, the Company had net cash used in investing activities of $12,446,000 compared to net cash used in investing activities of $1,601,000 for the year ended December 31, 2020. For the year ended December 31, 2021, the Company had net cash generated from financing activities of $19,150,000 compared to $22,946,000 for the year ended December 31, 2020.

The change in our liquidity for the year ended December 31, 2021, resulted from several factors, including but not limited to:

C. Research and Development, Patents and Licenses, etc.

Our research and development efforts are focused on continuous improvement of our products. We conduct all of our research activities in Israel. 

As of December 31, 2021, our research and development team consisted of 3 employees and subcontractors for the development of our products in Eventer and Charging Robotics as needed. We have assembled an experienced team with recognized expertise in mechanical and electrical engineering, software, control algorithms and systems integration.

The table below set forth our research and development expenses for the periods presented:

From time to time we file applications for patent registration in the certain countries, some in which we are active and some which we consider as potential markets in order to protect our developed intellectual property.

D. Trend Information

The following is a description of factors that may influence our future results of operations, including significant trends and challenges that we believe are important to an understanding of our business and results of operations:

During 2020, a significant portion of our revenues was generated from the sale of our micro ScoutCam^™ portfolio products, development services and the remainder from the sale of the MUSE^™ system. The level of our future revenues is hard to predict as it depends on many factors, which most of them are outside of our control. For instance, future revenues from the sale of our products may be adversely affected by current general economic conditions and the resulting tightening of credit markets, which may cause purchasing decisions to be delayed, our customers may have difficulty securing adequate funding to buy our products or, in an extraordinary event, may cause our customers to experience difficulties in complying with their engagements with us. In addition, revenue growth depends on the acceptance of our technology in the market.

The healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to manage healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. This trend may result in inadequate coverage for procedures, especially those utilizing new technology, or result in new technology not receiving reimbursement coverage, which may negatively impact utilization of our products. In addition, medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, physicians and surgeons may discontinue using our products or may choose to not purchase it in the future due to the cost or inability to procure insurance coverage.

To date, a significant portion of our revenues was generated from the revenues of our subsidiaries, Jeffs’ Brands and Eventer.

During 2021 the e-commerce industry experienced disruptions relating to the COVID-19 pandemic, which resulted in delivery delays and increases in shipping costs. Adverse fluctuations in shipping costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important shipping and delivery points for Jeffs’ Brands products, could materially adversely affect Jeffs’ Brands business, financial condition and results of operations.

Additionally, The COVID-19 pandemic has impacted companies in Israel and around the world, and as its trajectory remains highly uncertain, we cannot predict the duration and severity of the outbreak and its containment measures. See also “Item 3.D. – Risk Factors– The global outbreak of COVID-19 (coronavirus) may negatively impact the global economy in a significant manner for an extended period of time, and also adversely affect our operating results in a material manner.

E. Critical Accounting Estimates

Application of critical accounting policies and estimates

Our significant accounting policies and their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements included elsewhere in this Annual Report. We have prepared our financial statements in conformity with International Financial Reporting Standards or IFRS, which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates are prepared using our best judgment, after considering past and current events and various other assumptions. While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third parties. Actual results may differ from these estimates. We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because it included matters that were highly uncertain at the time, we were making our estimate or the assumption is material due to the levels of subjectivity and judgment involved, and (2) changes in the estimate could have a material impact on our financial condition or results of operations.

Warrants/options assets

Warrants/options assets, which measured as fair value through profit and loss, are subsequently measured using the Black-Scholes option-pricing model as follow:

The Black-Scholes option-pricing model requires us to make a number of assumptions, including the value of ordinary shares, expected volatility, expected term, risk-free interest rate and expected dividends.

Expected volatility of private company warrants was calculated based on the implied volatilities from market comparisons of certain publicly traded companies and other factors. Expected volatility for traded company warrants was calculated based upon their share prices. Share price as of the cut-off date for private company’s relies on the last finance round.

The risk-free interest rate was based on the U.S. treasury bonds yield with an equivalent term or Israel treasury bonds yield. There is no foreseeable plans to pay dividends. Future expense amounts for any period could be affected by changes in our assumptions and market conditions. In case there is alternative option the future value could be affected by management of the company which issue those options/warrants probability for occurrence of each case (non-IPO/IPO). In connection with Polyrizon warrants an increase/decrease of the probability for the occurrence of IPO would have increase/decrease in the fair value of the Polyrizon warrants by $93 thousands.

Gix Anti-dilution rights

Anti-dilution rights are measured as fair value through profit and loss, are subsequently measured using the Black-Scholes option-pricing model as follow:

The Black-Scholes option-pricing model requires us to make a number of assumptions, including the value of ordinary shares, expected volatility, expected term, risk-free interest rate and expected dividends.

Expected volatility was calculated based upon GIX share price.

There is no foreseeable plans to pay dividends.

The risk-free interest rate was based on the Israel treasury bonds yield.

The value could be affected by management of the company which issue those Anti-dilution rights probability to occur. An increase/decrease of the probability for the occurrence of qualifying event by 10% would have increase/decrease in the fair value of Anti-dilution by $188 thousands.

Business Combinations

The results of an acquired business in a business combination are included in the Company’s consolidated financial statements from the date of acquisition according to IFRS 3R, “Business Combinations.” The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity or a combination of the two, to the identifiable assets and liabilities of the acquired business at their fair values as of the acquisition date. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. The non-controlling interest are measured upon the date of the business combination in the amount of their share at the fair value of assets, liabilities and contingent liabilities of the acquired acquisition other than their share in goodwill.

The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition.

Contingent consideration incurred in a business combination is included as part of the acquisition price and recorded at a probability weighted assessment of the fair value as of the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, with any adjustments in fair value recognized in earnings under general and administrative expenses.

Acquisition related costs incurred by the Company are not included as a component of consideration transferred but are accounted for as an expense in the period in which the costs are incurred.

Share-Based Compensation

We account for share-based compensation in accordance with IFRS 2, “Share-based Payment.” Share based awards are mainly granted to employees, service providers and members of our board of directors and measured at fair value at each grant date. We calculate the fair value of share-based compensation options, on the date of grant using the Black-Scholes option-pricing model and the expense is recognized over the requisite service period using the accelerated basis method.

We recognize forfeitures as they occur.

The requisite service period for share-based compensation options is generally 3 years and vesting equally on quarterly basis.

The Black-Scholes option-pricing model requires us to make a number of assumptions, including the value of our ordinary shares, expected volatility, expected term, risk-free interest rate and expected dividends.

We evaluate the assumptions used to value share-based compensation options upon grant date.

Expected volatility for share-based compensation options was calculated based upon the Company’s share prices.

The risk-free interest rate was based on the U.S. treasury bonds yield with an equivalent term. We have not paid dividends and have no foreseeable plans to pay dividends.

As it relates to the fair value estimate of equity awards granted by our subsidiaries, the assumptions with respect to the underlying share price are primarily based on recent financing rounds, and the assumptions with respect to volatility of the share price is based on comparable companies. In cases equity awards granted by our subsidiaries have contractual terms that dependents on the successful completion of an IPO, our fair value estimate with respect to these awards includes assumption with respect to the probability of occurrence of an IPO event.

Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

Recent Accounting Pronouncements

Please see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report for information regarding recent accounting pronouncements.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table lists the names and ages of our directors and senior management as of April 14, 2022:

Liron Carmel has been serving as our Chief Executive Officer since April 2019. Mr. Carmel has vast experience in business and leadership across multiple industries, including bio pharma, internet technology, oil & gas exploration & production, real estate and financial services. In addition he serves as chairman of the Israel Tennis Table Association. Mr. Carmel also currently serves as a member of the board of directors of several of our subsidiaries including Gix (TASE: GIX), beginning June 2021, Elbit Imagining Ltd., beginning August 2021, Polyrizon Ltd., beginning July 2020, Jeffs’ Brands Ltd. beginning January 2021 and as the chairman of the board of directors of Eventer Technologies Ltd. beginning October 2020. 

Eliyahu Yoresh has been serving as a member of our Board since September 2018 and as our Chairman of the board since February 2020. Mr. Yoresh serves as chief financial officer of Foresight Autonomous Holdings Ltd. (Nasdaq, TASE: FRSX). In addition, Mr. Yoresh serves as a director of Gix (TASE: GIX) and has previously served as a director of Nano Dimension Ltd. (Nasdaq: NNDM) and as a director of Geffen Biomed Investments Ltd. and Greenstone Industries Ltd. Mr. Yoresh served as the chief executive officer of Tomcar Global Holdings Ltd., a global manufacturer of off-road vehicles, from 2005 to 2008. Mr. Yoresh is an Israeli Certified Public Accountant. Yoresh acquired a B.A. in business administration from the Business College, Israel and an M.A. in Law Study from Bar-Ilan University, Israel.

Ronen Rosenbloom has been serving as a member of our Board since September 2018. Mr. Rosenbloom is an independent lawyer working out of a self-owned law firm specializing in white collar offences. Mr. Rosenbloom serves as chairman of the Israeli Money Laundering Prohibition committee and the Prohibition of Money Laundering Committee of the Tel Aviv District, both of the Israel Bar Association. Mr. Rosenbloom previously served as a police prosecutor in the Tel Aviv District. Mr. Rosenbloom holds an LL.B. from the Ono Academic College, an Israeli branch of University of Manchester.

Eli Cohen has been serving as a member of our Board since September 2018. Mr. Cohen is an independent lawyer working out of a self-owned firm. He serves as chairman of Univo Pharmaceuticals Ltd., as director of Europe Hagag Ltd., and has previously served as director of Hagag Group Ltd., Multimatrixs Ltd., Matrat Mizug Ltd. and User Trend-M Ltd. Mr. Cohen also serves as a director of several private companies. Mr. Cohen holds an economics degree, an LL.B. and an LL.M. in Commercial Law from Tel-Aviv University, as well as an MBA from the Northwestern University and Tel-Aviv University joint program.

Kineret Tzedef has been serving as member of our Board since June 2019. Ms. Tzedef also serves as a director of sports division and served in other positions at Hapoel Organization (Israeli Sport Federation) since 2007. Ms. Tzedef is the president of Israeli Gymnastics Federation since 2018. Ms. Tzedef serves as an external director at Chiron Refineries Ltd. (TASE: CHR), and as an external director of Biomedico Hadarim Ltd. (TASE: BIMCM). Ms. Tzedef is admitted to the Israel Bar Association since 2014. Ms. Tzedef acquired a LL.B from the Academic Center for Law and Science, Israel and a B.Ed. in Law Study from the Academic College at Wingate, Israel.

Tali Dinar has been serving as our Chief Financial Officer since June 8, 2021. Ms. Dinar also serves as Chief Financial Officer of Novomic Ltd., a private company since 2019. Ms. Dinar also currently serves as a member of the board of directors of Jeffs’ Brands, beginning September 30, 2021, and Parazero Ltd. beginning February 13, 2022. She has also served as a member of the board of directors of Micronet Ltd. (TASE: MCRNT) since 2016 Between 2019 and 2020, Ms. Dinar served as the Chief Financial Officer of TechCare Corp. (currently Citrine Global Corp.) (OTCQB: CTGL). Between 2009 and 2019, Ms. Dinar worked at the MICT group and served in various positions, including as Chief Financial Officer of MICT Inc. (Nasdaq: MICT) and as Chief Financial Officer of MICT Telematics Ltd. From 2002 until 2006, Ms. Dinar served as the chief controller of I.T.L. Optronics Ltd. From 1997 until 2000, Ms. Dinar worked in the audit department of Ernst & Young Global. Ms. Dinar is a certified public accountant in Israel and holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.

Family Relationships

There are no family relationships between any members of our executive management and our directors.

Arrangements for Election of Directions and Members of Management

There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management or our directors were appointed.

B. Compensation

Compensation of Executive Officers

In accordance with the provisions of the Companies Law, the compensation of our directors and officer holders must generally comply with the terms and conditions of our compensation policy, as approved by our compensation committee, board of directors and general meeting of our shareholders, subject to certain exceptions under the Companies Law.

The table below reflects the compensation granted to our six most highly compensated office holders (as defined in the Companies Law) during or with respect to the year ended December 31, 2021.

The aggregate compensation paid by us to our office holders, as defined in the Companies Law, for the year ended December 31, 2021 was approximately $1.4 million, which includes six persons. This amount includes, when applicable, set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, car expenses and value of the ordinary shares underlying the options representing accounting expenses, but does not include business travel, relocation, professional and business association dues and expenses reimbursed to officers, and other benefits commonly reimbursed or paid by companies in Israel.

Compensation of Directors

Under the Companies Law and the rules and regulations promulgated thereunder, our directors are entitled to fixed annual compensation, up to the limits set forth in the compensation policy. We currently pay Mr. Ronen Rosenbloom, Ms. Kineret Tzedef and Mr. Eli Cohen an annual fee of NIS 396,000.

Each of our non-executive directors were also granted options to purchase 2,000,000 Ordinary shares under the Plan (as defined herein). Such options were granted on June 29, 2021. The options shall vest over a period of three (3) years commencing on April 1, 2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options will be of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days from the termination of the tenure of a director, (iv) the exercise price per share of the options will be equal to the average share price of the 30 days prior to the date of grant, (v) the options grant will be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version] (“Tax Ordinance”), if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.

On April 27, 2021 and on May 4, 2021, our compensation committee and board of directors approved new compensation terms for Mr. Eliyahu Yoresh in connection with his services as an active chairman of the board of directors. For his services, Mr. Yoresh is entitled to receive a monthly payment of NIS45,000 plus VAT, which constitutes the sole and complete compensation. In addition, Mr. Yoresh is entitled to an annual, target based bonus and an additional overachievement bonus of up to 6 monthly salaries, each. The weight afforded to each target and overachievement component, is to be decided by our board of directors and compensation committee in accordance with the following weights: (a) 35% Company performance measures of strategic goals and related objectives; (b) 25% Company performance measures of material transaction or material profitability/revenues; (c) 20% Company performance measures of revenues and/or loss reduction; and (d) 20% Company performance measures of achieving commercialization of Company’s technology. The aforementioned compensation terms are consistent with our current compensation policy.

Following the approval of the annual general meeting of our shareholders held on August 30, 2021, Mr. Yoresh was granted with a one-time grant of options to purchase 6,000,000 Ordinary Shares in accordance with the terms of the Plan. The options shall vest over a period of three (3) years commencing on April 1,2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options will be of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days from the termination of Mr. Yoresh’ tenure as a chairman, (iv) the exercise price per share of the options will be equal to the average share price of the 30 days prior to the date of grant, (v) the options grant will be in accordance and pursuant to Section 102 of the Tax Ordinance, if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.

Equity Based Compensation of our Executive Officers and Directors 

As of April 14, 2022, options to purchase 24,250,000 of our Ordinary Shares were outstanding and held by current executive officers and directors (consisting of 6 persons) with an average exercise price of NIS 0.31 per ordinary share, of which, options to purchase 10,291,667 of our ordinary shares are currently exercisable or exercisable within 60 days as of April 14, 2022. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” in this annual report on Form 20-F.

Agreements with our Executive Officers

We have entered into written agreements with each of our executive officers. All of these agreements contain customary provisions regarding non-competition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them to the fullest extent permitted by law to the extent that these liabilities are not covered by directors and officers insurance.

Our office holders are generally eligible for bonuses each year. The bonuses are established and granted in accordance with our compensation policy and are generally payable upon meeting objectives and targets that are approved by our compensation committee and board of directors (and if required by our shareholders).

Consulting Agreement with Mr. Carmel

On July 25, 2019, our shareholders approved that as of April 2, 2019, our company would enter into a consulting agreement with Mr. Carmel, who serves as our Chief Executive Officer. The term is for an indefinite period, however the agreement may be terminated by either party by giving 60 days advance notice, or shorter periods in some cases, such as termination for “cause”. During the notice period, Mr. Carmel will be entitled to consulting fees only to the extent that he provides services to the Company during the notice period. The agreement also includes customary covenants regarding confidentiality, IP assignment, non-competition and non-solicitation.

Mr. Carmel’s monthly consulting fee is NIS 60,000 plus VAT, effective as of May 2021, as approved by our shareholders at our annual general meeting held on August 30, 2021. In addition, Mr. Carmel is entitled to an annual target based bonus and an additional overachievement bonus of up to 6 monthly salaries each, subject to a performance matrix to be approved by the Company’s compensation committee and board of directors on an annual basis, while up to 30% of such annual bonus may be discretionary and not subject to measurable performance indexes. The annual target bonus may be reduced by our board of directors according to our financial position and Mr. Carmel’s performance, and must be returned by Mr. Carmel if it is later shown to be granted in error which shall be restated in our financial statements.

In addition, Mr. Carmel was granted with options to purchase up to 1,250,000 Ordinary Shares of the Company (the “Options”), in accordance with the following terms: (i) the Options shall vest over a period of four (4) years commencing April 1, 2019, 25% of the Options shall vest on the first anniversary (i.e., April 1, 2020), and 75% of the Options shall vest on a quarterly basis over a period of three (3) years thereafter; (ii) the term of the Options shall be of six (6) years from the date of grant, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the Options may be exercised until 180 days from the date of termination of the service, (iv) the exercise price per share of the Options shall be NIS 0.59, (v) the Options’ grant shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (vi) the Options shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. 

At the annual general meeting of our shareholders held on August 30, 2021, Mr. Carmel was granted with additional grant of options to purchase 6,000,000 Ordinary Shares. The options shall vest over a period of three (3) years commencing on April 1, 2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options will be of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days following the termination of the engagement, (iv) the exercise price per share of the options will be equal to the average share price of the 30 days prior to the date of grant, (v) the options grant will be in accordance and pursuant to Section 102 of the Tax Ordinance, if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.   

C. Board Practices

Introduction

Under the Companies Law and our articles of association, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors.

Under our articles of association, our board of directors must consist of at least three and not more than 12 directors, not including two external directors appointed as required under the Companies Law. Our board of directors currently consists of four members, none of which are external directors, including our chairman of the board of directors, which is also appointed by the general meeting of our shareholders. Our directors are nominated by our independent directors and elected at the annual general meeting of our shareholders by a simple majority. Because our Ordinary Shares do not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors. The general meeting of our shareholders may resolve, at any time, by an ordinary majority resolution prior to the termination of his respective term of service and it may appoint another director in his place, provided that the director was given a reasonable opportunity to state his case before the general meeting.

In addition, if a director’s office becomes vacant, the remaining serving directors may continue to act in any manner, provided that their number is of the minimal number specified in our articles of association. If the number of serving directors is lower than three, then our board of directors will not be permitted to act, other than for the purpose of convening a general meeting of the Company’s shareholders for the purpose of appointing additional directors. In addition, the directors may appoint, immediately or of a future date, additional director(s) to serve until the subsequent annual general meeting of our shareholders, provided that the total number of directors in office do not exceed twelve directors (not including external directors).

Pursuant to the Companies Law and our articles of association, a resolution proposed at any meeting of our board of directors at which a quorum is present is adopted if approved by a vote of a majority of the directors present and eligible to vote. A quorum of the board of directors requires at least a majority of the directors then in office who are lawfully entitled to participate in the meeting.

According to the Companies Law, the board of directors of a public company must determine the minimum number of board members that should have financial and accounting expertise while considering, among other, the nature of the company, its size, the scope and complexity of its operations and the number of directors stated in the articles of association. Our board of directors resolved that the minimum number of board members that need to have financial and accounting expertise is one, and that Mr. Eliyahu Yoresh has accounting and financial expertise as required under the Companies Law.

External Directors

Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq Capital Market, are required to appoint at least two external directors. External directors must meet certain independence criteria to ensure that they are unaffiliated with the company and its controlling shareholder, as well certain other criteria. External directors are elected for three-year terms in accordance with specific rules set forth in the Companies Law and the regulations promulgated thereunder and may be removed from office only under limited circumstances. Under the Companies Law, each committee of a company’s board of directors that is authorized to exercise powers of the board of directors is required to include at least one external director, and all external directors must be members of the company’s audit committee and compensation committee.

Pursuant to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange, including the Nasdaq Capital Market, may, subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In accordance with these regulations, effective as of June 28, 2017, we have “opted out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors.

Under these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder” (as such term is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Capital Market, and (iii) we comply with the director independence requirements, the audit committee and the compensation committee composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers. We believe that Mr. Eli Cohen, Mr. Eliyahu Yoresh, Mr. Ronen Rosenbloom and Ms. Kineret Tzedef are “independent” for purposes of the Nasdaq Stock Market rules.

Alternate directors

Our articles of association provide, as allowed by the Companies Law, that any director may, by written notice to us, appoint another person who is qualified to serve as a director to serve as an alternate director and to terminate such appointment. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors as long as he or she is not already serving as a member of such committee.

Board committees

The board of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of one or more directors (except the audit and compensation committees, as described below), and it may, from time to time, revoke such delegation or alter the composition of any such committees. Unless otherwise expressly provided by the board of directors, the committees will not be empowered to further delegate such powers. The composition and duties of our audit committee and compensation committee are described below.

Audit committee

Our audit committee is currently comprised of Mr. Eli Cohen, Mr. Eliyahu Yoresh, and Mr. Ronen Rosenbloom. Mr. Eli Cohen acts as the chairperson of our audit committee.

Companies Law Requirements

Under the Companies Law, our board of directors is required to appoint an audit committee, which is responsible, among others, for:

Nasdaq requirements

Under the Nasdaq corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules. Our board of directors has determined that Mr. Eliyahu Yoresh is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Marketplace Rules.

Each of the members of the audit committee is required to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members. Our board of directors has determined that each member of our audit committee is independent as such term is defined in Rule 10A-3(b)(1) of the Exchange Act.

Audit committee role

Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the Nasdaq Rules, which include, among others:

The audit committee charter states that in fulfilling its obligations, the committee is entitled to demand from the Company any document, file, report or any other information that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the audit committee.

Compensation Committee

Our compensation committee is currently comprised of Mr. Ronen Rosenbloom, Mr. Eli Cohen and Ms. Kineret Tzedef. Mr. Ronen Rosenbloom acts as the chairperson of our compensation committee.

Companies Law requirements

Under the Companies Law, the board of directors of a public company must appoint a compensation committee which roles are, among others, as follows:

Nasdaq requirements

Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Rules, which include among others: