PRF Technologies (NASDAQ: PRFX) 20-F details going concern risk and cash needs
Filing Impact
Filing Sentiment
Form Type
20-F
Rhea-AI Filing Summary
PRF Technologies Ltd. files its annual report on Form 20-F describing a very early-stage, loss-making business with substantial doubt about its ability to continue as a going concern. As of December 31, 2025, it held $4.1 million in cash and cash equivalents and had an accumulated deficit of $61.3 million, after three straight years of annual losses of approximately $4.8 million, $14.6 million and $9.3 million. The company has never generated significant revenues, depends on the development and approval of drug candidates such as OcuRing™-K and PRF-110, and is only beginning to commercialize its DeepSolar AI solar analytics business. Management notes it will need substantial additional funding through equity, debt or strategic transactions and that failure to raise capital could force it to scale back or cease operations, which could severely impair shareholder value. The report also details multiple reverse share splits through February 2026 and extensive risk factors across drug development, regulation, AI and solar markets, and intellectual property.
Positive
- None.
Negative
- Auditor going concern warning: The independent registered public accounting firm included a going concern explanatory paragraph, citing substantial doubt about PRF Technologies’ ability to continue operating without new capital.
- Limited cash and sustained losses: Cash and cash equivalents were $4.1 million at December 31, 2025, versus an accumulated deficit of $61.3 million and three consecutive years of multi‑million‑dollar net losses.
- No committed financing and high capital needs: Management states that existing cash and proceeds from recent offerings are insufficient to complete development or commercialize products, and that there are no committed external funding sources.
- Drug and solar businesses both early stage: Core drug candidates, including OcuRing™‑K and PRF‑110, are pre‑commercial, and the DeepSolar AI solar analytics line is in very early commercialization with limited revenue visibility.
- Shareholder dilution risk: The company has executed multiple reverse share splits through February 2026 and explicitly anticipates raising further capital via equity or convertible securities, which could significantly dilute existing shareholders.
Insights
Auditor going‑concern warning and heavy losses make this a high‑risk, capital‑dependent story.
The report shows PRF Technologies combining an early-stage drug platform with a nascent AI solar analytics business. Neither side is commercialized to a meaningful degree, yet both require sustained R&D, regulatory work and commercial build‑out, driving structurally high cash burn.
As of $4.1 million cash and cash equivalents on December 31, 2025, against an accumulated deficit of $61.3 million and multi‑year annual losses, the auditor issued a going concern explanatory paragraph. Management explicitly anticipates continued losses and acknowledges that existing resources and recent offerings are insufficient to complete development or commercialization.
The company discloses it must obtain substantial additional financing via equity, debt or partnerships, with no committed sources. Repeated reverse share splits through February 2026 and limited revenue from DeepSolar underline equity‑financing dependence and potential dilution. Execution on OcuRing™‑K, stabilization of DeepSolar’s revenue trajectory, and future capital‑raising terms will be central to how this risk profile evolves in subsequent filings.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File No.: 001-39481
(Exact name of registrant as specified in its charter)
Translation of registrant’s name into English: Not applicable
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Tel: +972 3 7177050 |
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(Jurisdiction of incorporation or organization)
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(Address of principal executive offices)
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Tel +972 3 7177051
Email: efi@prf-tec.com
(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:
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Title of each class to be registered
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Trading Symbol(s)
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Name of each exchange on which each
class is to be registered |
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The
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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
Number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2025: 830,613 ordinary shares.
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 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 Exchange Act 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.
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 during the preceding 12 months.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
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Large accelerated filer ☐
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Accelerated filer ☐
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Emerging Growth Company
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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 7(a)(2)(B) of the Securities Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
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.
Yes ☐ No ☒
TABLE
OF CONTENTS
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Page | ||
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INTRODUCTION |
1 | |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
1 | |
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MARKET, INDUSTRY, AND OTHER DATA |
3 | |
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PART I |
4 | |
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ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
4 |
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ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
4 |
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ITEM 3. |
KEY INFORMATION |
4 |
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A. |
[RESERVED] |
4 |
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B. |
Capitalization and Indebtedness |
4 |
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C. |
Reasons for the Offer and Use of Proceeds |
4 |
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D. |
Risk Factors |
4 |
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ITEM 4. |
INFORMATION ON THE COMPANY |
44 |
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A. |
History and Development of the Company |
44 |
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B. |
Business Overview |
44 |
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C. |
Organizational Structure |
71 |
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D. |
Property, Plants and Equipment |
72 |
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ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
72 |
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ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
72 |
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A. |
Operating Results |
75 |
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B. |
Liquidity and Capital Resources |
77 |
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C. |
Research and Development, Patents and Licenses |
81 |
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D. |
Trend Information |
81 |
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E. |
Critical Accounting Estimates |
81 |
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ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
83 |
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A. |
Directors and Senior Management |
83 |
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B. |
Compensation |
85 |
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C. |
Board Practices |
88 |
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D. |
Employees |
102 |
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E. |
Share Ownership |
103 |
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F |
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
103 |
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ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
104 |
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A. |
Major Shareholders |
104 |
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B. |
Related Party Transactions |
105 |
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C. |
Interests of Experts and Counsel |
106 |
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ITEM 8. |
FINANCIAL INFORMATION |
107 |
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A. |
Consolidated Statements and Other Financial Information |
107 |
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B. |
Significant Changes |
107 |
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ITEM 9. |
THE OFFER AND LISTING |
107 |
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A. |
Offer and Listing Details |
107 |
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B. |
Plan of Distribution |
107 |
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C. |
Markets |
107 |
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D. |
Selling Shareholders |
107 |
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E. |
Dilution |
107 |
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F. |
Expenses of the Issue |
107 |
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ITEM 10. |
ADDITIONAL INFORMATION |
108 |
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A. |
Share Capital |
108 |
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B. |
Articles of Association |
108 |
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C. |
Material Contracts |
108 |
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D. |
Exchange Controls |
108 |
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E. |
Taxation |
108 |
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F. |
Dividends and Paying Agents |
120 |
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G. |
Statement by Experts |
120 |
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H. |
Documents on Display |
120 |
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I. |
Subsidiary Information |
120 |
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J. |
Annual Report to Security Holders. |
120 |
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ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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120 |
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ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
121 |
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A. |
Debt Securities |
121 |
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B. |
Warrants and rights |
121 |
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C. |
Other Securities |
121 |
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D. |
American Depositary Shares |
121 |
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PART II |
121 | |
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ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
121 |
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ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS |
121 |
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ITEM 15. |
CONTROLS AND PROCEDURES |
121 |
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ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
123 |
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ITEM 16B. |
CODE OF ETHICS |
123 |
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ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
123 |
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ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
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124 |
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ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
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124 |
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ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
124 |
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ITEM 16G. |
CORPORATE GOVERNANCE |
124 |
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ITEM 16H. |
MINE SAFETY DISCLOSURE |
126 |
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ITEM 16I |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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126 |
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ITEM 16J |
INSIDER TRADING POLICIES |
127 |
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ITEM 16K |
CYBERSECURITY |
127 |
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PART III |
127 | |
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ITEM 17. |
FINANCIAL STATEMENTS |
127 |
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ITEM 18. |
FINANCIAL STATEMENTS |
127 |
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ITEM 19. |
EXHIBITS |
128 |
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SIGNATURES |
132 |
INTRODUCTION
Unless the context otherwise requires, references in this annual
report on Form 20-F to the “Company,” “PainReform,” “we,” “us,” “our” and
other similar designations refer to PRF Technologies Ltd. All references to “shares” or “ordinary shares” are
to our ordinary shares, NIS nominal no par value per share. All references to “Israel” are to the State of Israel. “U.S.
GAAP” means the generally accepted accounting principles of the United States. Unless otherwise stated, all of our financial information
presented in this Annual Report has been prepared in accordance with U.S. GAAP. Any discrepancies in any table between totals and sums
of the amounts listed are due to rounding. Unless otherwise indicated, or the context otherwise requires, references in this Annual Report
to financial and operational data for a particular year refer to the fiscal year of our company ended December 31 of that year.
Our reporting currency and financial currency is the U.S. dollar.
In this Annual Report, “NIS” means New Israeli Shekel, and “$,” “US$” and “U.S. dollars”
mean United States dollars.
On June 8, 2023, we effected a reverse share split of the ordinary
shares at the ratio of 1-for-10, such that each ten (10) ordinary shares, par value NIS 0.03 per share, were consolidated into one (1)
ordinary share, par value NIS 0.30. July 3, 2023 was the first date when our ordinary shares began trading on Nasdaq after implementation
of the reverse split.
On September 6, 2024, we effected a 1-for-6 reverse share split
of our authorized ordinary shares, including our issued and outstanding ordinary shares, and the par value of each share was decreased
from NIS 0.30 per share, to no par value per share. September 9, 2024 was the first date when our ordinary shares began trading on Nasdaq
after implementation of that reverse split.
On November 20, 2024, we effected a 1-for-4 reverse share split
of our authorized ordinary shares, no par value per share, including our issued and outstanding ordinary shares. November 21, 2024 was
the first date when our ordinary shares began trading on Nasdaq after implementation of that reverse split.
On February 3, 2026, we effected a 1-for-5 reverse share split of our authorized ordinary
shares, no par value per share, including our issued and outstanding ordinary shares. February 6, 2026 was the first date when our ordinary
shares began trading on Nasdaq after implementation of that reverse split.
Unless otherwise indicated herein, all share and per share data presented in this annual
report have been retroactively adjusted to reflect the aforementioned reverse share splits for all periods presented, including comparative
prior-period amounts.
TRADEMARKS
DeepSolar, MyDeepSolar, OcuRing™-K and our other registered
or common law trademarks, trade names or service marks appearing in this Annual Report on Form 20-F are owned by us. Solely for convenience,
trademarks and trade names referred to in this Annual Report on Form 20-F, including logos, artwork and other visual displays, may appear
without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest
extent under applicable law, our rights of the applicable licensor to these trademarks and trade names. Unless otherwise stated in this
Annual Report on Form 20-F, we do not intend our use or display of other companies’ trade names or trademarks to imply a relationship
with, or endorsement or sponsorship of us by, any other companies.
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” within the meaning of the Private Securities Litigation
Reform Act of 1995 and other securities laws. 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, expected capital needs and expenses, statements relating to the research, development, completion 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.
1
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 our actual results to differ
materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities
or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited
to, the factors summarized below:
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our ability to continue as a going concern; |
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our history of losses and need for additional capital to fund our operations, and
our ability to obtain additional capital on acceptable terms, or at all; |
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our dependence on the success of our product candidate, including OcuRing™-K
and the commercialization of the DeepSolar solution; |
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the outcomes of clinical trials and other research regarding product candidates OcuRing
and PRF-110; |
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our limited experience managing clinical trials; |
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our ability to retain key personnel and recruit additional employees; |
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our reliance on third parties for the conduct of clinical trials, product manufacturing
and development; |
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the impact of competition and new technologies; |
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our ability to comply with regulatory requirements relating to the development and
marketing of our product candidates; |
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our ability to establish and maintain strategic partnerships and other corporate collaborations;
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the implementation of our business model and strategic plans for our business and
product candidates; |
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the scope of protection we are able to establish and maintain for intellectual property
rights covering our product candidates and our ability to operate our business without infringing the intellectual property rights of
others; |
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the overall global economic environment; |
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our ability to maintain the listing of our ordinary shares on the Nasdaq Capital Market; |
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our ability to develop an active trading market for our ordinary shares and whether
the market price of our ordinary shares is volatile; |
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statements as to the impact of the political and security situation in Israel on our business, including
due to the current security situation in Israel; and |
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those factors referred to in “Item 3.D. Risk Factors,” “Item 4.
Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this Annual Report
on Form 20-F generally. |
These statements are only current predictions and are subject to
known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity,
performance, or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these
risks in this Annual Report on Form 20-F in greater detail under the heading “Risk Factors” and elsewhere in this Annual Report
on Form 20-F. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by
law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events
or otherwise, after the date of this Annual Report on Form 20-F.
2
MARKET,
INDUSTRY AND OTHER DATA
Market data and certain industry data and forecasts used throughout
this Annual Report on Form 20-F were obtained from sources we believe to be reliable, including market research databases, publicly available
information, reports of governmental agencies, and industry publications and surveys. We have relied on certain data from third party
sources, including industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of
the industry. While we are not aware of any misstatements regarding the industry data presented in this Annual Report on Form 20-F, our
estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading
“Risk Factors” and elsewhere in this Annual Report on Form 20-F.
Statements made in this Annual Report on Form 20-F concerning the
contents of any agreement, contract or other document are summaries of such agreements, contracts or documents and are not a complete
description of all of their terms. If we filed any of these agreements, contracts or documents as exhibits to this Report or to any previous
filing with the Securities and Exchange Commission, or SEC, you may read the document itself for a complete understanding of its terms.
3
PART I
ITEM 1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable. |
ITEM 2. OFFER
STATISTICS AND EXPECTED TIMETABLE
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Not applicable. |
ITEM 3. KEY
INFORMATION
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A. |
[RESERVED] |
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B. |
Capitalization and Indebtedness
Not applicable. |
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C. |
Reasons for the Offer and Use of Proceeds
Not applicable. |
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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 and uncertainties described below are those significant
risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. Additional risks and
uncertainties not currently known to us or that we now deem immaterial may also harm us. If any of these risks materialize our business,
results of operations or financial condition could suffer, and the price of our ordinary shares could decline substantially.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including
those highlighted in the section titled “Risk Factors” below. These risks include, among others, the following:
Risks Related to Our Financial Position and
Need for Additional Capital
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Our limited operating history may make it difficult for you to assess our future viability.
We have never generated significant revenues and may never be profitable; |
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The report of our independent registered public accounting firm contains an explanatory
paragraph regarding substantial doubt about our ability to continue as a going concern; |
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We have incurred significant losses and negative cash flows from operations since
our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain profitability; |
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We will need substantial additional funding, which may not be available to us on acceptable
terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce and/or eliminate our research and drug
development programs or future commercialization efforts; and |
4
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Raising additional capital may cause dilution to our shareholders, restrict our operations
or require us to relinquish rights to our product candidates. |
Risks Related to Our Drug Development Business
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We are dependent on the success of our product candidates including OcuRing™-K.
If we are unable to obtain approval for and ultimately commercialize OcuRing™-K or experience significant delays in doing so, our
business will be materially harmed. |
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We have not yet commercialized any products or technologies, and we may never become
profitable; |
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If we are unable to successfully complete our clinical trial programs, or if such
clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected;
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We have limited experience in conducting and managing clinical trials necessary to
obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable
to commercialize our products; |
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If third parties on which we will have to rely for clinical trials do not perform
as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our products; and
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If our competitors develop and market products that are less expensive or more effective
than our product, our revenues and results may be harmed and our commercial opportunities may be reduced or eliminated; |
Risks Related to Our DeepSolar Business
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We recently entered into a new line of business that offers an AI software solution,
which subjects us to additional risks. |
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The market for our DeepSolar solution is new and unproven, may experience limited
growth. |
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The market for AI-based software applications is relatively new and unproven and may
decline or experience limited growth. Concerns over the use of AI, including from regulators, the public and our customers, may hinder
the adoption of AI technologies, which would adversely affect our ability to fully realize the potential of the DeepSolar solution.
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If we are not able to enhance our existing solution or introduce new solutions that
achieve market acceptance and keep pace with technological developments, our business, results of operations and financial condition could
be harmed. |
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Our sales efforts involve considerable time and expense and the sales cycle is often
long and unpredictable. |
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If we fail to scale our business operations or otherwise manage future growth of the
DeepSolar business effectively as we attempt to grow our company, we may not be able to market and sell the DeepSolar solution successfully.
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We may face intense competition and expect competition to increase in the future,
which could prohibit us from developing a customer base and generating revenue. |
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Our DeepSolar business could be significantly disrupted if we lose key members of
the DeepSolar team. |
5
Risks Related to Our Intellectual Property
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If we are unable to maintain patent protection for our products, our competitors could
develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize
any product candidates we may develop, and our science may be adversely affected. |
Risks Related to Our Operations in Israel
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Conditions in the Middle East and in Israel may harm our operations. |
General Risk Factors
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Our business and operations would suffer in the event of IT system failures, cybersecurity
attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses. |
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We may not be able to successfully identify and execute strategic alliances or other
relationships with third parties or to successfully manage the impacts of acquisitions, dispositions or relationships on our operations.
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Risks Related to Ownership of Our Ordinary Shares
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If we fail to maintain compliance with the Nasdaq minimum listing requirements, our
ordinary shares will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our ordinary
shares could be adversely affected if our ordinary shares are delisted; |
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Because we are not subject to compliance with rules requiring the adoption of certain
corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest
and similar matters; and |
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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 listed on a U.S. exchange, or our internal control over financial reporting is not effective, the reliability
of our consolidated financial statements may be questioned and our share price may suffer. |
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We have identified a material weakness in our internal control over financial reporting. If our remediation
of the material weaknesses is not effective, or we fail to develop and maintain effective internal controls over financial reporting,
our ability to produce timely and accurate consolidated financial statements or comply with applicable laws and regulations could be impaired.
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Risks Related to Our Financial Position and Need for Additional
Capital
Our limited operating history may make it difficult
for you to assess our future viability. We have never generated significant revenues and may never be profitable.
We are an early stage company. Our operations until recently have been limited to organizing
and staffing our company, business planning, raising capital, developing our product candidates, including OcuRing™-K and, on a
smaller scale, PRF-110, identifying potential product candidates, conducting preclinical studies of our product candidates and conducting
clinical trials. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain marketing
approvals, manufacture commercial-scale drug products or arrange for a third party to do so on our behalf, or conduct marketing activities
necessary for successful drug commercialization.
6
Most recently, in August 2025, we closed an investment in LayerBio,
Inc., or Layer Bio, a privately held Boston-based biotechnology company, advancing sustained-release drug delivery technologies in ophthalmology. With
this transaction, we acquired a majority equity interest in LayerBio that plans to initiate the next clinical trial of OcuRing™-K,
LayerBio’s lead investigational product for pain and inflammation control following cataract surgery.
Previously, in March 2025, we acquired the business operations related to an AI-driven
solar analytics technology. DeepSolar. DeepSolar’s operating history has been primarily limited to research and development, raising
capital, and pilot studies. Because DeepSolar is in the very early stage of commercialization, and because the market for DeepSolar’s
AI solution may rapidly evolve, it is hard for us to predict our future performance. Therefore, it may be difficult to evaluate DeepSolar’s
business and prospects.
Consequently, any predictions made about our future success or viability may not be
as accurate as they could be if we had a longer operating history. In addition, as a business with a limited operating history, we may
encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We may need to transition from
a research-focused company to a company capable of supporting commercial activities, and we may not be successful in such a transition.
As we continue to build our business, we expect our financial condition and operating
results may fluctuate significantly from quarter to quarter, and year to year, due to a variety of factors, many of which are beyond our
control. Accordingly, you should not rely upon the results of any particular quarterly or annual periods as indications of future operating
performance.
The report of our independent registered public
accounting firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements for the year ended
December 31, 2025 were prepared under the assumption that we would continue our operations as a going concern. Our independent registered
public accounting firm has included a “going concern” explanatory paragraph in its report on our consolidated financial statements
for the year ended December 31, 2025, indicating that there is a substantial doubt about our ability to continue as a going concern. As
of December 31, 2025, we had total cash and cash equivalents (including short term deposits and restricted cash) of $4.1 million. See
“Item 5.B Liquidity and Capital Resources”. If we are unable to improve our liquidity position, by, among other things, raising
capital through public or private offerings or reducing our expenses, we may exhaust our cash resources and will be unable to continue
our operations. If we cannot continue as a viable entity, our shareholders would likely lose most or all of their investment in us.
We have incurred significant losses and negative
cash flows from operations since our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain
profitability.
We have incurred operating losses since our inception and expect
to continue to incur operating losses for the foreseeable future. During the three years ended December 31, 2025, 2024 and 2023, we incurred
losses of approximately $4.8, $14.6 million and $9.3 million, respectively. As of December 31, 2025, we had an accumulated deficit of
$61.3 million. We have not yet commercialized our drug candidates, including OcuRing™-K, or our drug delivery system and cannot
be sure that we will ever be able to do so and our DeepSolar business is in the initial stages of commercialization. Our ability to achieve
profitability depends on a number of factors, including our ability to complete our development efforts, obtain regulatory approval and
successfully commercialize our product candidates as well as the success of the DeepSolar business that we recently acquired.
7
We expect to continue to incur losses for the foreseeable
future, and these losses will likely increase as we:
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initiate and manage clinical trials for our product candidates; |
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integrate and expand our DeepSolar business; |
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seek regulatory approvals; |
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implement internal systems and infrastructures; |
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hire management and other personnel; and |
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progress our product candidates towards commercialization. |
If OcuRing™-K and PRF-110 fail in clinical trials or does
not gain regulatory clearance or approval, or if OcuRing™-K, PRF-110 or DeepSolar does not achieve market acceptance, we may never
become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of
operations and cash flows. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage
company in highly regulated and competitive markets, such as the biopharmaceutical and solar energy markets, where regulatory approval
and market acceptance are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or
profits.
We will need substantial additional funding,
which may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed, we may be forced to delay,
reduce and/or eliminate our research and drug development programs or future commercialization efforts.
Developing drug products, including conducting clinical trials,
is a time-consuming, expensive and uncertain process. We expect our expenses to increase in connection with our ongoing activities, particularly
as we conduct clinical trials of, and seek marketing approval for, our product candidates, or if we seek to expand the current operations
of the DeepSolar business. In addition, if we obtain marketing approval for our product candidates, we expect to incur significant commercialization
expenses related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and
distribution are not the responsibility of any collaborator that we may have at such time. Furthermore, as a public company with incur
costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection
with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce
and/or eliminate our research.
We will be required to expend significant funds in order to advance
the development of our product candidates, as well as any other product candidates, and to advance the DeepSolar business and the net
proceeds from our recent offerings and our existing cash and cash equivalents are not sufficient to fund the full completion of development
of our product candidates or the ongoing commercialization of the DeepSolar solution. Accordingly, we will be required to obtain further
funding through public or private equity offerings, debt financings, collaborations and licensing arrangements, or other sources. We do
not currently have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms
or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to
pursue our business strategy.
8
We have incurred and expect to continue incurring losses, and negative
cash flows from operations until our product candidates and the DeepSolar solution, reaches commercial profitability. As a result of these
expected losses and negative cash flows from operations, based on our current cash position and projected operating requirements, there
is uncertainty regarding our ability to meet our financial obligations for at least the next 12 months. While our management is actively
exploring various financing and strategic alternatives, there can be no assurance that such measures will be successful in alleviating
this uncertainty. As a result, we will be required to raise additional capital in the future to complete support our operations. Therefore,
there is substantial doubt about our ability to continue as a going concern.
Our estimate as to how long we expect our existing financial resources
to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital
resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to
consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future
capital requirements will depend on many factors, including:
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the timing, availability and outcome of manufacturing of our product candidates for clinical trials
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the scope, progress, results and costs of our current and future clinical trials of
our product candidates for our current targeted uses; |
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the costs, timing and outcome of regulatory review of our product candidates;
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the extent to which we acquire or invest in businesses, products and technologies,
including entering into or maintaining licensing or collaboration arrangements for our product candidates on favorable terms, although
we currently have no commitments or agreements to complete any such transactions; |
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the costs and timing of future commercialization activities, including sales, marketing,
manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales,
marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
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the cost to continue the development of the DeepSolar technology to develop a wider
portfolio of solutions; |
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the cost of establishing a sales, marketing, and technical support infrastructure
to support the ramp up of the DeepSolar solution; |
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the amount of revenue, if any, received from commercial sales of our product candidates,
should they receive marketing approval. The amount of revenue, if any, received from sales of the DeepSolar product; |
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the costs of preparing, filing and prosecuting patent applications, maintaining, defending
and enforcing our intellectual property rights and defending intellectual property-related claims; |
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our ability to establish strategic collaborations, licensing or other arrangements
and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due
under any such agreement; |
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our headcount growth and associated costs as we expand our business operations and
our research and development activities; |
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the costs of operating as a public company; |
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maintaining minimum shareholders’ equity requirements under the Nasdaq rules;
and |
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the impact of the current war between Israel and Hamas which may exacerbate the magnitude of the factors
discussed above. |
We may not receive any funds from the exercise of warrants and
additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available
to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research
and development activities for our product candidates or delay, limit, reduce or terminate our establishment of marketing capabilities
or other activities that may be necessary to commercialize our product candidates or the DeepSolar solution.
9
Raising additional capital may cause dilution
to our shareholders, restrict our operations or require us to relinquish rights to our product candidates.
We expect our expenses to increase in connection with our planned
operations. Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination
of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities
could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder.
In addition, debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive
covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens,
redeeming shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing
could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention
away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams
or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed,
we may be required to delay, reduce and/or eliminate our product candidate development or future commercialization efforts or grant rights
to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to Our Drug Development and Business
We are dependent on the success
of our product candidates, including OcuRing™-K. If we are unable to obtain approval for and ultimately commercialize OcuRing™-K
or PRF-110 or experience significant delays in doing so, our business will be materially harmed.
Our future success is substantially dependent on our ability to timely obtain marketing
approval for, and then successfully commercialize, OcuRing™-K and potentially PRF-110, our product candidates. In December 2024,
we announced that the Phase 3 clinical trial evaluating PRF-110 in post-surgical pain management of patients undergoing bunionectomy did
not satisfy the study’s primary endpoint. As a result, we have scaled back our research and development activities on PRF-110, and
such activities are no longer our primary clinical focus. In 2025 we conducted the necessary tests and validations required for submission
of an IND for a Phase II study on the safety and efficacy of OcuRing™-K. We currently have no drugs approved for sale and generate
no revenues from sales of any products, and we may never be able to develop a marketable product..
Our product candidates will require additional clinical development, evaluation of clinical
and manufacturing activities, compliance with regulatory requirements, marketing approval in multiple jurisdictions, substantial investment
and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote OcuRing™-K
and PRF-110 before we receive marketing approval from the Food and Drug Administration, or FDA and comparable foreign regulatory authorities,
and we may never receive such marketing approvals.
10
The success of OcuRing™-K and potentially PRF-110 will depend
on several factors, including the following:
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the outcome of further clinical studies on OcuRing™-K; |
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the outcome of further research and development of PRF-110 following the announcement
in December 2024 that the Phase 3 clinical trial did not satisfy the study’s primary endpoint; |
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establishing supply arrangements with third-party raw materials and components suppliers,
and drug product manufacturers who can manufacture clinical trial and commercial quantities of OcuRing™-K and PRF-110, and developing,
validating and maintaining a commercially-viable manufacturing process that is compliant with current Good Manufacturing Practices, or
cGMP, at a scale sufficient to meet anticipated demand, which will ultimately enable us to reduce our cost of manufacturing; |
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successfully initiating patient enrollment and completion of additional clinical trials
on a timely basis; |
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our ability to demonstrate our product candidates safety, tolerability and efficacy
to the FDA and any comparable foreign regulatory authority for marketing approval; |
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timely receipt of marketing approvals for our product candidates; |
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maintaining patent protection, trade secret protection and regulatory exclusivity,
both in the U.S. and internationally; |
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successfully defending and enforcing our proprietary rights in our intellectual property
portfolio; |
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avoiding and successfully defending against any claims that we have infringed, misappropriated
or otherwise violated any intellectual property of any third party; |
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the performance of any future collaborations; |
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our ability to timely complete any post-marketing approval commitments required by
the FDA or other applicable regulatory authorities; |
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establishing scaled production arrangements with third-party manufacturers to obtain
finished products that are compliant with cGMP and appropriately packaged for commercialization; |
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successful launch of commercial sales following any marketing approval; |
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maintaining an acceptable safety profile following any marketing approval; |
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commercial acceptance by patients, the medical community and third-party payors;
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the availability of coverage and adequate reimbursement and pricing by third-party
payors and government authorities; |
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the availability, perceived advantages, relative cost, relative safety and relative
efficacy of alternative and competing treatments; and |
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our ability to compete with other post-operative pain, or POP, treatments. |
We do not have complete control over many of these factors, including
certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and
the manufacturing, marketing, distribution and sales efforts of any future collaborator. Accordingly, we, cannot assure you that we will
ever be able to generate revenue through the sale of our product candidates. If we are not successful in commercializing our product candidates,
or are significantly delayed in doing so, our business will be materially harmed.
11
We have not yet commercialized any pharmaceutical products
or technologies, and we may never become profitable.
We have not yet commercialized any pharmaceutical products or technologies,
and we may never be able to do so. We do not know when or if we will complete any of our product development efforts, obtain regulatory
approval for any product candidates incorporating our technologies or successfully commercialize any approved products. Even if we are
successful in developing products that are approved for marketing, we will not be successful unless these products gain market acceptance
for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products will depend on a number
of factors, including:
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the timing of regulatory approvals in the requested countries, for the applications we seek; |
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competitive market environment; |
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the establishment and demonstration in the medical community of the safety and clinical
efficacy of our products and their potential advantages over existing therapeutic products; |
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our ability to enter into strategic agreements with pharmaceutical and biotechnology
companies with strong marketing and sales capabilities; |
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the adequacy and success of distribution and marketing efforts; and |
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the pricing and reimbursement policies of government and third-party payors, such
as insurance companies, health maintenance organizations and other plan administrators. |
Physicians, patients, third-party payors or the medical community in general may be
unwilling to accept, utilize or recommend, and in the case of third-party payors, cover any of our products or products incorporating
our technologies. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if
at all. Even if we successfully develop one or more products that incorporate our technologies, we may not become profitable.
The loss of the services of our key personnel
would negatively affect our business.
To successfully develop our drug candidates, we must be able to attract and retain highly
skilled personnel, including consultants and employees. The retention of their services cannot be guaranteed. Our failure to retain or
recruit such professionals might impair our performance and materially affect our technological and product development capabilities and
our product marketing ability. Our future success depends to a large extent on the continued services of our senior management and key
personnel, including in particular, Ehud Geller and Dr. Sigal Aviel. Any loss of the services of members of our senior management would
adversely affect our business. We do not currently maintain key-person insurance on the lives of any of our key personnel.
12
We may be unable to attract, develop and retain
additional employees required for our development and future success.
Our success is largely dependent on the performance of our management
team and certain key employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees.
Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The inability to attract suitably
qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate
replacements on a timely basis, or at all.
If we are unable to successfully complete any future clinical trial programs for our product candidates, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.
Whether or not and how quickly we complete clinical trials depends
in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrolment of patients, and the
rate at which we are able to collect, clean, lock and analyze the clinical trial database. Patient enrolment is a function of many factors,
including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the
existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying. If we experience
delays in identifying and contracting with sites or in patient enrolment in our clinical trial programs, we may incur additional costs
and delays in our development programs, and may not be able to complete our clinical trials on a cost-effective or timely basis. Delays
in the completion of any clinical trial of our product candidates will increase our costs, slow down development of our product candidates
and any potential approvals and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition,
some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the
denial of regulatory approval of our product candidates.
We have limited experience in conducting and
managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary
regulatory approvals, we will be unable to commercialize our products.
We have not received, and may never receive, regulatory approval
for commercial sale for our products, OcuRing-K or PRF-110. We currently do not have any drug candidates pending approval with the FDA
or with regulatory authorities of other countries. In order to obtain FDA approval to market a new drug product, we or our potential partners
must demonstrate proof of efficacy in humans. To meet these requirements, we or our potential partners will have to conduct “adequate
and well-controlled” clinical trials.
Clinical development is a long, expensive and uncertain process.
Clinical trials are very difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Satisfaction
of regulatory requirements typically depends on the nature, complexity and novelty of the product and requires the expenditure of substantial
resources. Approval policies or regulations may change and the regulatory agencies have substantial discretion in the approval process
for products, including the ability to delay, limit or deny approval of a product candidate for many reasons. The commencement and rate
of completion of clinical trials may be delayed by many factors, including:
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obtaining regulatory approvals (e.g., an Investigational New Drug, or IND, application)
to commence a clinical trial; |
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reaching agreement on acceptable terms with prospective contract research organizations,
or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and
trial sites; |
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slower than expected rates of patient recruitment due to narrow screening requirements
and competing clinical studies; |
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the inability of patients to meet protocol requirements imposed by the FDA or other
regulatory authorities; |
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the need or desire to modify our manufacturing process; |
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delays, suspension, or termination of the clinical trials due to the institutional
review board responsible for overseeing the study at a particular study site; and |
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governmental or regulatory delays or “clinical holds” requiring suspension
or termination of the trials. |
Following the completion of a clinical trial, the results may not
support the primary endpoints thus rendering it a failure. Even if successfully completed, regulators may not interpret data obtained
from clinical tests of our drug candidate the same way that we do, which could delay, limit or prevent our receipt of regulatory approval.
In addition, the designs of any clinical trials may not be reviewed or approved by the FDA prior to their commencement, and consequently
the FDA could determine that the parameters of any studies are insufficient to demonstrate efficacy in humans. Failure to approve a completed
study could also result from several other factors, including unforeseen safety issues, the determination of dosing, low rates of patient
recruitment, the inability to monitor patients adequately during or after treatment, the inability or unwillingness of medical investigators
to follow our clinical protocols, and the lack of effectiveness of the trials.
If the clinical trials fail to satisfy the criteria required, the FDA or other regulatory agencies/authorities may request additional information, including additional clinical data, and additional clinical studies, before approval of marketing a product. Negative or inconclusive results or medical events during a clinical trial could also cause us to delay or terminate our development efforts. If we experience delays in the testing or approval process, or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug candidates and technologies may be materially impaired.
Clinical trials have a high risk of failure. For example, in December 2024 we announced that our Phase 3 clinical trial did not satisfy the study’s primary endpoint. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after achieving promising results in earlier trials. It may take us many years to complete the testing of our drug candidates and technologies, and failure can occur at any stage of this process.
Even if regulatory approval is obtained, our products and their
manufacture will be subject to continual review, and there can be no assurance that such approval will not be subsequently withdrawn or
restricted. Changes in applicable legislation or regulatory policies, or discovery of problems with the products or their manufacture,
may result in the imposition of regulatory restrictions, including withdrawal of the product from the market, or result in increased costs
to us.
If third parties on which we may have to rely
for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or
commercialize our products.
We have, and may have to in the future, depend on independent
clinical investigators, CROs, CMOs, and other third-party service providers to conduct the clinical trials of our drug candidates and
technologies. We rely heavily on these parties for successful execution of our clinical trials, but we will not control many aspects of
their activities. For example, during the analysis of the results of our Phase 3 clinical trial for PRF-110 we encountered difficulties
interpreting data pertaining to the last 24-hour period of the 72-hour study follow-up, and efforts were made to resolve the incoherence
and complete the analysis. Following further investigation, we determined that the data from the final 24- hour period could not be clarified
to satisfy the study’s primary endpoint 72 hours requirement and therefore it did not meet the primary endpoint of the study. Nonetheless,
we are responsible for confirming that each of our clinical trials is conducted in accordance with the general investigational plan and
protocol. Our reliance on these third parties that we do not control does not relieve us of our responsibility to comply with the regulations
and standards of the FDA or other foreign regulatory agencies or authorities relating to good clinical practices. Third parties may not
complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the applicable trial’s
plans and protocols. For example, in 2021, we encountered issues with our former CMO in Israel in manufacturing clinical trial batches
of product mainly due to regulatory failures in its facilities, Good Manufacturing Practices issues and turnover of personnel. We put
in place a plan and actions directed at shifting the manufacturing and scale-up operations of PRF-110 to North America and engaged Pharmaceutics
International Inc, a US based CMO for the purpose of manufacturing our clinical trial batches. During 2022, we implemented additional
enhancements to our manufacturing process for PRF-110 which were expected to improve the efficiency and scalability of our manufacturing.
Following the enhancement to our manufacturing process, we experienced issues with product stability which resulted in delays in the commencement
of our planned Phase 3 trial of PRF-110. We were able to overcome these issues by further improving the manufacturing process, and in
March 2023, we commenced our Phase 3 clinical trial of PRF-110. The failure of any third parties to carry out their obligations could
delay or prevent the development, approval and commercialization of our products, or could result in enforcement action against u.
14
If we do not establish or
maintain drug development and marketing arrangements with third parties, we may be unable to commercialize our drug candidates and technologies
into products.
We do not possess all of the capabilities to fully commercialize
our drug candidates and technologies on our own. From time to time, we may need to contract with third parties to:
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assist us in developing, testing and obtaining regulatory approval; |
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manufacture our drug candidates; and |
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market and distribute our products. |
We can provide no assurance that we will be able to successfully
enter into agreements with such third-parties on terms that are acceptable to us. If we are unable to successfully contract with third
parties for these services when needed, or if existing arrangements for these services are terminated, whether or not through our actions,
or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug
development programs or seek to develop or commercialize our drug candidates independently, which could result in delays. Moreover, if
these development or marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators
with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of
our products. Accordingly, to the extent that we rely on third parties to research, develop or commercialize our products, we may be unable
to control whether such products will be scientifically or commercially successful.
Even if we or our collaborative/strategic
partners or potential collaborative/strategic partners receive approval to market our drug candidates, if our products fail to achieve
market acceptance, we will never record meaningful revenues.
Even if any of our product candidates is approved for sale, it
may not be commercially successful in the marketplace. Market acceptance of our product candidates will depend on a number of factors,
including:
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perceptions by members of the health care community, including physicians, of the
safety and efficacy of our product; |
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the potential advantages that our product offers over existing treatment methods or
other products that may be developed; |
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the cost-effectiveness of our product relative to competing products; |
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the availability of government or third-party pay or reimbursement for our products;
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the effectiveness of our or our partners’ sales, marketing and distribution
efforts. |
Our product candidates, if successfully developed and commercially
launched, will compete with both currently marketed and new products marketed by other companies. Health care providers may not accept
or utilize our product candidates unless our products bring clear and demonstrable advantages over other products currently marketed for
the same indication.
If our competitors develop
and market products that are less expensive or more effective than our product, our revenues and results may be harmed and our commercial
opportunities may be reduced or eliminated.
The pharmaceutical industry is highly competitive. Our commercial
opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer
than our product. Some of these potential competing drugs are already commercialized or are further advanced in development than our product
candidates. Even if we are successful in our developmental efforts, our product candidates may not compete successfully with products
produced by our competitors, who may be able to market their drugs more effectively.
Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience and know-how in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop products that could render our technologies or our drug candidates obsolete or non-competitive. Development of new drugs, medical technologies and competitive medical devices may damage the demand for our products without any certainty that we will successfully and effectively contend with those competitors.
Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience and know-how in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop products that could render our technologies or our drug candidates obsolete or non-competitive. Development of new drugs, medical technologies and competitive medical devices may damage the demand for our products without any certainty that we will successfully and effectively contend with those competitors.
Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future will be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our product candidates following approval.
Any of our product candidates for which we, or our future collaborators,
obtain marketing approval in the future, will be subject to continual review by the FDA or comparable foreign regulatory authorities.
For example, in the U.S., the FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the
post-approval marketing and promotion of drugs to ensure that they are manufactured, marketed and distributed only for the approved indications
and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications
regarding off-label use and if we, or our future collaborators, do not market any of our product candidates for which we, or they, receive
marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing.
Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs
may lead to investigations or allegations of violations of federal and state healthcare fraud and abuse laws and state consumer protection
laws.
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In addition, later discovery of previously unknown adverse events
or other problems with our product candidates or their manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may yield various results, including:
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litigation involving patients taking our drug; |
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restrictions on such drugs, manufacturers or manufacturing processes; |
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restrictions on the labeling or marketing of a drug; |
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restrictions on drug distribution or use; |
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requirements to conduct post-marketing studies or clinical trials; |
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issuance of warning letters or untitled letters; |
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withdrawal of the drugs from the market; |
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refusal to approve pending applications or supplements to approved applications that
we submit; |
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recall of drugs; |
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fines, restitution or disgorgement of profits or revenues; |
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suspension or withdrawal of marketing approvals; |
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damage to relationships with any potential collaborators; |
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exclusion from or restrictions on coverage by third-party payors; |
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unfavorable press coverage and damage to our reputation; |
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refusal to permit the import or export of drugs; |
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drug seizure; or |
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Recently enacted and future
legislation, and a change in existing government regulations and policies, may increase the difficulty and cost for us and our future
collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.
In the U.S. and several foreign jurisdictions, there have been
and continue to be a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent
or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability
of our future collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval. We expect that current laws,
as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional
downward pressure on the price that we, or our future collaborators, may receive for any approved drugs.
In the U.S., the Congress and the recent presidential administrations have enacted or are considering a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates, if approved, and to do so profitably. Among policy makers and payors in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access.
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In the U.S., the pharmaceutical industry has been a particular
focus of efforts to reform the healthcare system and has been significantly affected by major legislative initiatives, including the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “PPACA”),
which contains provisions that may potentially affect the profitability of our product candidates, including, for example, increased rebates
for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain
Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs,
and expansion of the entities eligible for discounts under the Public Health Services pharmaceutical pricing program. There have been
judicial and Congressional challenges to the PPACA that contribute to regulatory uncertainty that could affect the profitability of our
products. We are not able to state with certainty what the impact of potential legislation will be on our business.
Moreover, the Bipartisan Budget Act of 2018, among other things,
further amended portions of the Social Security Act implemented as part of the PPACA and increased to 75% the point-of-sale discount that
pharmaceutical manufacturers participating in the Coverage Gap Discount Program provide to eligible Medicare Part D beneficiaries during
the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,” and to reduce standard beneficiary
cost sharing in the coverage gap to 25% in most Medicare Part D plans. It remains to be seen precisely what any new legislation will provide,
when or if it will be enacted, and what impact it will have on the availability and cost of healthcare items and services, including drug
products.
Other legislative changes have been proposed and adopted since
PPACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions in Medicare
payments to providers of up to 2% per fiscal year that started in April 2013, and, due to subsequent legislative amendments to the statute,
will remain in effect through 2027 2031 absent additional congressional action The American Taxpayer Relief Act of 2012, which, among
other changes, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government
to recover overpayments to providers from three to five years. These legislative changes may result in additional reductions in Medicare
and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory
approval or the frequency with which any such product candidate is prescribed or used.
In addition, the Inflation Reduction Act (IRA) of 2022 permits,
among other things, Medicare to negotiate the price of certain high expenditure, single source drugs and biological drugs. The maximum
fair prices that are negotiated for these drugs will apply beginning with initial price applicability in 2026. The number of drugs to
be selected and negotiated will depend on whether the drugs are high in expenditures and will be limited each year in the number of drugs
subject to a preset negotiation structure. On August 1, 2024, CMS announced an agreement reached for negotiated Medicare prices for 10
selected drugs. CMS then announced on January 17, 2025 negotiations for Medicare prices for 15 selected drugs. Following a phased
implementation, ultimately there will be 20 drugs that will be subject to price negotiation by 2029 and thereafter. This legislative change
will likely result in reductions in Medicare payments and other health care expenditures that may impact the product candidates in the
future. Any reimbursement policies instituted by Medicare or other federal health care programs may result in similar policies from private
payors.
There have also been several recent U.S. Congressional inquiries
and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review
the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program
reimbursement methodologies for drugs. On September 24, 2020, the FDA released a final rule providing guidance for states to build and
submit importation plans for drugs from Canada. In 2025, HHS began implementation of “Most Favored Nation” drug pricing by
setting the Medicare price of single-source brand drugs without generic or biosimilar competition to the lowest price available in wealthy
countries with a per capita GDP of at least 60% of that in the United States.
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While the cost of prescription pharmaceuticals has been the subject
of considerable discussion in the U.S. Congress, the state legislatures are increasingly passing legislation and states are implementing
regulations designed to control spending on, and patient out-of-pocket costs for, drug products. Implementation of cost containment measures
or other healthcare reforms that affect the pricing or availability of drug products may impact our ability to generate revenue, attain
or maintain profitability, or commercialize products for which we may receive regulatory approval in the future.
We expect that these and other healthcare reform measures that
may be adopted in the future may also result in more rigorous coverage criteria or new payment methodologies, reductions in reimbursement
levels and imposition of more rigorous coverage criteria or new payment methodologies may negatively impact the prices we receive or the
frequency with which our products are prescribed or administered. The implementation of cost containment measures or other healthcare
reforms may affect our ability to generate revenue, attain or maintain profitability, or commercialize our product candidates. We expect
that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates
or additional pricing pressures.
The pricing of prescription pharmaceuticals is also subject to
governmental control outside the U.S. In these countries, pricing regulation can hamper market access and/or pricing negotiations with
governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or
pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product
candidates to that of other available therapies, and our product candidates may be subject to strict health technology assessments (HTA).
If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability
to generate revenues and become profitable could be impaired, and we might be forced to take our product off the market.
Legislative and regulatory proposals have also been made to expand
post-approval requirements and restrict sales and promotional activities for drug products. We cannot be sure whether additional legislative
changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes
on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s
approval process may significantly delay or prevent marketing approval, as well as subject us and any future collaborators to more stringent
drug labeling and post-marketing testing and other requirements.
In December 2025, the European Parliament and the Council reached
a provisional political agreement in trilogue on the EU “pharma package,” a comprehensive reform intended to replace and revise
key elements of the EU pharmaceutical framework (including the main pharmaceutical EU directives and regulations). The agreement includes
a revised incentives framework for innovative medicines that keeps eight years of regulatory data protection and sets one year of
market protection, with potential extensions for qualifying products. The deal also includes measures to strengthen security of supply,
including provisions allowing member states to require manufacturers to supply sufficient quantities of a medicinal product. The agreement
clarifies and broadens the Bolar exemption, allowing generic and biosimilar companies to complete preparatory steps before patent/SPC
expiry to support immediate entry after expiry. Because the final legal texts reflecting the trilogue agreement had not yet been
fully published, we cannot yet determine with certainty the full legal, operational or financial impact of the new EU pharmaceutical legislation.
Changes in funding for
the FDA could hinder FDA’s ability to hire and retain key leadership and other personnel, or otherwise prevent new products from
being developed or commercialized in a timely manner.
The ability of the FDA to review and approve new products can be
affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept
the payment of user fees, and statutory, regulatory, and policy changes. In 2021, the FDA stated that almost 80% of drugs were approved
in more than 180 days after submission of an application. During the period of declaring a Public Health Emergency, or the PHE, many other
drugs, devices and FDA regulated products were the focus of the FDA. During this time, the U.S government made several changes in shutting
down facilities and delaying inspections. In addition, the FDA relies on fees and has had to furlough critical FDA employees and stop
critical activities when Congress does not extend the payment of these fees. In April 2025, the FDA reduced its workforce by approximately
3,500 employees as part of a broader reduction of force in the HHS initiated by the Department of Government Efficiency. Prolonged FDA
issues, reductions in force, other diseases, lack of government payments, and other issues that could affect the FDA and their employees,
could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material
adverse effect on our business.
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We face product liability
risks and may not be able to obtain adequate insurance.
The use of our drug candidates in clinical trials, and the sale
of any approved products, exposes us to liability claims. If we cannot successfully defend ourselves against product liability claims,
we may incur substantial liabilities or be required to cease clinical trials of our drug candidates and technologies or limit commercialization
of any approved products.
We believe that we will be able to obtain sufficient product liability
insurance coverage for our planned clinical trials. We intend to expand our insurance coverage to include the commercial sale of any approved
products if marketing approval is obtained; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product
liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for a product; |
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damage to our reputation; |
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withdrawal of clinical trial volunteers; and |
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loss of revenues. |
Consequently, a product liability claim or product recall may result
in material losses.
Interim, “topline”
and preliminary data from our clinical trials and preclinical studies that we announce or publish from time to time may change as more
patient data become available and are subject to audit and verification procedures that could result in material changes in the final
data.
From time to time, we may publicly disclose interim, topline, or
preliminary data from our clinical trials and preclinical studies, which is based on a preliminary analysis of then-available data, and
the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the
particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we
may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline, or preliminary
results that we report may differ from future results of the same studies or trials, or different conclusions or considerations may qualify
such results, once additional data have been received and fully evaluated. Topline and preliminary data also remain subject to audit and
verification procedures that may result in the final data being materially different from the topline or preliminary data we previously
published. As a result, topline and preliminary data should be viewed with caution until the final data is available.
Interim data from clinical trials that we may complete are further
subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data
becomes available. Adverse differences between interim, topline, or preliminary data and final data could significantly harm our business
prospects. Further, disclosure of such data by us or by our competitors could result in volatility in the price of our common stock.
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Further, others, including regulatory agencies, may not accept
or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently,
which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or
product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical
trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise
appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant
with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities,
disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which
could harm our business, operating results, prospects or financial condition.
Risk Related to Our DeepSolar
Business
We recently entered into
a new line of business that offers an AI software solution, which subjects us to additional risks.
During March 2025, we completed an acquisition of 100% of the
business activities and assets associated with the DeepSolar technology, an AI-driven solar analytics technology formerly owned by BladeRanger
Ltd, a public company registered under the laws of the State of Israel, or BladeRanger. The DeepSolar business is in the initial stages
of commercialization and may never generate significant revenues. Our lack of experience with or knowledge of this new line of business,
as well as external factors, such as competitive alternatives, and shifting market preferences, may impact our implementation and operation
of this new line of business. Other risks of implementing a new line of business include:
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diversion of management’s attention, available cash, and other resources from
our existing business; |
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unanticipated liabilities or contingencies; |
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compliance with additional regulatory burdens; |
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potential damage to existing customer relationships, lack of customer acceptance or
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Failure to successfully manage these risks in the implementation
or acquisition of new lines of business or the offering of new products or services could have a material adverse effect on our reputation,
business, results of operations and financial condition.
The market for our DeepSolar
solution is new and unproven, may experience limited growth.
The market for our DeepSolar is relatively new and unproven and
is subject to a number of risks and uncertainties. The DeepSolar solution is in the very early stages of commercialization and has only
generated limited revenues to date. We believe that our future success will depend in large part on market adoption of the DeepSolar solution
that targets major utility-scale solar operators, independent power producers, and residential solar users. In order to grow our business,
we intend to focus on potential customers and highlight the benefits of our technology, expanding the functionality of our solution and
bringing new solutions and features to increase market acceptance and use of our technology. Our ability to develop and expand the market
that our solution address depends upon a number of factors, including the cost savings, performance and perceived value associated with
such solution. The market for our solution could fail to develop or there could be a reduction in interest or demand for our solution
as a result of a lack of customer acceptance, technological challenges, competing products and services, weakening economic conditions
and other causes. We may never successfully commercialize the DeepSolar solution and if we fail to achieve market acceptance, this would
have a material adverse effect on our business, results of operations and financial condition.
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The market for AI-based
software applications is relatively new and unproven and may decline or experience limited growth. Concerns over the use of AI, including
from regulators, the public and our customers, may hinder the adoption of AI technologies, which would adversely affect our ability to
fully realize the potential of the DeepSolar solution.
The market for AI-based software applications is still relatively
new and evaluating the size and scope of the market is subject to a number of risks and uncertainties. We believe that our future success
will depend in large part on the growth of this market. The utilization of our technology and solution by customers is also still relatively
new, and customers may not recognize the need for, or benefits of, our technology and solution, which may prompt them to cease use of
our technology and solution or decide to adopt alternative products and services to satisfy their cognitive computing, search and analytics
requirements. Our ability to penetrate the markets that our technology and solution are designed to address depends upon a number of factors,
including the cost, performance and perceived value of our technology and solution, as well as regulatory scrutiny over our products and
technologies. As AI technologies become increasingly incorporated into various mainstream products and offerings and these technologies
advance and develop, regulatory scrutiny of AI technologies, potentially including our solution, will likely increase. Market opportunity
estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry
experience. Assessing the market for our solution is particularly difficult for several reasons, including limited available information
and rapid evolution of the market.
In addition, AI presents risks and challenges that could hinder
its further development, adoption and use in the markets that we serve. AI algorithms may be flawed, datasets may be insufficient or contain
biased information, and the results and analyses that our AI solutions assist in producing may be deficient, inaccurate or biased. Further,
use of AI technologies in certain scenarios present ethical concerns. For example, due to inaccuracies or flaws in the inputs, outputs
or logic of our AI technology, the model could result in decisions that bias certain individuals (or classes of individuals) and adversely
impact their rights, employment and ability to obtain certain services or benefits. If we enable or offer AI solutions that produce deficient
or inaccurate results and analyses, or that are controversial due to human rights, privacy or other social issues, we may experience lower-than-expected
demand for our products and services, or competitive, brand or reputational harm. Multiple states in the United States, as well as the
European Union, have enacted or proposed legislation regulating the use of AI. These regulations include requirements for increased transparency,
mandatory disclosures and the implementation of mitigating measures to address potential risks associated with AI technologies. Compliance
with these laws may impose additional costs, operational adjustments, or restrictions on our use of AI, and noncompliance could result
in regulatory penalties, reputational harm, or other adverse impacts. As this regulatory landscape continues to develop, new or more stringent
requirements could emerge, further affecting our business operations and ability to leverage AI technologies effectively.
If the market for AI-based solutions does not experience significant
growth, or if demand for our technology or solution does not increase in line with our projections, then our business, results of operations
and financial condition will be adversely affected.
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If
we are not able to enhance our existing solution or introduce new products and features that achieve market acceptance and keep pace with
technological developments, our business, results of operations and financial condition could be harmed.
Our ability to attract new customers depends in part on our ability
to enhance and improve our DeepSolar solution and introduce new products and features, including enhancements necessary to provide substantially
all of the features and functionality of the technology as well as new applications to address additional customer use cases. The success
of any enhancements or new products depends on several factors, including timely development completion, adequate quality testing, actual
performance quality, market-accepted pricing levels and overall market acceptance and demand. Enhancements and new products that we develop
may not be introduced in a timely or cost-effective manner, may contain defects, may have interoperability difficulties, or may not achieve
the market acceptance necessary to generate significant revenue. If we are unable to successfully enhance DeepSolar technology and applications
to meet evolving customer requirements and develop new products and applications, or if our efforts to increase the usage of our DeepSolar
technology are more expensive than we expect, then our business, results of operations and financial condition could be harmed.
Before we acquired the DeepSolar business, the former owner of the DeepSolar business had received Israeli government grants for research and development, the repayment of which we assumed as part of the acquisition of the DeepSolar business.
Risks Related to Our Intellectual Property
Changes in either the patent laws or their interpretation in the U.S. and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our issued patents. Additionally, we cannot predict whether the patent applications we or our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.
Risks Related
to Our Operations in Israel
It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.
General Risk Factors
Our business and operations would suffer in the event of IT system failures, cybersecurity attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses.
Our sales efforts involve considerable time and
expense and the sales cycle is often long and unpredictable.
We expect that our future operations may fluctuate, in part, because of the nature of
our sales efforts and the length and unpredictability of our sales cycle. As part of our sales efforts, we need to invest considerable
time and expense evaluating the specific organizational needs of our potential customers and educating these potential customers about
the technical capabilities and value of the DeepSolar solution. We provide our DeepSolar solution to potential customers at no or low
cost initially to them for evaluation purposes through short-term pilot deployments and there is no guarantee that we will be able to
convert customers from these short-term pilot deployments to full revenue-generating contracts. The length of our sales cycle, from initial
demonstration of our solution to sale of our solution tends to be long and varies from customer to customer. Because decisions to purchase
our solution involves significant financial commitments, potential customers generally evaluate our solution at multiple levels within
their organization, each of which often have specific requirements, and typically involve their senior management.
Any sales to commercial enterprise organizations, which make product purchasing
decisions based in part or entirely on factors, or perceived factors, not directly related to the features of our solution, including,
among others, that customer’s projections of business growth, uncertainty about macroeconomic conditions, capital budgets, anticipated
cost savings from the implementation of our solution, potential preference for such customer’s internally-developed software solutions,
perceptions about our business, more favorable terms offered by potential competitors, and previous technology investments. In addition,
certain decision makers and other stakeholders within our potential customers tend to have vested interests in the continued use of internally
developed or existing software, which may make it more difficult for us to sell our solution. As a result of these and other factors,
our sales efforts typically require an extensive effort throughout a customer’s organization, a significant investment of human
resources, expense and time, including by our senior management, and there can be no assurances that we will be successful in making a
sale to a potential customer. If our sales efforts to a potential customer do not result in sufficient revenue to justify our investments,
our business, financial condition, and results of operations could be adversely affected.
If we are unable to establish sales and marketing
capabilities or enter into successful relationships with business targets and third parties to perform these services, we may not be successful
in commercializing the DeepSolar solution.
We have a very limited sales and marketing infrastructure and are in the very early
stages of commercializing the DeepSolar solution having generated limited revenue to date. To achieve commercial success for our DeepSolar
solution or any future developed solution, we will need to establish a sales and marketing infrastructure or to out-license such activities.
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Factors that may inhibit our efforts to commercialize any future products on our own
include:
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we have not recruited adequate numbers of effective sales and marketing personnel;
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the challenge of sales personnel to obtain access to potential customers; |
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unforeseen costs and expenses associated with creating an independent sales and marketing
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If we are unable to establish our own sales, marketing and distribution capabilities
for the markets we are targeting or enter into successful arrangements with third parties to perform these services, we will not be successful
in commercializing our technologies and our revenues and profitability may be materially adversely affected.
If we fail to scale our business operations or
otherwise manage future growth of the DeepSolar business effectively as we attempt to grow our company, we may not be able to market and
sell the DeepSolar solution successfully.
To grow the DeepSolar business we will need to expand our operations which will
require hiring, retaining and training new personnel, controlling expenses, and implementing administrative infrastructure, systems and
processes. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Failure
to expand operational and financial systems in a timely or efficient manner may result in operating inefficiencies, which could increase
costs and expenses to a greater extent than we anticipate and may also prevent us from successfully executing our business plan. Additionally,
if we increase our operating expenses in anticipation of the growth of our business and this growth falls short of our expectations, our
financial results will be materially adversely impacted.
If our business grows, we will have to manage additional product design projects and
sales and marketing efforts for an increasing number of solutions as well as expand the number and scope of our relationships with customers.
If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may materially
adversely impact our operating results. Additionally, in our efforts to be first to market with new solutions with innovative functionality
and features, we may devote research and development resources to features for which a market does not develop quickly, or at all. If
we are not able to predict market trends accurately, we may not benefit from such research and development activities, and our results
of operations may suffer.
As our future development and commercialization plans and strategies develop, we expect
to need additional managerial, operational, sales, marketing, financial and legal personnel. Our management may need to divert a disproportionate
amount of its attention away from our day-to-day activities and devote a substantial amount of time to manage these growth activities.
In particular, a period of significant growth in the number of personnel could place a strain upon our management systems and resources.
We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational
mistakes, loss of business opportunities, failure to deliver or timely deliver our products to customers, loss of employees and reduced
productivity among remaining employees. In addition, our expected growth could require significant capital expenditures and may divert
financial resources from other projects, such as the development of additional new products.
Our future will depend in part on the ability of our officers and other key employees
to implement and improve financial and management controls, reporting systems and procedures on a timely basis and to expand, train, motivate
and manage our workforce. Our current systems, procedures and controls are inadequate to support our future operations. If our management
is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue
could be reduced and we may not be able to implement our business strategy.
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If we are not able to enhance DeepSolar’s brand and increase
market awareness of the DeepSolar solution, then our business, results of operations and financial condition may be adversely affected.
We believe that enhancing the “DeepSolar” brand identity and increasing
market awareness of the DeepSolar solution is critical to achieving broader market acceptance. Our ability to successfully achieve market
acceptance may be adversely affected by a lack of awareness or acceptance of the DeepSolar brand. To the extent that we are unable to
foster name recognition and affinity for our brand, our growth may be significantly delayed or impaired. The successful promotion of the
DeepSolar brand will depend largely on ourcmarketing efforts, market adoption, and our ability to successfully differentiate our solution
from competing products and services. Any incident that erodes customer affinity for our brand could significantly reduce our brand value
and damage our business. If customers perceive or experience a reduction in quality, or in any way believe we fail to deliver a consistently
positive experience, our brand value could suffer and our business may be adversely affected.
Real or perceived errors,
failures, or bugs in our DeepSolar solution could adversely affect our operating results and growth prospects.
We update our DeepSolar solution from time to time. Despite efforts to test our
updates, errors, failures or bugs may not be found in our solution until after they are deployed to a customer. We have discovered and
expect we will continue to discover errors, failures and bugs in our products and anticipate that certain of these errors, failures and
bugs will only be discovered and remediated after deployment. Real or perceived errors, failures or bugs in our technology could result
in negative publicity, government inquiries, loss of or delay in market acceptance of our solution, loss of competitive position, or claims
by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons,
to expend additional resources in order to help correct the problem.
We may face intense competition and expect competition
to increase in the future, which could prohibit us from developing a customer base and generating revenue.
We face significant competition in every aspect of our DeepSolar business. Our competitors
include among others Power Factors, Green Project Management and Meteocontrol. These companies may already have an established market
in our industry. Most of these companies have significantly greater financial and other resources than us and have been developing their
products and services longer than we have been developing ours.
In addition, some of our larger competitors have substantially broader offerings and
leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner
that discourages potential customers from purchasing our solution. Potential customers may also prefer to purchase from their existing
solution providers rather than a new solution provider regardless of product performance or features. These larger competitors often have
broader product lines and market focus and will therefore not be as susceptible to downturns in a particular market. Conditions in our
market could change rapidly and significantly as a result of technological advancements, partnering by our competitors or continuing market
consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development
may invent similar or superior products and technologies that compete with our products. In addition, some of our competitors may enter
into new alliances with each other or may establish or strengthen cooperative relationships. Any such consolidation, acquisition, alliance
or cooperative relationship could lead to pricing pressure and our loss of any future market share and could result in a competitor with
greater financial, technical, marketing, service and other resources, all of which could harm our ability to compete. Furthermore, organizations
may be more willing to incrementally add solutions to their existing infrastructure from competitors than to replace their existing infrastructure
with our products. Any failure to meet and address these factors could harm our business, results of operations and financial condition.
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Our DeepSolar business could be significantly
disrupted if we lose key members of the DeepSolar team.
The success of our DeepSolar business depends upon the continued contributions
of key DeepSolar employees, both individually and as a group. Our future performance will be substantially dependent in particular on
our ability to retain and motivate these individuals. The loss of the services any of these key employees could have a material adverse
effect on our business and plans for future development. We have no reason to believe that we will lose the services of any of these individuals
in the foreseeable future; however, we currently have no effective replacement for any of these individuals due to their experience, reputation
in the industry and special role in our operations.
Before we acquired the DeepSolar business, the former owner of the DeepSolar business had received Israeli government grants for research and development, the repayment of which we assumed as part of the acquisition of the DeepSolar business.
Before we acquired the DeepSolar business, Raycatch Ltd., or Raycatch, the former owner
of the DeepSolar business received approximately $650,000 in funding for research and development from the Israel Innovation Authority,
or the IIA (formerly the Office of the Chief Scientist of Israel’s Ministry of Economy and Industry, or the OCS). In connection
with the acquisition of the DeepSolar business we assumed the obligations resulting from such funding under the Israeli Encouragement
of Industrial Research, Development and Technological Innovation Law, 1984, and related regulations, as amended (the Research Law). Under
the Research Law and the terms of IIA grants, royalties on the revenues derived from sales of products (and associated services) developed
with IIA funding are payable to the Israeli government, generally at the rate of 3% (and at an increased rate under certain circumstances,
as described below). The obligation to make these royalty payments terminates upon repayment of the amount of grants, linked to the U.S.
dollar, plus interest (in accordance with IIA regulations), which amount may be increased under certain circumstances, as described below.
Under the Research Law, the transfer or license to third parties outside of Israel of
know-how or technologies developed under IIA-funded programs, or the transfer to third parties outside of Israel of manufacturing or rights
to manufacture based on IIA-funded know-how, requires the consent of the IIA in certain circumstances, and may result in increased payments
to the IIA. Specifically, for the transfer of manufacturing outside of Israel, royalty payments can be up to three times the amount of
the IIA grants received, linked, plus interest, and the royalty repayment rate may increase. For the transfer of IIA-funded know-how outside
of Israel, the payment may be up to six times the amount of the IIA grants, linked, plus interest.
Should we wish to further dispose of DeepSolar in the future, there is no assurance
that we will be able to obtain the IIA’s consent on terms acceptable to us, or at all. Even following the full repayment of IIA
grants, we must nevertheless continue to comply with the requirements of the Research Law. If we fail to comply with any of the conditions
and restrictions imposed by the Research Law and regulations and guidelines thereunder, or by the specific terms of the IIA grants, we
may be required to refund any IIA grants that Raycatch previously received together with interest and penalties, and, in certain circumstances,
may be subject to criminal charges.
In addition, in connection with the acquisition of the DeepSolar business we assumed
approximately NIS 450,000 in funding that Raycatch previously received from the Israeli Ministry of Economy and Industry and that is repayable
at a rate of 3% of sales that are made in certain territories.
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If solar energy technologies are not suitable
for widespread adoption, or if sufficient demand for our software-enabled services does not develop or takes longer to develop than we
anticipate, our sales may not increase and we may be unable to achieve or sustain profitability.
The DeepSolar solution is focused on the solar energy market. The market for solar energy
is emerging and rapidly evolving, and its future success is uncertain. If solar energy proves unsuitable for widespread commercial deployment
or if demand for our DeepSolar solution fails to develop sufficiently, our future revenue, market share and profitability would be adversely
impacted. Many factors may influence the widespread adoption of solar energy and demand for our solution, including, but not limited to
the cost-effectiveness of solar energy technologies as compared with conventional and competitive technologies, the performance and reliability
of solar energy products as compared with conventional and non-renewable products, fluctuations in economic and market conditions that
impact the viability of conventional and competitive alternative energy sources, increases or decreases in the prices of oil, coal and
natural gas, continued deregulation of the electric power industry and broader energy industry, and the availability or effectiveness
of government subsidies and incentives. You should consider our prospects in light of the risks and uncertainties emerging companies encounter
when introducing new products and services into a nascent industry.
If the estimates and assumptions we use to determine
the size of our total addressable market are inaccurate, our future growth rate may be negatively affected and the potential growth of
our business may be limited.
Market estimates and growth forecasts are subject to significant uncertainty and are
based on assumptions and estimates that may prove to be inaccurate. Even if the markets in which we compete meet our size estimates and
forecasted growth, our business could fail to grow at similar rates, if at all. The assumptions relating to our market opportunities include,
but are not limited to (i) general declines in the cost of renewable energy generation assets and battery energy storage systems; (ii)
growing deployment of renewable energy assets and battery energy storage systems; and (iii) continued complexity of the electrical grid
and resulting demand for stability and resiliency. Our expected market opportunities are also based on the assumption that our existing
and future offerings will be more attractive to our customers and potential customers than competing products and services. If these assumptions
prove inaccurate, our business, financial condition and results of operations could be adversely affected.
We are subject to risks related to intellectual
property rights and risks of infringement.
We are dependent upon our proprietary technology and we rely primarily on a combination
of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary
rights. To protect our technologies, documentation and other written materials, we primarily rely on trade secret and copyright laws,
which afford only limited protection. It is possible that others will develop technologies that are similar or superior to our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and
use information that we regard as proprietary. It is difficult to police the unauthorized use of products in our field, and we expect
piracy to be a persistent problem, although we are unable to determine the extent to which piracy of our products exists. In addition,
the laws of certain countries do not protect our proprietary rights as fully as do the laws of the U.S. and Israel. We cannot be certain
that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.
We are not aware that we have infringed any proprietary rights of third parties. It
is possible, however, that third parties will claim that we have infringed upon their intellectual property rights. It would be time consuming
for us to defend any such claims, with or without merit, and any such claims could:
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result in costly litigation; |
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divert management’s attention and resources; |
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cause product shipment delays; and |
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require us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at all. |
If there is a successful claim of infringement against us and we are not able to license
the infringed or similar technology or other intellectual property, our business, operating results and financial condition would be materially
adversely affected. In addition, we could be subject to damages, injunction from use, sale or licensing of our product, as well as attorneys’
fees.
If we are unable to maintain patent protection
for our products, our competitors could develop and commercialize products and technology similar or identical to our product candidates,
and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected.
While we have patent protection for PRF-110 and OcuRingTM,,
our DeepSolar business does not have any patents or patent applications. As with our competitors, our ability to maintain and solidify
a proprietary position for our product candidates will depend upon our success in obtaining effective patent claims that cover such product
candidates, their manufacturing processes and their intended methods of use, and enforcing those claims once granted. Furthermore, in
some cases, we may not be able to obtain issued claims covering our product candidates which are sufficient to prevent third parties,
such as our competitors, from either utilizing our technology or designing around any patent claims to avoid infringing them. Any failure
to obtain or maintain patent protection with respect to our product candidates could have a material adverse effect on our business, financial
condition, and results of operations.
Changes in either the patent laws or their interpretation in the U.S. and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our issued patents. Additionally, we cannot predict whether the patent applications we or our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.
The patent prosecution process is expensive, time-consuming, and complex, and we may
not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in
a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to
file for or obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access
to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside
scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach the agreements and
disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. If any licensors
are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights
could be compromised or even lost entirely. If there are material defects in the form, preparation or prosecution of our patents or patent
applications, such patents or applications may be subject to challenges based on invalidity and/or unenforceability. Any of these outcomes
could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
Patents also have a limited lifespan. In the U.S., subject to certain extensions that
may be obtained in some cases, the natural expiration of a utility patent is generally 20 years from its earliest effective filing date,
and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after
May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date. Various extensions may
be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our products and
services, we may be open to competition. Further, if we encounter delays in our development efforts, the period of time during which we
could market our products and services under patent protection would be reduced.
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Obtaining and maintaining our patent protection
depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees
on patents and applications will be due to be paid to the U.S. Patent and Trademark Office, or the USPTO, and various government patent
agencies outside of the U.S. over the lifetime of our and our licensors’ patents and applications. The USPTO and various non-U.S.
government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent
application process and after patent issuance. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means
in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of
the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event,
potential competitors might be able to enter the market in that jurisdiction with similar or identical products or technology, which could
have a material adverse effect on our business, financial condition, and results of operations.
If our patents and other intellectual
property rights do not adequately protect our products, we may lose market share to competitors and be unable to operate our business
profitably.
The degree of future protection afforded by our intellectual property rights is uncertain
because intellectual property rights have limitations, can be expensive or difficult to enforce, and may not adequately protect our business
or permit us to maintain our competitive advantage. For example:
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others may be able to make products that are similar to our product candidates or
utilize similar science or technology but that are not covered by the claims of the patents that we may own or license from our licensors
or that incorporate certain research in our product candidates that is in the public domain; |
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we might not have been the first to file patent applications covering our inventions;
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others may independently develop similar or alternative technologies or duplicate
any of our technologies without infringing our intellectual property rights; |
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issued patents that we hold rights to may be held invalid or unenforceable,
including as a result of legal challenges by our competitors or other third parties; |
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our competitors or other third parties might conduct research and development activities
in countries where do not have patent rights and then use the information learned from such activities to develop competitive products
for sale in our major commercial markets; |
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the patents of others may harm our business if, for example, we are found to have
infringed those patents or if those patents serve as prior art to our patents which could potentially invalidate our patents; and
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we may choose not to file a patent in order to maintain certain trade secrets or know-how,
and a third party may subsequently file a patent covering such intellectual property, which could ultimately result in public disclosure
of the intellectual property if the third party’s patent application is published or issues to a patent. |
Should any of these events occur, they could have a material adverse effect on our business,
financial condition, and results of operations.
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Our reliance on third parties requires us to
share our trade secrets and other intellectual property, which increases the possibility that a competitor will discover them or that
our trade secrets and other intellectual property will be misappropriated or disclosed.
We seek to protect our proprietary technology and processes, in part, by entering into
confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity
and confidentiality of our data, trade secrets and intellectual property by maintaining the physical security of our premises and physical
and electronic security of our information technology systems.
Despite our efforts to protect our trade secrets, our competitors or other third parties
may discover our trade secrets, either through breach of confidentiality agreements, independent development or publication of information
including our trade secrets by third parties. A competitor’s or other third party’s discovery of our trade secrets would impair
our competitive position and have an adverse impact on our business, financial condition, results of operations and prospects.
Further, although we expect all of our employees and consultants and other third parties
who may be involved in the development of intellectual property for us to assign their inventions to us, and all of our employees, consultants,
advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements,
we cannot provide any assurances that we have entered into such agreements with all applicable third parties or that all such agreements
have been duly executed. Even if we have entered into such agreements, we cannot assure you that our counterparties will comply with the
terms of such agreements or that the assignment of intellectual property rights under such agreements is self-executing. We may be forced
to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as
our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights.
Intellectual property litigation could cause
us to spend substantial resources and distract our personnel from their normal responsibilities.
There is a great deal of litigation concerning intellectual property in our industry,
and we or our licensors could become involved in litigation. Even if resolved in our or our licensors’ favor, litigation or other
legal proceedings relating to intellectual property claims may cause us or our licensors to incur significant expenses, and could distract
our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results
of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be
negative, it could have a substantial adverse effect on the price of our securities. Such litigation or proceedings could substantially
increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other
resources to adequately conduct or defend against such litigation or proceedings. Some of our competitors may be able to sustain the costs
of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business,
financial condition, results of operations and ability to compete in the marketplace.
Conditions in the Middle East and in Israel may
harm our operations.
Our executive office and research and development facilities are located in Israel.
Most of our officers and directors are residents of Israel. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas (an Islamist militia and political
group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon).
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Since the establishment of the State of Israel in 1948, a number of armed conflicts
have occurred between Israel and its neighboring Arab countries, Hamas (an Islamist terrorist militia and political group that controls
the Gaza Strip) and Hezbollah (an Islamist terrorist militia and political group based in Lebanon) and other terrorist organizations active
in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various
parts of Israel, which have negatively affected business conditions in Israel.
In October 7, 2023, Hamas terrorists infiltrated Israel’s southern border from
the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the
Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State
of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of Israeli civilians and soldiers. Following the attack,
Israel’s security cabinet declared war against Hamas a military campaign against these terrorist organizations commenced in parallel
to their continued rocket and terror attacks. In January 2025, Israel and Hamas entered into a ceasefire agreement, which remained in
effect until March 18, 2025, when hostilities resumed. As of October 9, 2025, Israel and Hamas entered into a renewed ceasefire agreement
calling for a permanent end of the war. However, there are no assurances that such as agreement will hold. While the conflict has created
heightened security concerns, disruptions to business operations, and economic instability, the ceasefire may contribute to improved regional
stability. None of our employees were called up for active duty; however, the security situation remains fluid, and any renewed military
actions, restrictions, or government-imposed measures could adversely affect our business, prospects, financial condition and results
of operations. As of March 15, 2026, we had 6 full-time and 1 part-time employees, all of whom are located in Israel.
Since the commencement of these events, there have been continued hostilities along
Israel’s northern border with Lebanon (with the Hezbollah terror organization) and on other fronts from various extremist groups
in the region, such as the Houthis in Yemen and various rebel militia groups in Syria and Iraq. Israel has carried out a number of targeted
strikes on sites belonging to these terror organizations. In October 2024, Israel began limited ground operations against Hezbollah in
Lebanon, and in November 2024, a ceasefire was brokered between Israel and Hezbollah. However, in March 2025, tensions escalated once
again as Hezbollah launched an attack on Israel. In addition, in April 2024 and October 2024, Iran launched direct attacks on Israel involving
hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to be developing nuclear weapons.
In addition, in response to ongoing Iranian aggression and support of proxy attacks against Israel, on June 13, 2025, Israel conducted
a series of preemptive defensive air strikes in Iran targeting Iran’s nuclear program and military commanders. While a ceasefire
was reached in June 2025 following 12 days of hostilities, on February 28, 2026, the United States and Israel launched coordinated military
strikes against Iran, initiating an ongoing military conflict. This conflict involves attacks on strategic military infrastructure and
leadership targets, with the stated aim of degrading Iran’s capacity to conduct or support hostile operations. In response, Iran
has fired missiles and drones toward population centers and military installations in Israel, Europe
and neighboring countries in the Gulf region, and has launched counter-strikes against U.S. forces and allied bases throughout the Gulf
region. As of the date of this Annual Report, military operations remain ongoing, and the scope, duration, and ultimate resolution of
this conflict are uncertain. Continued military escalation, retaliatory actions, or broader regional involvement may adversely affect
economic conditions, disrupt markets, and create uncertainty that could negatively impact our business, financial condition and results
of operations.
While the conflict has created heightened security concerns, disruptions to business
operations, and economic instability, the ceasefire may contribute to improved regional stability. However, the security situation remains
fluid, and any renewed military actions, restrictions, or government-imposed measures could adversely affect our operations, supply chains,
and financial condition. We cannot predict if and to what extent any ceasefire agreements will remain in effect or will be upheld and
military activity and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential
for escalation into a broader regional conflict involving additional terrorist organizations and possibly other countries. Also, the fall
of the Assad regime in Syria continues to create geopolitical instability in the region.
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While the intensity and duration of the security situation in Israel have been difficult
to predict, as were the economic implications on our business and on Israel’s economy in general, the ceasefire marks a potential
shift towards stability in the region. If sustained, this could reduce the risk of disruptions to our business and the Israeli economy
in general. However, if the war is renewed or expands to other fronts, such as Lebanon, Syria and the West Bank, our operations may be
harmed.
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 and financial condition.
Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results
of operations.
The continued political instability and hostilities between Israel and its neighbors
and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel
and adversely affect the market price of our ordinary shares. In addition, several organizations and countries may restrict doing business
with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade between
Israel and its present trading partners could adversely affect our business, financial condition and results of operations.
Finally, political conditions within Israel may affect our operations. Israel held five
general elections between 2019 and 2022, and prior to October 2023, the Israeli government pursued extensive changes to Israel’s
judicial system , which sparked extensive political debate and unrest. Actual or perceived political instability in Israel or any negative
changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business,
financial condition, results of operations and growth prospects.
Provisions of Israeli law 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.
As a company incorporated under the laws of the State of Israel, we are subject to Israeli
corporate law which requires approval by the Israeli Registrar of Companies, or the Registrar, for merger transactions, imposes specific
thresholders and criteria for tender offer acquisitions of shares, requires special approvals for transactions involving directors, officers
or significant shareholders, and regulates other matters that may be relevant to these types of transactions. For example, a merger may
not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the
Registrar and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder
of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed
if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal
interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent
less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that
do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those
who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition
the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts
the offer may not seek appraisal rights).
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Furthermore, Israeli tax considerations may make potential transactions unappealing
to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from
Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect
to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous
conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of
the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in
time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
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 U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.
Service of process upon us, since we are incorporated in Israel, and upon our directors
and officers, who reside outside the U.S., may be difficult to obtain within the U.S. In addition, because substantially all of our assets
and most of our directors and officers are located outside the U.S., any judgment obtained in the U.S. against us or any of our directors
and officers may not be collectible within the U.S. There is a doubt as to the enforceability of civil liabilities under the Securities
Act or the Exchange Act pursuant to original actions instituted in Israel. Subject to particular time limitations and provided certain
conditions are met, executory judgments of a U.S. court for monetary damages in civil matters may be enforced by an Israeli court.
As a “foreign private issuer,” we
are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and the Nasdaq
Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S.
issuers.
We are a “foreign private issuer” and are not subject to the same requirements
that are imposed upon U.S. domestic issuers by the Securities and Exchange Commission, or the SEC. Under the Exchange Act, we will be
subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting
companies. For example, we will not be required to issue quarterly reports or proxy statements that comply with the requirements applicable
to U.S. domestic reporting companies. Furthermore, although under regulations promulgated under Israel’s Companies Law, 5759-1999,
as amended, or Companies Law, as an Israeli public company listed overseas we will be required to disclose the compensation of our five
most highly compensated officer holders on an individual basis (rather than on an aggregate basis), this disclosure will not be as extensive
as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual
reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies.
Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions and short-swing
profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the
requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency
and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies.
In addition, as a “foreign private issuer,” we are permitted to follow certain
home country corporate governance practices instead of those otherwise required under the listing rules of the Nasdaq Capital Market for
domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to, among other things, board of directors’
independence requirements, director nomination procedures and compensation committee matters. In addition, we will follow our home country
law instead of the listing rules of the Nasdaq Capital Market that require that we obtain shareholder approval for certain dilutive events,
such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control
of us, certain transactions other than a public offering involving issuances of a 20% or greater interest in the company, and certain
acquisitions of the stock or assets of another company. We may in the future elect to follow home country corporate governance practices
in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that
would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection to you than what is accorded to
investors under the listing rules of the Nasdaq Capital Market applicable to domestic U.S. issuers.
Section 8103 of the National Defense Authorization Act for Fiscal Year 2026, named the
“Holding Foreign Insiders Accountable Act”, which was signed into law on December 18, 2025, requires directors and officers
of foreign private issuers to make insider reports under Section 16(a) of the Exchange Act,
effective March 18, 2026. Our principal shareholders continue to remain exempt from the reporting under Section 16(a) of the Exchange
Act and our directors, officers and principal shareholders continue to remain exempt from the short-swing profit recovery provisions contained
in Section 16(b) of the Exchange Act.
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We would lose our foreign private issuer status if a majority of our shares are owned
by U.S. residents and a majority of our directors or executive officers are U.S. citizens or residents or we fail to meet additional requirements
necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S.
domestic issuer may be significantly higher.
Under applicable U.S. and Israeli
law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from
the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective
of their agreements with us, which in turn could impact our future profitability.
We generally enter into non-competition agreements with our employees and key consultants.
These agreements prohibit our employees and key consultants, if they cease working for us, from competing directly with us or working
for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions
in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former
employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete
undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number
of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential
commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we
may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to
remain competitive may be diminished.
In addition, Chapter 8 of the Israeli Patents Law, 5727-1967, or the Patents Law, deals
with inventions made in the course of an employee’s service and during his or her term of employment, whether or not the invention
is patentable, or service inventions. Section 134 of the Patents Law, sets forth that if there is no agreement which explicitly determines
whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, such determination
will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. As a result, it is unclear
if, and to what extent, our research and development employees may be able to claim compensation with respect to our future revenue. As
a result, we may receive less revenue from future products if such claims are successful, which in turn could impact our future profitability.
Your rights and responsibilities
as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders
of U.S. companies.
We are incorporated under Israeli law. The rights and responsibilities of the holders
of our ordinary shares are governed by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects
from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company
has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association,
increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder
approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint
or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited
case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions
may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on
shareholders of U.S. corporations.
34
Our business and operations would suffer in the event of IT system failures, cybersecurity attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses.
Our business relies upon information technology systems operated by us and by our third-party
service providers. These systems may fail or experience operational disruption, experience cybersecurity attacks, or be damaged by computer
viruses and unauthorized access. In the ordinary course of business, we collect, store and transmit confidential information (including
but not limited to intellectual property, proprietary business information and personal information). It is critical that we do so in
a secure manner to maintain the confidentiality and integrity of such confidential information. While we are currently in the process
of developing and implementing policies and procedures to ensure the security and integrity of our information technology systems and
confidential and proprietary information, we do not currently have any such policies and procedures formally in place. If we fail to develop
and maintain adequate policies and procedures for the protection of our information technology systems and confidential and proprietary
information, we may be vulnerable to security breaches or disruptions and system breakdowns or other damage or interruptions.
We also have outsourced elements of our operations to third parties, and as a result
we manage a number of third-party vendors and other contractors and consultants who have access to or store our confidential information.
We do not conduct audits or formal evaluations of our third-party vendors’ information technology systems and cannot be sure that
our third-party vendors have sufficient measures in place to ensure the security and integrity of their information technology systems
and our confidential and proprietary information. If our third-party vendors fail to protect their information technology systems and
our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential
or proprietary information and we could incur liability and reputational damage and the further development and commercialization of our
product candidates could be delayed. As previously disclosed, during the quarter ended June 30, 2022, we identified a material weakness
in our internal control over financial reporting relating to a cybersecurity incident in which a third party impersonated a supplier of
services by using a falsified email domain account and requested us to wire a payment to a false bank account. As a result, we transferred
an amount of $165,000 to the third party (a fictitious vendor). We were able to recover most of the falsely obtained payment from our
financial institution, but have established a reserve for the amount of the disbursement that we have no assurance will be recoverable.
Other than the above incident, we have not, to our knowledge, experienced any material IT system failures or any material cybersecurity
attacks to date. We cannot assure you that our data protection efforts and our investment in information technology will prevent significant
breakdowns, data leakages, breaches in our systems or those of our third-party vendors and other contractors and consultants, or other
cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. Furthermore,
cyberattacks and security incidents are expected to accelerate in both frequency and impact as the use of AI increases and attackers become
increasingly sophisticated and utilize tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate
forensic evidence.
If such an event were to occur and cause interruptions in our operations, it could result
in a material disruption of our development programs, business operations, a breach of sensitive personal information or a loss or corruption
of critical data assets including trade secrets or other proprietary information. For example, the loss of clinical trial data from future
clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce
the data. Such IT system failures, cybersecurity attacks or vulnerabilities to our or our third-party vendors’ information security
programs or defenses could result in legal liability, reputational damage, business interruption, and our competitive position could be
harmed and the further development and commercialization of our products or any future products could be delayed or disrupted. Moreover,
containing and remediating any IT system failure, cybersecurity attack or vulnerability may require significant investment of resources.
Furthermore, significant security breaches or disruptions of our internal information technology systems or those of our third-party vendors
and other contractors and consultants could result in the loss, misappropriation and/or unauthorized access, use, or disclosure of, or
the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information
and personal information), which could result in financial, legal, business and reputational harm to us.
35
We may not be able to successfully identify and
execute strategic alliances or other relationships with third parties or to successfully manage the impacts of acquisitions, dispositions
or relationships on our operations.
We currently have, and may expand the scope of, and may in the future enter into, strategic
alliances with third parties that we believe will complement or augment our existing business. Our ability to complete further such strategic
alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition,
strategic alliances could present unforeseen integration obstacles or costs, may not enhance our business and may involve risks that could
adversely affect us, including the investment of significant amounts of management time that may be diverted from operations in order
to pursue and complete such transactions or maintain such strategic alliances. Future strategic alliances could result in the incurrence
of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that our existing
strategic alliances will continue to achieve, the expected benefits to our business or that we will be able to consummate future strategic
alliances on satisfactory terms, or at all.
Although we do not currently plan to engage in additional strategic transactions, such
as acquisitions, we may from time to time consider such transactions. Material strategic transactions involve a number of risks, including:
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the potential disruption of our ongoing business; |
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the distraction of management away from the ongoing oversight of our existing business
activities; |
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incurring additional indebtedness; |
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the anticipated benefits and cost savings of those transactions not being realized
fully, or at all, or taking longer to realize than anticipated; |
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an increase in the scope and complexity of our operations; and |
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the loss or reduction of control over certain of our assets. |
A strategic transaction may result in a significant change in the nature of our business,
operations and strategy, and we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any
acquired business into our operations.
We are subject to anti-bribery, anti-corruption,
and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act. Violations of such laws could result in criminal prosecution
and substantial penalties.
The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar worldwide anti-bribery
laws generally prohibit companies and their intermediaries from making, offering or authorizing improper payments to non-U.S. government
officials for the purpose of obtaining or retaining business. We do business and may do additional business in the future in countries
or regions where strict compliance with anti-bribery laws may conflict with local customs and practices. Violations of anti-bribery laws
(either due to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the
U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on our business
and operations.
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We are committed to doing business in accordance with applicable anti-corruption laws
and our own internal policies and procedures. We also plan to implement policies and procedures concerning compliance with the FCPA that
is disseminated to employees, directors, contractors and agents. Our policies and procedures and any future improvements, however, may
prove to be less than effective, and our employees and consultants may engage in conduct for which we might be held responsible. Some
foreign jurisdictions may require us to utilize local agents and/or establish joint ventures with local operators or strategic partners.
Even though some of our agents and partners may not themselves be subject to the FCPA or other non-U.S. anti-bribery laws to which we
may be subject, if our agents or partners make improper payments to non-U.S. government officials in connection with engagements or partnerships
with us, we could be investigated and potentially found liable for violation of such anti-bribery laws and could incur civil and criminal
penalties and other sanctions, which could have a material adverse effect on our business, financial position, results of operations and
cash flows.
We are exposed to risks related to the laws of
various countries as a result of our international operations.
We are exposed to various levels of political, economic, legal and other risks and uncertainties
associated with operating in or exporting to other jurisdictions. These risks and uncertainties include, but are not limited to, changes
in the laws, regulations and policies, political instability, currency controls, fluctuations in currency exchange rates and rates of
inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing
political conditions and governmental regulations relating to foreign investment.
Changes, if any, in the laws, regulations and policies around the world may adversely
affect the operations or profitability of our international operations. Specifically, our operations may be affected in varying degrees
by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, export controls,
controls on currency remittance, increased income taxes, restrictions on foreign investment, and government policies rewarding contracts
to local competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Failure to comply
strictly with applicable laws, regulations and local practices could result in additional taxes, costs, civil or criminal fines or penalties
or other expenses being levied on our international operations, as well as other potential adverse consequences such as the loss of necessary
permits or governmental approvals.
Scrutiny of sustainability and environmental,
social, and governance, or ESG, initiatives could increase our costs or otherwise adversely impact our business.
Public companies have recently faced scrutiny related to ESG practices and disclosures
from certain investors, capital providers, shareholder advocacy groups, other market participants and other stakeholder groups. Such scrutiny
may result in increased costs, enhanced compliance or disclosure obligations, or other adverse impacts on our business, financial condition
or results of operations. If our ESG practices and reporting do not meet investor or other stakeholder expectations, we may be subject
to investor or regulator engagement regarding such matters. Our failure to comply with any applicable ESG rules or regulations could lead
to penalties and adversely impact our reputation, access to capital and employee retention. Such ESG matters may also impact our third-party
contract manufacturers and other third parties on which we rely, which may augment or cause additional impacts on our business, financial
condition, or results of operations.
37
Currency exchange rate fluctuations and inflation
affect our results of operations, as reported in our consolidated financial statements.
We report our financial results in U.S. dollars. A portion of the cost of revenue, research
and development, selling and marketing and general and administrative expenses of our Israeli operations are incurred in NIS. As a result,
we are exposed to exchange rate risks that may materially and adversely affect our financial results. If the NIS appreciates against the
U.S. dollar, or if the value of the NIS decline against the U.S. dollar, at a time when the rate of inflation in the cost of Israeli goods
and services exceed the rate of decline in the relative value of the NIS, then the U.S. dollar-denominated cost of our operations in Israel
would increase and our results of operations could be materially and adversely affected.
Inflation in Israel compounds the adverse impact of a devaluation of the NIS against
the U.S. dollar by further increasing the amount of our Israeli expenses. Israeli inflation may also (in the future) outweigh the positive
effect of any appreciation of the U.S. dollar relative to the NIS, if, and to the extent that, it outpaces such appreciation or precedes
such appreciation. The Israeli rate of inflation did not have a material adverse effect on our financial condition during 2023 or 2024.
Given our general lack of currency hedging arrangements to protect us from fluctuations in the exchange rates of the NIS in relation to
the U.S. dollar (and/or from inflation of such non-U.S. currencies), we may be exposed to material adverse effects from such movements.
We cannot predict any future trends in the rate of the inflation in Israel or the rate of devaluation (if any) of the U.S. dollar against
the NIS.
Risks Related to Ownership of Our Ordinary Shares
If we fail to maintain compliance with the Nasdaq
minimum listing requirements, our ordinary shares will be subject to delisting. Our ability to publicly or privately sell equity securities
and the liquidity of our ordinary shares could be adversely affected if our ordinary shares are delisted.
Our ordinary shares are listed on the Nasdaq Capital Market. To maintain our listing,
we are required to satisfy certain continued listing requirements, including, among other things, minimum bid price, minimum market value
of publicly held shares, minimum shareholders’ equity (or other financial metrics), corporate governance requirements, and timely
filing of periodic reports with the SEC.
There can be no assurance that we will be able to comply with Nasdaq’s continued
listing standards in the future and in the past we have been deficient in meeting certain of Nasdaq’s continued listing standards
including the minimum bid price requirement and the minimum shareholder equity rule. If we fail to satisfy any of Nasdaq’s continued
listing requirements, we may receive a deficiency notice from Nasdaq and, depending on the nature of the deficiency, may be afforded a
limited period of time to regain compliance. However, certain deficiencies may not be subject to a cure period or may result in immediate
delisting. If we do not regain compliance within any applicable cure period, or if Nasdaq determines that we are not eligible for a compliance
period, Nasdaq may determine to delist our ordinary shares.
On January 26, 2026, Nasdaq filed a rule proposal with the SEC that would permit the
immediate suspension and delisting of a company listed on the Nasdaq Capital Market if its market value of listed securities remains below
$5 million for 30 consecutive business days. As of the date of this Annual Report, our market value of listed securities is below $5 million
and if this rule were to go into effect and we are unable to increase our market value of listed securities above $5 million, we would
become subject to immediate suspension and delisting.
If we are delisted from Nasdaq, our ordinary shares may be eligible for trading on an
over-the-counter market in the United States. In the event that we are not able to obtain a listing on another U.S. stock exchange or
quotation service for our ordinary shares, it may be extremely difficult or impossible for shareholders to sell their ordinary shares
in the United States. Moreover, if we are delisted from Nasdaq, but obtain a substitute listing for our ordinary shares in the United
States, it will likely be on a market with less liquidity, and therefore, experience potentially more price volatility than experienced
on Nasdaq. Shareholders may not be able to sell their ordinary shares on any such substitute U.S. market in the quantities, at the times,
or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our ordinary shares
are delisted from Nasdaq, the price of our ordinary shares is likely to decline. A delisting of our ordinary shares from Nasdaq could
also adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors, or employees.
38
Because we are not subject to compliance with
rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director
transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act as well as rule changes proposed and enacted by the SEC and the
Nasdaq Stock Market as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These
measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed
on the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because
we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than necessary, we have not yet
adopted all of these measures. As of the date of this Annual Report on Form 20-F, we are not in compliance with requirements relating
to the distribution of annual and interim reports, the holding of shareholders meetings and solicitation of proxies for such meeting and
requirements for shareholder approval for certain corporate actions.
Regardless of whether such compliance is required, the absence of such standards of
corporate governance may leave our shareholders without protections against interested director transactions, conflicts of interest and
similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We incur increased costs as a result of operating
as a public company listed on a U.S. national securities exchange and our management will be required to devote substantial time to new
compliance initiatives.
As a public company listed on a U.S. national securities exchange we incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules implemented
by the U.S. Securities and Exchange Commission, or the SEC, and the Nasdaq Capital Market, impose various requirements on public companies,
including requirements to file annual reports with respect to our business and financial condition and operations and establish and maintain
effective disclosure and financial controls and corporate governance practices. Our management and other personnel have limited experience
operating as a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective
internal controls over financial reporting and disclosure controls and procedures necessary to ensure timely and accurate reporting of
operational and financial results. Moreover, these rules and regulations will increase our legal and financial compliance costs and will
make some activities more time consuming and costly.
In addition, changing laws, regulations and standards relating to corporate governance
and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some public
company required activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many
cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated
by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention
from revenue generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our
business may be harmed. We also expect that being listed on a U.S. national securities exchange and complying with applicable rules and
regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantially
higher costs to obtain and maintain the same or similar coverage that is currently in place. These factors could also make it more difficult
for us to attract and retain qualified executive officers and members of our board of directors.
39
We have identified a material weakness
in our internal control over financial reporting. If our remediation of the material weakness is not effective, or we fail to develop
and maintain effective internal controls over financial reporting, our ability to produce timely and accurate consolidated financial statements
or comply with applicable laws and regulations could be impaired.
Effective internal controls over financial reporting are necessary for us to provide
reliable financial reports. Together with adequate disclosure controls and procedures, effective internal controls are designed to prevent
fraud. Any failure to implement required new or improved controls or difficulties encountered in their implementation could cause us to
fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, may reveal deficiencies in our internal controls over financial reporting that are deemed to be
material weaknesses, may require prospective or retroactive changes to our consolidated financial statements, or may identify other areas
for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our ordinary shares.
A material weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated
financial statements will not be prevented or detected on a timely basis. We identified a material weakness in our internal control over
financial reporting in the financial year ended December 31, 2024. Specifically, we determined that due to the small-scale nature of our
company, we currently do not have sufficient finance staff to provide for effective oversight over our period-end financial reporting
process and we have an incomplete segregation of duties. As a result of the material weakness, management has concluded that our internal
control over financial reporting was ineffective as of December 31, 2025.
In order to remediate the material weakness, we plan to hire additional accounting and
finance personnel with public company experience or to provide the necessary training for such new hires without public company experience.
We cannot assure you the measures we are taking to remediate the material weakness will be sufficient or that they will prevent future
material weakness. Additional material weaknesses or failure to maintain effective internal control over financial reporting could cause
us to fail to meet our reporting obligations as a public company and may result in a restatement of our consolidated financial statements
for prior periods. In addition, these deficiencies could cause investors to lose confidence in our reported financial information, limiting
our access to capital markets, adversely affecting our operating results and leading to declines in the trading price of our ordinary
shares and warrants.
Our independent registered public accounting firm is not required to attest to the
effectiveness of our internal control over financial reporting until after we are no longer a non-accelerated filer as defined in the
JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event our internal
controls over financial reporting do not operate effectively. If we are not able to complete our initial assessment of our internal controls
and otherwise implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with adequate compliance,
our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial
reporting. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results
of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness
of our internal control over financial reporting that we will eventually be required to include in its periodic reports that are filed
with the SEC. If we are unable to remediate our existing material weakness or identify additional material weaknesses and are unable to
comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective,
or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control
over financial reporting once we are no longer a non-accelerated filer, investors may lose confidence in the accuracy and completeness
of the financial reports and the market price of our ordinary shares and warrants could be negatively affected, and we could become subject
to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources.
For more information regarding these remedial actions and enhancement measures, see “Item 15. Controls and Procedures-Material Weakness
in Internal Control Over Financial Reporting”.
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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 listed on a U.S. exchange, or our internal
control over financial reporting is not effective, the reliability of our consolidated financial statements may be questioned and our
share price may suffer.
We are subject to the requirements of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley
Act requires companies 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. To comply with this statute, we must document and test our internal control
procedures and our management issues a report concerning the effectiveness of our internal control over financial reporting. In addition,
as long as we do not become an accelerated or large accelerated filer, we are exempt from the auditor attestation requirements of Section
404(b) of the Sarbanes-Oxley Act. Under this exemption, our auditor will not be required to attest to and report on our management’s
assessment of our internal control over financial reporting until the date we are no longer a non-accelerated filer. We will need to prepare
for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report.
However, 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.
FINRA sales practice requirements may also limit
your ability to buy and sell shares of our ordinary shares, which could depress the price of such shares.
FINRA rules require broker-dealers to have reasonable grounds for believing that an
investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that
there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements
make it more difficult for broker-dealers to recommend that their customers buy our ordinary shares, which may limit your ability to buy
and sell shares of our ordinary shares, have an adverse effect on the market for shares of our ordinary shares, and thereby depress price
of our ordinary shares.
Future issuance of our ordinary
shares could dilute the interests of existing shareholders.
We may issue additional shares of our ordinary shares in the future in connection with
a financing or an acquisition. The issuance of a substantial number of shares of ordinary shares could have the effect of substantially
diluting the interests of our existing shareholders and any subsequent sales or resales by our shareholders could have an adverse effect
on the market price of our ordinary shares.
We do not intend to pay dividends for the foreseeable
future, and our investors must rely on increases in the market prices of our ordinary shares for returns on equity investment.
To date, we have not paid any cash dividends on our ordinary shares. The declaration
and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends
declared will depend on, among other things, our earnings, financial condition and cash requirements and availability and our ability
to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy. For the foreseeable future, earnings generated
from our operations will be retained for use in our business and not used to pay dividends. Accordingly, our investors must rely on increases
in the market prices of our ordinary shares for returns on equity investment.
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U.S. shareholders may suffer adverse tax consequences
if we are characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.
Generally, if for any taxable year, 75% or more of our gross income is passive income,
or at least 50% of the average value of our assets are held for the production of, or produce, passive income, we would be characterized
as a PFIC for U.S. federal income tax purposes. We believe that we were not a PFIC for U.S. federal income tax purposes for our 2025 taxable
year. Because PFIC status is determined annually and is based on our income, assets and activities for the entire taxable year, it is
not possible to determine with certainty whether we will be characterized as a PFIC for the 2025 taxable year until after the close of
the year, and there can be no assurance that we will not be classified as a PFIC in any future year. In any taxable year in which we are
characterized as a PFIC for U.S. federal income tax purposes, a U.S. Holder, (as defined below) that owns ordinary shares could face adverse
U.S. federal income tax consequences, including having gains realized on the sale of ordinary shares classified as ordinary income, rather
than as capital gain, the loss of the preferential rate applicable to dividends received on ordinary shares by U.S. Holders who are individuals,
and having interest charges apply to distributions by us and the proceeds of ordinary share sales. Certain adverse consequences of PFIC
status may be alleviated if a U.S. Holder makes a “mark to market” election or an election to treat us as a qualified electing
fund, or QEF. These elections would result in an alternative treatment (such as mark-to-market treatment) of the ordinary shares. It is
not expected that a U.S. Holder will be able to make a QEF election because we do not intend to provide U.S. Holders with the information
necessary to make a QEF election. If we are a PFIC in any year, U.S. Holders may be subject to additional Internal Revenue Service, or
IRS, filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. U.S. Holders
are urged to consult their own tax advisors regarding the application of the PFIC rules. For more information, see “10.E - Taxation
- Certain Material U.S. Federal Income Tax Consequences.”
The market price of our ordinary shares may be
highly volatile, which could result in substantial losses for holders of our ordinary shares.
The trading price of our ordinary shares may be highly volatile. The stock market in
general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result
of this volatility, you may not be able to sell your ordinary shares at or above the initial public offering price. The following factors,
in addition to other risk factors described in this section, may have a significant impact on the market price of our ordinary shares:
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changes or developments in laws or regulations governing our business; |
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announcements of regulatory approvals or the failure to obtain them, or specific label
indications or patient populations for their use, or changes or delays in the regulatory review process; |
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unsatisfactory results of preclinical studies or clinical trials; |
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adverse actions taken by regulatory agencies with respect to our manufacturing supply
chain or sales and marketing activities; |
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announcements of innovations or new products by us or our competitors; |
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any intellectual property infringement, misappropriation or other actions in which
we may become involved; |
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any adverse changes to our relationships with manufacturers or suppliers; |
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announcements concerning our competitors; |
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achievement of expected product sales and profitability or our failure to meet expectations;
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our commencement of, or involvement in, litigation; and |
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any changes in our board of directors or management. |
If our results fall below the expectations of investors or securities analysts, the
price of our ordinary shares could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the
price of our shares to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful
and should not be relied upon as an indication of our future performance.
Further, the stock market in general may experience extreme price and volume fluctuations
that are unrelated or disproportionate to the operating performance of companies. Broad market and industry factors may negatively affect
the market price of our ordinary shares regardless of our actual operating performance. See also Risk Factors-Risks Related to Ownership
of Our Ordinary Shares “We are currently operating in a period of economic uncertainty and capital
markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia
and Ukraine.” In addition, a systemic decline in the financial markets and related factors beyond our control may cause our
share price to decline rapidly and unexpectedly. Price volatility of our ordinary shares might be worse if the trading volume of our ordinary
shares is low. In the past, following periods of volatility in the market price of a company’s securities, securities class-action
litigation often has been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial
costs to defend such claims and divert management’s attention and resources, which could seriously harm our business, financial
condition, results of operations and prospects.
Moreover, the liquidity of our ordinary shares will be limited, not only in terms of
the number of ordinary shares that can be bought and sold at a given price, but by potential delays in the timing of executing transactions
in our ordinary shares and a reduction in security analyst and media’s coverage of our company, if any. These factors may result
in lower prices for our ordinary shares than might otherwise be obtained and could also result in a larger spread between the bid and
ask prices for our ordinary shares. In addition, without a large float, our ordinary shares will be less liquid than the stock of companies
with broader public ownership and, as a result, the trading prices of our ordinary shares may be more volatile. In the absence of an active
public trading market, an investor may be unable to liquidate its investment in our ordinary shares. Trading of a relatively small volume
of our ordinary shares may have a greater impact on the trading price of our ordinary shares than would be the case if our public float
were larger. We cannot predict the prices at which our ordinary shares will trade in the future.
If securities or industry analysts do not publish
or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish
negative reports regarding our business or our traded securities, our securities price and trading volume could be negatively impacted.
The trading market for our ordinary shares will be influenced by the research and reports
that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over
these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or
industry analysts commence coverage of our company, the trading price for our ordinary shares would likely be negatively impacted. In
the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ordinary shares
or publish inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline. In addition,
if our operating results fail to meet the forecast of analysts, the price of our ordinary shares would likely decline. If one or more
of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease,
which might cause the price of our ordinary shares and trading volume to decline.
43
Our staggered board of directors may delay, defer
or prevent a change of control transaction.
We have a staggered board of directors. Our
directors are divided into three classes serving three-year staggered terms. The staggering of our board of directors may discourage offers
for the Company or make an acquisition more difficult, even when an acquisition may be viewed to be in the best interest of our stockholders.
ITEM 4. INFORMATION ON THE COMPANY
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A. |
History and Development of the Company |
We are a specialty pharmaceutical company focused on the reformulation of established
therapeutics. Our proprietary extended-release drug-delivery system is designed to provide an extended period of post-surgical pain relief
without the need for repeated dose administration while reducing the potential need for the use of opiates. In March 2025, we acquired
the business operations related to an AI-driven solar analytics technology, DeepSolar.
We were incorporated under the laws of the State of Israel the Companies Law in November
2007 under the name PainReform Ltd. On January 6, 2026, the shareholders of the Company approved a change of the Company’s name
from PainReform Ltd. to PRF Technologies Ltd. Our principal executive offices are located at 65 Yigal Alon St., Tel Aviv, 6744316, Israel.
Our telephone number is +972-3-3717050. Our corporate website address is www.prf-tech.com. Information contained on or accessible through
our website is not a part of this Annual Report on Form 20-F, and the inclusion of our website address herein is an inactive textual reference
only. Puglisi & Associates, or Puglisi, serves as our authorized representative in the United States for certain limited matters.
Puglisi’s address is 850 Library Avenue, Newark, Delaware 19711.
The SEC maintains an internet site that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC at http://sec.gov. We use our website (http://www.prf-tech.com)
as a channel of distribution of Company information. The information we post through this channel may be deemed material. Accordingly,
investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
The contents of our website are not, however, a part of this Annual Report on Form 20-F.
As a foreign private issuer, we are exempt from certain rules and regulations under
the Exchange Act that are applicable to other public companies that are not foreign private issuers. For example, although we intend to
report our financial results on a quarterly basis, we will not be required to issue quarterly reports, proxy statements that comply with
the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed
as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual
report with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Our
senior management, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities
and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we will
also not be subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
See Item 5 - Operating and Financial Review and Prospects for information regarding our capital expenditures for the past three fiscal years and principal capital expenditures currently in progress.
|
B. |
Business Overview |
We are a specialty pharmaceutical company focused on the reformulation of established
therapeutics. Our proprietary extended-release drug-delivery system is designed to provide an extended period of post-surgical pain relief
without the need for repeated dose administration while reducing the potential need for the use of opiates. In March 2025, we acquired
the business operations related to an AI-driven solar analytics technology, DeepSolar.
44
PRF Technologies Drug Development Business
Our strategy is to incorporate generic drugs with our proprietary extended-release drug-delivery
system in order to create extended release drug products and to take advantage of the 505(b)(2) regulatory pathway created by the FDA.
The 505(b) (2) new drug application, or NDA, process, provides for FDA approval of a new drug based in part on data that was developed
by others, including published literature references and data previously reviewed by the FDA in its approval of a separate application.
PRF-110, our first product candidate, is based on the local anesthetic ropivacaine, targeting the post-operative pain relief market. PRF-110
is an oil-based, viscous, clear solution that is deposited directly into the surgical wound bed prior to closure to provide localized
and extended post-operative analgesia.
In a small, 15-patient Phase 2 proof-of-concept clinical study in hernia repair, PRF-110
provided substantial pain reduction for up to 72 hours post-operatively. A comparison of these results to historical data for ropivacaine
alone suggests a substantial advantage to using PRF-110 over the local analgesic agent, ropivacaine, alone. As indicated in the FDA approved
drug description, ropivacaine provides pain relief for only 2 to 6 hours. The surgeons that participated in the PRF-110 Phase 2 trial
reported that it was easily integrated into the procedure and was non-disruptive of existing surgical techniques. Ropivacaine, the active
drug used in PRF-110, is a safe and well-characterized local analgesic agent and the other components that make up the remainder of the
PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA, mitigating many potential safety issues that are common
in drug development.
In March 2023, we initiated our first Phase 3 clinical trial of PRF-110 in the United
States, for pain treatment of patients undergoing bunionectomy, successfully completing the first part of the Phase 3 clinical study soon
thereafter in a PK study of 15 patients undergoing bunionectomy. In June 2024, we completed patient enrollment in our Phase 3 clinical
trial for our PRF-110 product. In total, 428 patients were enrolled at eight clinical sites across the U.S. The primary efficacy endpoint
was mean area under the curve, or AUC, of the numerical rating scale, or NRS, of pain intensity scores over 72 hours (AUC0-72) for PRF110
compared with placebo.
In November 2024, we announced that the initial analysis of the topline data indicates
that PRF-110 demonstrated statistically significant superiority over placebo in reducing pain during the first 48 hours following surgery.
However, data pertaining to the subsequent 24-hour period, which was essential for assessing the primary endpoint of the trial, was unclear
due to incoherence of the data. In December 2024, following further investigation, we determined that the data from the final 24- hour
period could not be clarified to satisfy the study’s primary endpoint 72 hours requirement and therefore it did not meet the primary
endpoint of the study. As a result, we have substantially scaled back our research and development activities on PRF-110, and such activities
no longer comprise our primary clinical focus.
In December 2025, we commenced our development plan for OcuRing™-K, LayerBio’s
patented, drop-less, intraoperatively administered sustained-release ocular therapy designed to deliver controlled, site-specific release
of ketorolac following cataract surgery. Following the closing of our majority investment in LayerBio and the integration of OcuRing™-K
into our development portfolio, we conducted a methodical internal assessment with LayerBio’s management team to define development
priorities and establish a clear path for advancing the program. Work is now progressing toward the Phase II clinical trial.
OcuRing™-K is an erodible, intraoperatively administered sustained-release device
designed to provide extended and consistent intraocular therapeutic levels of an NSAID (non-steroidal, non-opiate, anti-inflammatory analgesic).
LayerBio’s technology is designed to address major limitations of traditional postoperative eye-drop regimens, which typically require
multiple daily steroid and NSAID drops for several weeks and deliver only a small fraction—often less than 5%—of the drug
inside the eye. OcuRing™-K is designed to eliminate this drop-dependent approach through a single, intraoperative, sustained-release
therapy.
45
This inefficient delivery of eye drops produces sharp fluctuations in drug levels, increasing
the potential for inconsistent efficacy and side effects. In contrast, OcuRing™-K’s in-situ depot formulation provides direct,
localized delivery to target tissues with markedly lower systemic exposure, offering controlled and stable therapeutic coverage compared
to conventional eye drops. By removing the need for patient-administered drops, OcuRing™-K also reduces contamination risks, such
as inadvertent contact between dropper bottles and ocular tissues.
Preclinical studies and a Phase I clinical evaluation demonstrated reductions in post-surgical
pain and inflammation while using significantly lower total drug exposure than standard eye-drop regimens. The sustained-release kinetics
of OcuRing™-K maintained therapeutic levels over time, supporting the potential for improved ocular safety, reduced systemic side
effects associated with high-volume topical dosing, and enhanced patient compliance, particularly among elderly populations.
In January 2026, we announced the completion of safety data compilation supporting the
continued development of OcuRing™-K. The development program included a series of preclinical rabbit studies evaluating ocular tolerability,
biocompatibility, and tissue response, as well as a Phase I clinical study in patients undergoing cataract surgery. Collectively, these
studies demonstrated a favorable safety profile for the platform, supporting its advancement toward later-stage development.
.
In the Phase I clinical study, no treatment-emergent adverse events related to the study
drug were observed. All reported adverse events were as expected in the context of cataract surgery, and consistent with subjects’
underlying ocular histories. No serious adverse events were reported, and no safety issues related to the drug delivery platform were
identified. The investigational product and intraocular lens devices remained properly positioned in all treated eyes throughout the study.
Preclinical rabbit studies, similarly, demonstrated favorable local tolerability, with
no evidence of ocular tissue abnormalities and no meaningful differences observed between the OcuRing™-K and
control vehicle, supporting the consistent safety findings across preclinical and clinical evaluations.
Market Opportunity
We believe that there is a great unmet need for effective, long-lasting, non-opiate
treatments for post-operative pain. The North American post-operative pain treatment market was estimated at $12 billion, and is expected
to reach $16 billion and $45 billion worldwide by the end of 2026. These market projections are based on the current generation of post-operative
pain products, which largely consist of systemically administered opiates. At present, most of the available analgesics are dosed every
four to six hours, requiring nursing attention when in the hospital, or discharge of the patients with an excess of drugs to treat anticipated
pain. This exposure to opiates is a significant risk factor leading to opiate abuse disorder (Hah, et al. Chronic Opioid Use After Surgery:
Implications for Perioperative Management in the Face of the Opioid Epidemic. 2017). PRF-110 was created to prolong analgesia at the surgical
site, thus facilitating early post-operative ambulation, speeding recovery and reducing time in hospital. In addition, it is anticipated
that PRF-110 will reduce opiate exposure and thereby lessen the risk of opiate abuse disorder.
OcuRing™-K
Cataract surgery is one of the most frequently performed surgical procedures globally.
Approximately 4 million cataract surgeries are performed annually in the United States. Globally, the number of annual procedures
is estimated to be between 20 million and 30 million. In
the U.S., current postoperative management of cataract surgery commonly involves a complex regimen of corticosteroid and NSAID eye drops.
However, these regimens are associated with several drawbacks such as poor compliance, particularly among elderly patients, inconsistent
and inefficient drug delivery, and risks associated with steroids, including elevated intraocular pressure and potential for infection.
Increasingly, both patients and ophthalmic surgeons are seeking “drop-less” solutions that remove the need for daily self-administered
drops while ensuring consistent, effective therapy.
46
OcuRing™ is a bio-erodible sustained-release implant applied to the haptic of
an intraocular lens (IOL) for use in cataract surgery. It is easily added to the IOL and once implanted inside the eye, OcuRing™
continuously releases medications for treatment and prevention of postoperative complications of cataract surgery.
The technology allows extended drug release from a single application, minimizing the
need for patient-administered drops. Site-specific delivery maximizes local effect while reducing systemic exposure. Its biodegradable
design eliminates the need for removal of the insert, and its versatile drug loading enables the delivery of a wide range of therapeutics
(NSAIDs, antibiotics, steroids, anti-VEGF agents).
OcuRing™-K, the platform lead product candidate, is a patent-protected, sustained-release
intraocular ring designed to deliver Ketoralac, an anti-inflammatory and analgesic drug, to be introduced intra-surgically during cataract
procedures. As a bioerodible implant it offers a transformative alternative to the current standard of care, which commonly relies on
frequent topical eye drops, including corticosteroids and NSAIDs.
Unlike traditional treatments, OcuRing™-K provides a single-application, fully
“dropless” solution, fully in line with the surgeon’s workflow, designed to deliver controlled, localized, and extended
release of non-opiate and non-steroidal agent therapy directly in the surgical site. This innovative platform eliminates patient compliance
issues and reduces the need for multiple medications during the critical postoperative healing phase, addressing a major unmet need expressed
by both patients and providers in the ophthalmic community.
PRF-110
There are more than 50 million surgical procedures performed annually in the U.S. alone
in both hospitals and in ambulatory surgery centers. We believe that many of these invasive and painful procedures should be eligible
for treatment with extended-release ropivacaine through our product, PRF-110. As reported in Pharmacotherapy,
2013, 99% of all surgeries are treated with opiates. The extended-release nature of PRF-110 is intended to reduce pain for up to 72 hours
from the time of surgery, thereby obviating/diminishing the need for additional pain medications. There are currently available several
extended-release products, mainly Exparel with revenues of over $575 million in 2024 and Zynrelef, with $ 25.5 million of revenues in
2024.
We believe that PRF-110 will extend post-operative analgesia, will be significantly
less costly to produce than the currently available extended-release product and, unlike that product, will not require delicate handing.
There is a societal imperative to reduce opioid use. While opioids are a valuable tool
in the treatment of severe pain, especially post-surgical pain, their use carries a significant risk of abuse. Opiate-based analgesia
is currently a mainstay of post-operative pain management: According to a medical study, 99% of all surgical patients receive opiates
as part of their post-operative care. It has been found that chronic opiate misuse and dependency can begin with as little as three days
of post-operative treatment. The current thinking in the field of pain management is that limiting opioid exposure in the post-operative
period is likely to have a positive impact on future opiate misuse and dependency rates. We have developed PRF-110 with this in mind.
However, until longitudinal studies to test this hypothesis are completed, we cannot state with certainty that the use of PRF-110 will
have a material impact on the opiate epidemic.
Post-operative patients heal faster and with fewer complications when their pain is
reduced, which results in faster ambulation and reduced need for opiate analgesia. PRF-110 is intended meet the goal of extended surgical
site analgesia with a reduced need for opiate treatment. Initially, PRF-110 will be used to address only a small percentage of the surgical
procedures requiring post-operative analgesia.
47
Our Vision
We believe that patients deserve safe, effective, lasting treatments that are cost effective.
We view intra-operational local application of drugs as resulting in lower drug loads, a better safety profile and the resolution of compliance
issues endangering postsurgical recovery. Both our products are an embodiment of this philosophy and of our vision for drug development.
We believe that our product candidates embody our vision of drug development:
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● |
addressing unmet medical needs; |
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● |
de-risked drug development by using long-established APIs and our patented, proprietary
extended release drug-delivery system; |
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● |
reduced development costs; |
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● |
rapid preclinical and clinical testing; |
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● |
well understood paths to approval: and |
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● |
the potential to disrupt current practices. |
Advantages of OcuRing™-K
OcuRing™-K is a bio-erodible sustained-release implant applied to the haptic of
an intraocular lens (IOL) for use in cataract surgery. It is easily added to the IOL and once implanted inside the eye, OcuRing™-K
continuously releases ketorolac, a commonly used NSAID, for treatment and prevention of postoperative complications of cataract surgery. Other
advantages of OcuRing™-K are that it:
| • |
is a ring shaped insert placed on the IOL, easy to administer and to incorporate into the surgical routine; |
| • |
remains in place ensuring that the active drug is optimally placed to reach its target; |
| • |
solves the problem of poor absorption in eye drops; |
| • |
allows for use of far lower doses as compared to eye drops, thus reducing side effects; |
| • |
circumvents the problem of poor compliance in cataract patients; |
| • |
is very stable at a wide range of temperatures; |
| • |
allows for sustained release of the medication over 2 weeks post surgery thus eliminating the need for NSAID eye drops; |
| • |
has components that are well characterized with a good safety profile; and |
| • |
can be used for multiple drugs. |
Advantages of PRF-110
PRF-110 is a viscous clear oil-based solution that is instilled (deposited) directly
into the surgical wound to provide localized and extended post-operative analgesia. Its physical characteristics and composition are key
to it being well-tolerated and ease of use:
|
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● |
PRF-110 is highly viscous and thus stays in place when placed into a surgical wound
bed. |
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● |
PRF-110 remains within the surgical site when the skin is closed, without being toxic
or proinflammatory. |
48
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● |
PRF-110 is easy to administer and its use is consistent with current surgical practice.
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● |
PRF-110 is highly uniform and resistant to degradation in the wound, resulting is
sustained,/extended release of the analgesic. |
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● |
Ropivacaine, the active drug used in PRF-110, is a safe and well-characterized local
anesthetic. |
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● |
The components that make up the remainder of the PRF-110 formulation are classified
as GRAS (Generally Regarded As Safe) by the FDA. |
Our Strategy
Our strategy is to incorporate generic drugs with our proprietary extended-release drug-delivery
system in order to create extended-release drug products and to take advantage of the 505(b)(2) regulatory pathway created by the FDA.
We are focused on the development of OcuRing™-K and subject to the outcome of
an upcoming Phase II clinical trial, we believe we are well positioned to advance to later stage development due to the following factors:
| • |
our toxicology studies demonstrate a very safe profile for OcuRing™-K; |
| • |
no OcuRing™-K associated serious adverse events were reported for a phase I study; |
| • |
PK analysis demonstrated a sustained release profile of ketorolac for up to two weeks post surgery; |
| • |
the planned trial will have clear, easy to measure endpoints and has a short duration (one month); and |
| • |
the OcuRing™ can be used to develop other post-cataract surgical products. |
Following the establishment of OcuRing™-K in the post-cataract surgery market,
we plan to build on our platform technology to broaden our product base. Our extended-release drug-delivery system is a unique bio-erodable
formulation that can be used for the delivery of several drugs that are currently administered as eye drops, including antibiotics and
corticosteroids. We intend to develop a pipeline of drugs than can be delivered once, using our platform technology, and thereafter be
bio-available for extended release.
49
Our Commitment to Research and Innovation
Our commitment to research and innovation is best witnessed by the fact that we developed
both our proprietary platform technology and PRF-110 “in-house,” without in-licensing. We believe we have the leadership onboard
and intend to recruit additional personnel to continue in this tradition, as we continue to build our product line of extended-release
products, both in pain and in other indications having unmet or underserved needs.
Manufacturing and Clinical Supplies
We currently contract with third parties for the manufacture of our product candidates
for certain preclinical trials and clinical trial materials, including raw materials and consumables necessary for their manufacture,
consistent with applicable cGMP requirements. We intend to continue to contract for these materials in the future, including commercial
manufacture, if our product candidates receive marketing approval. We do not own or operate cGMP manufacturing facilities, nor do we currently
plan to build our own cGMP manufacturing capabilities for the production of our product candidates for clinical or commercial use. Although
we rely upon contract manufacturers for the manufacture of our product candidates for IND-enabling trials and clinical trials, we have
personnel with extensive manufacturing experience who oversee our contract manufacturers. In the future, we may also rely upon collaboration
partners, in addition to contract manufacturers, for the manufacture of our product candidates or any products for which we obtain marketing
approval.
OcuRing™-K
Currently OcuRing™-K is produced by
our in house production team. We engaged Resonetics, LLC, a US-based CMO for the finalization and sterilization of our product for future
production as demand for OcuRing™-K increases.
Some of the critical materials and components used in manufacturing OcuRing™-K
are sourced from single suppliers. While we are currently in the process of identifying and testing alternative sources for key components
used in manufacturing of OcuRing™-K , an interruption in the supply of a key material could significantly delay our research and
development process or increase our expenses for the commercialization or development of our products. In the event of supply chain interruption,
materials or components needed for our drug delivery technologies may be difficult to obtain on commercially reasonable terms, particularly
when relatively small quantities are required or if the materials traditionally have not been used in pharmaceutical products.
PRF-110
We engaged Pharmaceutics International Inc, a US based CMO for the purpose of manufacturing
our clinical trial batches of PRF-110
In 2021, we encountered issues with our former CMO in Israel in manufacturing clinical
trial batches of product mainly due to regulatory failures in its facilities, Good Manufacturing Practices issues and turnover of personnel.
We put in place a plan and actions directed at shifting manufacturing and scale-up operations of PRF-110 to North America and engaged
Pharmaceutics International Inc. a U.S.-based CMO for the purpose of manufacturing our clinical trial batches. During 2022, we implemented
additional enhancements to our manufacturing process for PRF-110 which were expected to improve the efficiency and scalability of our
manufacturing. Following the enhancement to our manufacturing process, we experienced issues with product stability which resulted in
delays in the commencement of our planned Phase 3 trial of PRF-110. We were able to overcome these issues by further improving the manufacturing
process, and in March 2023, we initiated our first Phase 3 clinical trial of PRF-110 in the United States. In December 2024, we announced
that the Phase 3 clinical trial evaluating PRF-110 in post-surgical pain management of patients undergoing bunionectomy did not satisfy
the study’s primary endpoint. As a result, we have scaled back our research and development activities on PRF-110, and such activities
are no longer our primary clinical focus.
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Competition
The pharmaceutical industry is extremely competitive. Our product candidates, if approved,
will compete in a highly competitive market. Our competitors in this market may succeed in developing products that could render our current
and future product candidates obsolete or non-competitive. Many of our potential competitors have significantly more financial, technical
and other resources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience
in effecting strategic combinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing
products. We cannot give any assurances that we can compete effectively with these other biotechnology and pharmaceutical companies.
If we are able to successfully develop PRF-110 for postoperative pain management, we
will compete with Exparel® (bupivacaine liposome injectable suspension, marketed by Pacira Pharmaceuticals, Inc.), Zynrelief®
a bupivacaine formulation marketed by Heron Therapeutics Inc., which also contains a synthetic polymer and a small amount of a nonsteroidal
anti-inflammatory drug, meloxicam, MARCAINE (bupivacaine, marketed by Hospira, Inc.) and generic forms of bupivacaine; NAROPIN (ropivacaine,
marketed by Fresenius Kabi USA, LLC) and generic forms of ropivacaine; and potentially other products in development.
If we are able to successfully develop OcuRing™-K,
we expect to compete with Optomed, a Finnish provider of retinal imaging devices and solutions, PanOptica, a United States provider of
biopharmaceutical ophthalmic therapeutics for the treatment of eye diseases, Lenz Therapeutics, a United States provider of late-stage
clinical development of pharmaceuticals for the eyes, and Rayner, a U.K. provider of intraocular lenses and proprietary injection
devices for cataract surgery.
Sales and Marketing
Given our stage of development, we have not yet established commercial organization
or distribution capabilities. We may selectively pursue strategic collaborations with third parties in order to maximize the commercial
potential of our drug candidates.
Intellectual Property
We strive to protect the proprietary technologies that we believe are important to our
business, including seeking and maintaining patent protection intended to cover our extended-release drug-delivery system.
Our success will depend significantly on our ability to obtain and maintain patent and
other proprietary protection for commercially important technology, inventions, and know-how related to our business, defend and enforce
our patents, preserve the confidentiality of our trade secrets, and operate without infringing the valid and enforceable patents and other
proprietary rights of third parties.
A third party may hold intellectual property, including patent rights, which are important
or necessary to the development or commercialization of our future product candidates. If it becomes necessary for us to use patented
or proprietary technology of third parties to develop or commercialize our product candidates, we may need to seek a license from such
third parties. Our business could be harmed, possibly materially, if we are unable to obtain such a license on terms that are commercially
reasonable, or at all.
We may seek to expand our intellectual property estate by filing patent applications
directed to dosage forms, methods of treatment, indications, formulations and additional compounds and their derivatives. Specifically,
we have sought and will continue to seek patent protection in the U.S. and internationally for PRF-110 and our proprietary extended-release
drug-delivery system. The chemical structure of ropivacaine, the API contained in PRF-110 is in the public domain. Accordingly, we do
not own or license any composition of matter patents claiming the ropivacaine compound and will not in the future own or license any composition
of matter patents claiming the chemical structure of ropivacaine as described in the public domain.
The patent positions of biopharmaceutical companies like us are generally uncertain
and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we do not know whether PRF-110 or
any future product candidates will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications
we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide
sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.
Because patent applications in the U.S. and certain other jurisdictions are maintained
in secrecy for 18 months, and since publication of discoveries in the scientific or patent literature often lags actual discoveries, we
cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office, or USPTO, to determine priority of invention or in post-grant challenge
proceedings at the USPTO or at a foreign patent office, such as inter parties review and post grant review proceedings at the USPTO and
opposition proceedings at the European Patent Office, that challenge priority of invention or other features of patentability. Such proceedings
could result in substantial cost, even if the eventual outcome is favorable to us. For more information regarding the risks related to
our intellectual property, see “Risk Factors-Risks Related to Our Intellectual Property.”
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Patent portfolio
As of March 26, 2026, our PRF-110 patent portfolio includes fourteen (14) issued patents,
of which three (3) are U.S. patents and thirteen (11) are foreign patents in Australia, Canada, China, India, Israel, and Japan, . In
addition, the portfolio includes two (2) foreign patent applications that are pending in the European Patent Office . Our OcuRing patent
portfolio includes 2 issued patents, of which one is a U.S. the second is a foreign patent in UK. In addition, the OcuRing portfolio includes
4 patent applications in U.S, Australia, Japan and Korea that are pending.
The filing date of the PRF-110 patents and patent applications was May 9, 2013 and the
filing date of the OcuRing patents and patent applications was June 26, 2020. In general, most patents have a 20-year term from the filing
date, although certain extensions may apply to patents covering drug products that are subject to regulatory approval in various jurisdictions.
Accordingly, the earliest expiry date for PRF-110 would be May 2033, and the earliest expiry date for OcuRing would be June 2040, which,
under certain conditions could possibly be extended under regulatory marketing exclusivity.
Intellectual property protection
The term of individual patents depends upon the legal term of the patents in the countries
in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional
patent application.
In the U.S., the Hatch-Waxman Act permits a patent holder to apply for patent term extension
of a patent that covers an FDA-approved drug, which, if granted, can extend the patent term of such patent to compensate for part of the
patent term lost during the FDA regulatory review process. This extension can be for up to five years beyond the original expiration date
of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term
extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable
to an approved drug may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing
it may be extended.
Similar provisions are available in Europe and other non-U.S. jurisdictions to extend
the term of a patent that covers an approved drug. In the future, if and when our product candidates receive FDA approval, we expect to
apply for patent term extensions on patents covering those product candidates. While we intend to seek patent term extensions to any of
our patents in any jurisdiction where such extensions are available, there is no guarantee that the applicable authorities, including
the FDA and the USPTO in the U.S., will agree with our assessment of whether such extensions should be granted, and even if granted, the
length of such extensions.
In addition to our reliance on patent protection for our product candidates and research
programs, we also rely on trade secrets and confidentiality agreements to protect our technology, know-how and other aspects our business
that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary
information and trade secrets, including through contractual means with our employees and consultants, third parties may independently
develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our
technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement
of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business
or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with us is
to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development
or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. However,
such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such
breach. For more information regarding the risks related to our intellectual property, see “Risk Factors-Risks Related to Our Intellectual
Property.”
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Government Regulation
Government authorities in the U.S., at the federal, state, and local level, and in other
countries and jurisdictions, including the EU, extensively regulate, among other things, the research, development, testing, manufacture,
quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval
monitoring and reporting, and import and export of drug products. The processes for obtaining marketing approvals in the U.S. and in foreign
countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities,
require the expenditure of substantial time and financial resources.
Review and approval of drugs in the U.S.
In the U.S., the FDA approves drug products under the Federal Food, Drug, and Cosmetic
Act, or FDCA, and implementing regulations. The failure to comply with applicable requirements under the FDCA and other applicable laws
at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety
of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition
of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or
criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.
An applicant seeking approval to market and distribute a new drug product in the U.S.
must typically undertake the following:
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completion of preclinical laboratory tests, animal studies and formulation studies
in compliance with the FDA’s good laboratory practice, or GLP, regulations; |
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submission to the FDA of an IND, which must take effect before human clinical trials
begin; |
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approval by an independent institutional review board, or IRB, representing each clinical
site before each clinical trial may be initiated; |
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performance of adequate and well-controlled human clinical trials in accordance with
good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each proposed indication;
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preparation and submission to the FDA of an NDA requesting marketing for one or more
proposed indications; |
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review by an FDA advisory committee, where appropriate or if applicable; |
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satisfactory completion of one or more FDA inspections of the manufacturing facility
or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices,
or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength,
quality and purity; |
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satisfactory completion of FDA audits of clinical trial sites to assure compliance
with GCPs and the integrity of the clinical data; |
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payment of user fees and securing FDA approval of the NDA; and |
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compliance with any post-approval requirements, including the potential requirement
to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies.
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Satisfaction of FDA pre-market approval requirements typically takes many years and
the actual time required may vary substantially based upon the type, complexity, and novelty of the product candidate or disease. A clinical
hold may occur at any time during the life of an IND and may affect one or more specific trials or all trials conducted under the IND.
Preclinical studies
Before an applicant begins clinical testing in humans of a compound with potential therapeutic
value in humans, the drug candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of product
chemistry, toxicity and formulation, as well as in vitro and animal studies to assess the potential
safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical
studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together
with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other
things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events
and carcinogenicity, may continue after the IND is submitted.
The IND and IRB processes
An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in
interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational
drug to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug that is not the subject
of an approved NDA. In support of a request for an IND, a sponsor must submit a protocol for each clinical trial and any subsequent protocol
amendments must be submitted to the FDA as part of the IND. Following commencement of a clinical trial under an IND, the FDA may also
place a clinical hold or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a
proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part
of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while
other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the
sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation
may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information
provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.
A sponsor may choose, but is not required, to conduct a foreign clinical study under
an IND. When a foreign clinical study is conducted under an IND, all IND requirements must be met unless waived. When the foreign clinical
study is not conducted under an IND, the sponsor must ensure that the study complies with certain FDA regulatory requirements in order
to use the study as support for an IND or application for marketing approval. Specifically, FDA has promulgated regulations governing
the acceptance of foreign clinical trials not conducted under an IND, establishing that such studies will be accepted as support for an
IND or application for marketing approval if the study was conducted in accordance with GCP, including review and approval by an independent
ethics committee, or IEC, and use of proper procedures for obtaining informed consent from subjects, and the FDA is able to validate the
data from the study through an on-site inspection if FDA deems such inspection necessary. The GCP requirements encompass both ethical
and data integrity standards for clinical studies. The FDA’s regulations are intended to help ensure the protection of human subjects
enrolled in non-IND foreign clinical trials, as well as the quality and integrity of the resulting data. They further help ensure that
non-IND foreign studies are conducted in a manner comparable to that required for IND studies. If a marketing application is based solely
on foreign clinical data, the FDA requires that the foreign data be applicable to the U.S. population and U.S. medical practice; the studies
must have been performed by clinical investigators of recognized competence; and the FDA must be able to validate the data through an
on-site inspection or other appropriate means, if the FDA deems such an inspection to be necessary.
54
In addition to the foregoing IND requirements, an IRB representing each institution
participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and
the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things,
the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations.
An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial
is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected
serious harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts
organized by the trial sponsor, known as a data safety monitoring board, or DSMB, or data safety monitoring committee. The DSMB provides
clinical subject safety oversight on a regular ongoing basis while the trial is in progress. Based on their reviews, the DSMB provides
authorization for whether or not a trial may move forward at designated check points based on safety data available from the study that
is available only to the DSMB. Suspension or termination of development during any phase of clinical trials can occur if it is determined
that the participants or patients are being exposed to an unacceptable health risk.
Other reasons for suspension or termination may be made by us for reasons other than
safety including, but not limited to, evolving business objectives and/or competitive climate.
Information about certain clinical trials is legally required to be submitted within
specific timeframes to the National Institutes of Health, or NIH, for public dissemination on its ClinicalTrials.gov website.
Human clinical trials in support of an NDA
Clinical trials involve the administration of the investigational product to human subjects
under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement
that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials
are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the
study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
Human clinical trials are typically conducted in the following sequential phases, which
may overlap or be combined:
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Phase 1:
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The drug is initially introduced into healthy human subjects or, in certain indications
such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution,
excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
55
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Phase 2: |
The drug is administered to a limited patient population to identify possible adverse
effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage
tolerance and optimal dosage. |
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Phase 3: |
The drug is administered to an expanded patient population, generally at geographically
dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and
safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information
for the labeling of the product. |
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Phase 4: |
Post-approval studies, which are conducted following initial approval, are typically conducted to gain
additional experience and data from treatment of patients in the intended therapeutic indication. |
Progress reports detailing the results of the clinical trials must be submitted at least
annually to the FDA and more frequently if serious adverse events, or SAEs, occur. In addition, IND safety reports must be submitted to
the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in
vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case
of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical
trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health
risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if
the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected
serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of
the clinical data submitted.
Concurrent with clinical trials, companies generally finalize a process for manufacturing
the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, and purity
of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate
that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements,
the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry,
manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market
the drug product for one or more indications. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness
of a use of a product, or from several alternative sources, including investigator-initiated trials that are not sponsored by the company.
Under federal law, the submission of most NDAs is additionally subject to an application user fee, which as of 2026, the standard fee
for an NDA submission is approximately $4.682 million. However, fees may be waived or reduced for certain circumstances, such as for drugs
intended to treat rare diseases or for companies with limited financial resources.
The FDA generally conducts a preliminary review of an NDA within 60 days of its receipt
and informs the sponsor whether the application is sufficiently complete to permit substantive review. The FDA may request additional
information or timing rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information.
The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing,
the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such
applications are meant to be reviewed within ten months from the filing date, and most applications for “priority review”
products are meant to be reviewed within six months of the filing date. The review process and the Prescription Drug User Fee Act goal
date may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to
address an outstanding deficiency identified by the FDA following the original submission.
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Before approving an NDA, the FDA typically will inspect the facility or facilities where
the product is or will be manufactured. These pre-approval inspections may cover all facilities associated with an NDA submission, including
drug component manufacturing (such as APIs), finished drug product manufacturing, and control testing laboratories. The FDA will not approve
an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate
to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCP.
505(b)(2) NDAs
As an alternative path to FDA approval for modifications to formulations or uses of
products previously approved by the FDA pursuant to an NDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section
505(b)(2) was enacted as part of the Hatch-Waxman Amendments and permits the filing of an NDA where at least some of the information required
for approval comes from studies not conducted by, or for, the applicant, and for which the applicant has not obtained a right of reference.
If the 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically
and legally appropriate, it may eliminate the need to conduct certain preclinical studies or clinical trials of the new product. The FDA
may also require companies to perform additional bridging studies or measurements, including clinical trials, to support the change from
the previously approved reference drug. The FDA may then approve the new product candidate for all, or some, of the label indications
for which the reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.
Section 505(b)(2) applications are subject to any non-patent exclusivity period applicable
to the referenced product, which may delay approval of the 505(b)(2) application even if FDA has completed its substantive review and
determined the drug should be approved. In addition, 505(b)(2) applications must include patent certifications to any patents listed in
the Orange Book as covering the referenced product. If the 505(b)(2) applicant seeks to obtain approval before the expiration of an applicable
listed patent, the 505(b)(2) applicant must provide notice to the patent owner and NDA holder of the referenced product. If the patent
owner or NDA holder brings a patent infringement lawsuit within 45 days of such notice, the 505(b)(2) application cannot be approved for
30 months or until the 505(b)(2) applicant prevails, whichever is sooner. If the 505(b)(2) applicant loses the patent infringement suit,
FDA may not approve the 505(b)(2) application until the patent expires, plus any period of pediatric exclusivity.
We intend to follow the 505(b)(2) approval pathway permitted under the FDCA to maximize
the commercial opportunities for these product candidates.
The FDA’s decision on an NDA
On the basis of the FDA’s evaluation of the NDA and accompanying information,
including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter.
An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete
response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in
order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in
a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six
months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval.
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If the FDA approves a product, it may limit the approved indications for use for the
product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies,
including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk
management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may
prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval,
many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are
subject to further testing requirements and FDA review and approval.
Post-approval requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive
and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product
sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes
to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There
also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured,
as well as new application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution
of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced
inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly
regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of
any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the
sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality
control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory
requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to
comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market
studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other
potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, including total or
partial suspension of production, complete withdrawal of the product from the market or product recalls; |
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fines, warning letters or holds on post-approval clinical trials; |
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension
or revocation of product license approvals; |
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product seizure or detention, or refusal to permit the import or export of products;
or |
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injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates marketing, labeling, advertising and promotion of products
that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company
that is found to have improperly promoted off-label uses may be subject to significant liability.
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In addition, the distribution of prescription drug products is subject to the Prescription
Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards
for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription
drug product samples and impose requirements to ensure accountability in distribution.
Regulations and procedures governing approval of drug products in the EU and other countries
In order to market any product outside of the U.S., a company must also comply with
numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing,
among other things, clinical trials, marketing authorization, manufacture, advertising, reimbursement and commercial sales and distribution
of products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the competent
foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions.
Specifically, the process governing approval of drug products in the EU generally follows comparable lines as in the U.S. and involves
satisfactorily completing preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of
the product for each proposed indication, as well as the submission to the relevant competent authorities of a marketing authorization
application, or MAA, and actual granting of a marketing authorization by these authorities before the product can be marketed and sold
in the EU.
Clinical Trial Authorization. The major law
governing clinical trials conducted in the European Economic Area (EEA) is Regulation (EU) 536/2014 on clinical trials on medicinal products
for human use (the Clinical Trials Regulation, or CTR), which came into effect on January 31, 2022. The CTR has immediate effect in all
EEA member states and regulates the essential aspects of pharmaceutical clinical trials. It is supplemented by the national laws of member
states. The CTR harmonizes the assessment and supervision processes for clinical trials throughout the EEA via a Clinical Trials Information
System, or CTIS, which includes a centralized EU portal and database for clinical trials. The CTR provides consistent rules for conducting
clinical trials throughout the EEA and introduces a harmonized electronic submission and assessment process for clinical trials conducted
in multiple member states. In that context, it requires improved collaboration, information sharing and decision-making between and within
member states, governed by clearly defined deadlines for member states and sponsors alike. Furthermore, the CTR aims at increased transparency
of information on clinical trials and provides that certain information on the authorization, conduct and results of each clinical trial
carried out in the EEA must be made publicly available via CTIS. Moreover, the CTR aims to increase safety standards for all participants
in EU clinical trials.
Clinical trials under the CTR are subject to prior authorization. The authorization
of a clinical trial (Phase I-III) in an EEA member state requires the submission of an application dossier via CTIS. The application dossier
will be reviewed by the competent authorities of the member states where the trial is supposed to take place. The application and approval
process is conducted by the member states under the cooperation system set forth in the CTR. Particularities under member states’
national law still apply to some extent. The application dossier should include, among other documents and information, the study protocol,
results of the nonclinical studies and manufacturing information and analytical results. The sponsor shall propose one of the member states concerned
as reporting member state. The CTR aims to speed up the validation and review of application dossiers and therefore provides strict deadlines.
For example, the reporting member state may request additional information during the assessment of the application dossier. The sponsor
shall submit this information within the period set by the reporting Member State which shall not exceed twelve days from the receipt
of the request.
Marketing Authorization. To obtain a marketing
authorization for a product under EEA regulatory systems, an applicant must submit an MAA either under a centralized procedure administered
by the European Medicines Agency (EMA) or under one of the procedures administered by competent authorities in EEA member states (decentralized
procedure, national procedure or mutual recognition procedure). A marketing authorization may be granted only to an applicant established
in the EU. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the EU, applicants have to demonstrate
compliance with all measures included in an EMA-approved Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric
population (i.e., children aged 0 to 17), unless the EMA has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral
for one or more of the measures included in the PIP.
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The centralized procedure provides for the grant of a single marketing authorization
by the European Commission that is valid for all EU member states. Pursuant to Regulation (EC) No 726/2004, the centralized procedure
is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan
drug products, advanced therapy medicinal products (ATMP) and products with a new active substance indicated for the treatment of certain
diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other
diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure
may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible for conducting the initial assessment of a drug product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a drug product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the time limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment.
Mutual Recognition Procedure (MRP) The mutual
recognition procedure (Art. 28 et seqq. Directive 2001/83/EC) should be used if a drug product already has a marketing authorization in
one EEA member state, and the authorization holder would like to extend the authorization to other member states. An application for mutual
recognition may be addressed to one or more EEA countries. The country in which the national marketing authorization has been granted
acts as the Reference Member State, and the other countries concerned (Concerned Member States) can, upon successful completion of the
procedure, recognize the marketing authorization. The assessment time is generally 180 days plus 30 days.
Decentralized Procedure (DCP) The decentralized
procedure (introduced by Directive 2004/27/EU) is used in cases where the drug product has not received a marketing authorization in the
EU at the time of application. It allows the common assessment of an application submitted simultaneously to several member states. One
of the member states will take the lead in evaluating the application as Reference Member State. The Reference Member State should prepare
an assessment report that is then used to facilitate agreement with the Concerned Member States and the granting of national marketing
authorization in all of these member states. The assessment time is 210 days plus 30 days.
Regulatory data protection in the EU. In the
EU, new medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon
marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC) No 726/2004, as amended, and Directive
2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess
a generic (abbreviated) application referencing the protected drug product for a period of eight years. During an additional two-year
period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s data may be referenced,
but no generic drug product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended
to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization
for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a
significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity so that
the innovator gains the period of data exclusivity, another company nevertheless could also market another version of the product if such
company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical
tests and clinical trials.
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Periods of authorization and renewals. A marketing
authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation
of the risk-benefit ratio by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization
holder must provide the EMA or the competent authority with a version of the file in respect of quality, safety and efficacy, including
all variations introduced since the marketing authorization was granted, at least nine months before the marketing authorization ceases
to be valid. Once renewed, the marketing authorization shall be valid for an unlimited period, unless the European Commission or the competent
authority decides on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization
which is not followed by the actual placing of the drug on the EEA market (in case of centralized procedure) or on the market of the authorizing
member state within three years after authorization ceases to be valid (the so-called sunset clause).
Regulatory requirements after a marketing authorization has been obtained. In the event an authorization for a drug in the EU is obtained, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of drug products. These include:
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Compliance with the EU’s stringent pharmacovigilance and safety reporting rules,
pursuant to which inter alia post-authorization studies and additional monitoring obligations
can be imposed, must be ensured. |
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The manufacturing of authorized drugs, for which a separate manufacturer’s license
is mandatory, must also be conducted in strict compliance with the European Commission’s cGMP requirements and comparable requirements
of other regulatory bodies in the EU, which mandate the methods, facilities and controls used in manufacturing, processing and packing
of drugs to assure their safety and identity. |
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The marketing and promotion of authorized drugs, including industry-sponsored continuing
medical education and advertising directed toward the prescribers of drugs, cooperation with healthcare professionals and advertising
of drugs directed to the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and EU member
state laws. |
For other countries outside of the EU/EEA, such as the United Kingdom (UK), countries
in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement
may vary from country to country. In all cases the clinical studies are conducted in accordance with applicable local regulatory
requirements and GCP, and the ethical principles that have their origin in the Declaration of Helsinki.
The UK formally left the EU on January 31, 2020 and the withdrawal from the EU became
fully effective by December 31, 2020. The UK now has the status of a third country with regard to the EU and EU law has mostly ceased
to apply directly in the UK; the regulatory framework in Northern Ireland is partly characterized by a coexistence of EU and UK laws.
The UK has adopted standalone medicines regulations. Under the Medicines and Medical Devices Act 2021, UK law diverged from the EU legislative
regime for medicines, their research, clinical trials, development and commercialization.
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Coverage and reimbursement
In the U.S., sales of OcuRing, PRF-110 and any future candidates, if approved, will
depend, in part, on the extent to which such products will be covered by third-party payors, such as government health care programs,
commercial insurance and managed healthcare organizations. These third-party payors are increasingly limiting coverage or reducing reimbursements
for medical products and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing
cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.
Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare
coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent
of coverage and amount of reimbursement to be provided for any drug candidates that we develop will be made on a payor-by-payor basis.
Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy,
and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines
the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients
and physicians. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with
existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our drug candidates
or a decision by a third-party payor to not cover our drug candidates could reduce physician usage of our drug candidates, once approved,
and have a material adverse effect on our sales, results of operations and financial condition.
Outside the U.S., ensuring adequate coverage and payment for our product candidates
will face challenges. Pricing of pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental
authorities can extend well beyond the receipt of marketing approval for a product and may require us to conduct a clinical trial or assessment
that compares the cost effectiveness of our product candidates or products to other available therapies. The conduct of such a clinical
trial or assessment could be expensive and result in delays in our commercialization efforts.
In the EU, pricing and reimbursement schemes vary widely from member state to member
state. Some countries provide that products may be marketed only after a reimbursement price has been agreed with the competent public
body at regional or state level. Some countries may require the completion of additional studies that compare the cost-effectiveness of
a particular drug candidate to currently available therapies (so called health technology assessment, or HTA) in order to obtain reimbursement
or pricing approval. EU member states may approve a specific price for a product or it may instead adopt a system of direct or indirect
controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices
for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries
in the EU have increased the amount of statutory discounts on pharmaceuticals and these efforts could continue as countries attempt to
manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The
downward pressure on healthcare costs in general, particularly prescription drugs, has become intense. As a result, increasingly high
barriers are being erected to the entry of products with new active pharmaceutical ingredients. Political, economic and regulatory developments
may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing
used by various EU member states, and parallel trade (arbitrage between low-priced and high-priced member states), can further reduce
prices. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable
reimbursement and pricing arrangements for any of our products, if approved in those countries.
A new Regulation on HTA on EU level was adopted on December 13, 2021, Regulation (EU)
2021/2282 of the European Parliament and of the Council of December 15, 2021 on health technology assessment and amending Directive 2011/24/EU,
or HTA Regulation. The HTA Regulation covers new medicines and certain new medical devices, “providing the basis for permanent and
sustainable cooperation at the EU level for joint clinical assessments in these areas.” Member states will be able to use common
HTA tools, methodologies and procedures across the EU, working together in four main areas: 1) joint clinical assessments focusing on
the most innovative health technologies with the most potential impact for patients; 2) joint scientific consultations whereby developers
can seek advice from HTA authorities; 3) identification of emerging health technologies to identify promising technologies early; and
4) continuing voluntary cooperation in other areas.
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Individual member states will continue to be responsible for assessing non-clinical
(e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
The HTA Regulation entered into force on 11 January 2022 and applies from 12 January
2025. As of 2026, JCAs apply on a phased basis to certain centrally authorized medicines, initially including new oncology medicines
(new active substances) and advanced therapy medicinal products (ATMPs), with later expansion to orphan medicines (from 13 January 2028)
and other covered medicinal products (from 13 January 2030), subject to possible earlier inclusion by Commission implementing act in specified
circumstances.
For in-scope products, the HTA Regulation may affect market access planning by adding
EU-level HTA evidence submission and coordination requirements while not replacing country-specific national HTA and reimbursement processes.
The HTA Regulation will not apply in the UK. Reimbursement in the United Kingdom for
use by public payors (National Health Service) organizations may depend on a positive technology assessment by the National Institute
for Health and Care Excellence, or NICE, commercial negotiations or be subject to public procurement procedures. A positive recommendation
by NICE would lead to an obligation to fund, subject to terms of that approval, by NHS organizations. In assessing any new medicinal product,
NICE will take into account clinical as well as the economic value of the product.
Other Healthcare Laws
Because of our current and future arrangements with healthcare professionals, principal
investigators, consultants, customers and third-party payors, we will also be subject to healthcare regulation and enforcement by the
federal government and the states and foreign governments in which we will conduct our business, including our clinical research, proposed
sales, marketing and educational programs. Failure to comply with these laws, where applicable, can result in the imposition of significant
civil penalties, criminal penalties, or both.
The U.S. laws that may affect our ability to operate, among others, include: the federal
Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and
Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of
protected health information; certain state laws governing the privacy and security of health information in certain circumstances, some
of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect,
thus complicating compliance efforts; the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things,
persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or
to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment
may be made under federal healthcare programs such as the Medicare and Medicaid programs; federal false claims laws which prohibit, among
other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid,
or other third-party payors that are false or fraudulent; the Civil Monetary Penalty Act of 1981 imposes penalties against any person
or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health care program
that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering
or transferring remuneration to a federal health care beneficiary that a person knows or should know is likely to influence the beneficiary’s
decision to order or receive items or services reimbursable by the government from a particular provider or supplier; federal criminal
laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually
to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians (defined
to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and investment interests
held by physicians and their immediate family members; and state law equivalents of each of the above federal laws, such as anti-kickback
and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
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In addition, many states have similar laws and regulations, such as anti-kickback and
false claims laws that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid
and other state programs. Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign
laws.
In particular, strict restrictions apply with regard to data protection in the EU. The
EU General Regulation on Data Protection, Regulation 2016/679 (GDPR) has become applicable on May 25, 2018. The GDPR is an EU regulation
and does not have to be implemented into member states’ national law, but applies directly in all member states. It applies to companies
with an establishment in the European Economic Area (EEA) that includes the 27 member states of the EU and Norway, Iceland and Liechtenstein.
Furthermore, the GDPR applies to companies not located in the EEA but processing personal data of individuals located in the EEA (e.g.,
through online business). The GDPR implements stringent operational requirements for controllers of personal data, including, for example,
obligations to justify the collection, use and other processing of personal data (e.g., based on the individual’s consent), to notify
the individuals concerned about data processing activities, to protect all processed personal data through appropriate technical and organizational
measures, and to implement a data protection compliance management. Furthermore, the GDPR defines high data security and compliance standards
for the transfer of personal data to third countries, including the U.S. The operational requirements under the GDPR are even stricter
in case of sensitive personal data, such as health or genetic data, that typically have to be stored in a pseudonymized (i.e., key-coded)
manner. The GDPR provides that EU member states may in certain areas deviate from GDPR standards which results in varying laws and regulations
at member states level. The applicable data protection laws in the EEA may limit our ability to share and otherwise process personal data.
If our business does not comply with the GDPR, we may be subject to severe administrative fines (under the GDPR, in the amount of up to
4 % of the total worldwide annual turnover of our preceding financial year) and suffer significant loss of reputation.
The GDPR continues to form part of law in the UK with some amendments following the
United UK’s exit from the European Union on December 31, 2020 although there is a risk of divergence in the future which may increase
our overall data protection compliance cost.
DeepSolar AI Analytics Software Business
Assets Acquisition Agreement
On February 17, 2025, we entered into an assets acquisition agreement with Blade
Ranger Ltd., or BladeRanger, an Israeli technology company established on December 3, 2015, specializing in innovative solutions to optimize
the efficiency and profitability of photovoltaic (PV) solar panels, pursuant to which we acquired 100% of the business activities, software,
and knowledge base associated with DeepSolar technology. The transaction closed on March 5, 2025.
As a result of the assets acquisition, we received all rights, title and interest in
certain (i) agreements, (ii) intellectual property, (iii) accounts receivable, (iv) equipment, (v) DeepSolar’s reputation and customer
relations associated with their business, (vi) the “My DeepSolar” application and technology, and (vii) all rights, title
and interest in, to or arising from any of the foregoing assets, properties and rights (whether real, personal or mixed, tangible or intangible,
wherever located), each as set forth or defined in the Agreement (collectively, the “Acquired Assets”). In consideration of
the acquisition we issued to BladeRanger 178,769 of our ordinary shares, representing 9.9% of the Company’s issued and outstanding
share capital (after such issuance) and a pre-funded warrant to purchase 223,792 ordinary shares. After the increase of our share capital
at our shareholders’ meeting scheduled for April 10, 2025, we will issue the remaining securities to BladeRanger, which include
(1) a pre-funded milestone warrant to purchase 470,463 ordinary shares, (2) warrant-A to purchase 1,087,565 ordinary shares, and (3) warrant-B
to purchase 1,087,565 ordinary shares. In addition, certain employees of BladeRanger entered into employment agreements with us.
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The pre-funded warrant is exercisable at an exercise price of $0.01 per share until
exercised in full. The pre-funded milestone warrant is exercisable upon achievement of a milestone at an exercise price of $0.01 per share
until exercised in full with respect to the pre-funded warrant issued at closing and for a period of five and half years from the date
of grant with respect to the pre-funded warrant to be issued after our shareholders’ meeting referenced above. The warrant-A is
exercisable upon achievement of a certain milestone during a period of five and half years from the date of grant at an exercise price
equal to our average trading closing price five days prior to our board of directors’ resolution to issue such warrant. The warrant-B
vests if during the two year period following the closing a certain milestone is met at an exercise price equal to US$6.40 and once vested
shall have a three year exercise period.
Pursuant to the agreement, BladeRanger may not exercise any of the pre-funded warrants,
pre-funded milestone warrants, warrants-A or warrants-B held by it (or any assignee or transferee of BladeRanger), if, following such
exercise, BladeRanger (including any assignee or transferee) holds our ordinary shares which exceed 9.99% of our issued and outstanding
share capital of the Company.
Previously, in January 2023, BladeRanger acquired the DeepSolar business from Raycatch,
a private Israeli company engaged in the climate-tech and renewable energy sectors, that was founded in 2015. Raycatch originally developed
the DeepSolar technology.
Overview of DeepSolar Business
The DeepSolar technology is a cutting-edge AI-powered analytics software that optimizes
the efficiency and profitability of solar energy assets. DeepSolar’s software helps solar system site owners maximize energy production
and increase profitability through an AI based software that monitors and analyzes their solar assets. Its technology integrates seamlessly
with supervisory control and data analytics (SCADA) systems via a centralized dashboard, offering real-time monitoring, performance analytics,
and automated maintenance solutions. The DeepSolar technology extracts the data and analyzes it in real-time, while providing actionable
insights that help boost productivity and enhance control through automatic tools for daily monitoring and reporting and with top-down
and bottom-up operational dashboards.
Operating in both the business to business and business-to-business-to-consumer (B2B2C)
sectors, where we provide solutions directly to commercial partners and solar operators who, in turn, serve end-consumers. DeepSolar aims
to provide enterprise-level solutions for large-scale solar operators and residential applications for individual homeowners. In the commercial
sector, our technology helps solar farms reduce operational inefficiencies and increase energy output. In the residential market, its
mobile app, MyDeepSolar, empowers homeowners to optimize their solar investments, detect inefficiencies, and reduce energy costs. The
DeepSolar technology technology can cut operational costs while maximizing energy production, presenting a significant market opportunity
across multiple verticals.
On May 7, 2025, we announced the launch of a strategic pilot program with Econergy Renewable
Energy Ltd., a leading European independent power producer (IPP). The pilot will be conducted at Econergy’s 92-megawatt (MW) photovoltaic
plant in Parau, Romania—one of the country’s largest operational solar projects. Following the successful completion of the
pilot, the we expect to expand DeepSolar’s footprint across Econergy’s portfolio, applying the software to additional solar
plants and unlocking performance and efficiency benefits across the entire fleet. For DeepSolar, the full utilization of the Econergy
operation may reach 1 Gigawatt.
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On August 19, 2025, DeepSolar was accepted into the NVIDIA Connect Program, which is
a development track for independent software vendors building transformative AI-based solutions. Participation in the program provides DeepSolar with
access to NVIDIA’s industry-leading AI frameworks, development tools, and engineering support. This future collaboration
will support efforts to advance DeepSolar Predict, the company’s solar forecasting solution designed specifically
for photovoltaic (PV) systems.
On November 12, 2025, we announced the development of our propriety automated reporting
engine for DeepSolar, which is aimed at reducing manual effort and producing tailored reports according to the customers’ needs.
Once completed, it will automatically consolidate and interpret data from diverse sources, delivering customized, insight-rich reports
within minutes. The platform will allow users to define the depth of analysis, visualization style, and reporting frequency to meet operational,
managerial, and investor needs—all seamlessly integrated within DeepSolar’s advanced AI analytics framework.
On January 5, 2026, we announced that DeepSolar launched Smart TDD, an advanced solar
Technical Due Diligence (TDD) service designed to provide faster, more accurate, and more comprehensive assessments of solar asset performance
and risk. The newly enhanced service expands DeepSolar’s audit capabilities to support independent power producers (IPPs), infrastructure
funds, operators, lenders, and insurers at every major lifecycle milestone of a solar asset.
Smart TDD is engineered to address the longstanding shortcomings of conventional TDD
by combining four key elements:
| • |
Complete data coverage: auditing 100% of components and operational history, not just sampling
at one time point; |
| • |
Advanced diagnostics: fusing AI-driven analytics with physics-based modeling and expert engineering
review; |
| • |
Actionable output: clearly
prioritized findings organized by financial impact and severity; and |
| • |
Fast turnaround: preliminary results delivered within days of data upload, reducing deal friction.
|
With these capabilities, Smart TDD supports all major checkpoints in a solar plant’s
life:
| • |
Commissioning: verify build quality and confirm compliance with acceptance criteria;
|
| • |
Warranty expiry: identify hidden defects and potential claims before constructor coverage
ends; |
| • |
Underperformance:
diagnose and address the sources of revenue loss; and |
| • |
Asset acquisition: provide buyers and financiers with a clear, detailed, fast, and independent
picture of asset condition. |
In 2026, our DeepSolar TDD segment is continuing to grow. We established commercial
due diligence engagements with an international energy company with a utility-scale solar power plant in Israel. The operation involves
the application of DeepSolar’s Smart TDD analytics to support a structured, independent technical review of the solar asset.
On March 16, 2026, we entered into an agreement with Blade Ranger Ltd., pursuant to
which Blade Ranger will identify and introduce potential business prospects for collaboration with DeepSolar.
Market Opportunity
According to the SolarPower Europe report on the solar market from 2021-2026, the solar
energy market is expanding rapidly, generating over 1 terawatt (TW) of energy and growing at an annual rate of 25.32%. We believe that
the DeepSolar’s technology enhances the profitability of solar assets by reducing operational costs, maximizing energy yield, and
providing predictive analytics to drive better decision-making.
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The residential solar market has experienced significant growth, with the global residential
solar PV market valued at USD 94.2 billion in 2024 and projected to grow at a CAGR of 7.9% from 2025 to 2034. Despite this expansion,
homeowners face challenges in effectively monitoring and optimizing their solar energy systems. Many existing applications are manufacturer-specific,
offering limited insights primarily focused on energy production and consumption data. This fragmented approach can lead to several issues:
limited diagnostic capabilities, where basic monitoring apps may not provide detailed analyses of system performance, making it difficult
to identify underperforming components or issues like soiling and hardware malfunctions; lack of comprehensive analytics, which can prevent
homeowners from understanding the true irradiance and factors affecting their system’s efficiency, potentially leading to suboptimal
energy yields; and inefficient maintenance alerts, where the absence of timely alerts on malfunctioning hardware devices, such as inverters
and panels, can result in delayed maintenance, reducing overall system performance. This growing gap between basic monitoring capabilities
and the increasing complexity of residential solar systems underscores the urgent need for innovative, comprehensive solutions like MyDeepSolar,
which empower homeowners to maximize efficiency, minimize losses, and fully capitalize on their solar investments.
How the DeepSolar Solutions Work
The DeepSolar technology is based on a machine learning expert system, focused on pattern
recognition. The DeepSolar technology is a multi-vendor software that optimizes each component of the solar system to provide valuable
insights for the end-user. The end-user for the DeepSolar technology includes commercial utility owners, commercial business owners, and
individual, residential home owners.
DeepSolar solutions provide a comprehensive suite of features designed to optimize the
performance and profitability of photovoltaic solar fields including:
|
|
• |
the smart live monitoring feature which offers alerts, availability dashboards, and
plots for raw data analysis, ensuring real-time visibility into system performance; |
|
|
• |
performance analytics which delivers a full breakdown of losses, highlighting gaps
between planned and actual outputs; |
|
|
• |
event management which prioritizes fault checks to address issues promptly and efficiently;
|
|
|
• |
automatic verification which ensures full gain recovery by continuously validating
system performance; |
|
|
• |
the report generator feature which provides detailed reports for any specified time
range, enabling thorough analysis and informed decision-making; and |
|
|
• |
management dashboards with customer-specific performance ratios and tailored insights
to support strategic planning and operational excellence. |
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The DeepSolar technology is an optimization software for solar systems. The software
will first receive data from all parts of the solar system equipment to understand what the system intends to produce, such as basic equipment
configuration and the expected behavior of each equipment component in the solar system purchased by the end user. The software then addresses
what the system is outputting. The software then monitors and collects this output data hourly and daily, and it will compare the results
to the expectation of the equipment components within the environment and parameters with which the solar system is situated in. The software
then produces insights based on the patterns and comparisons it has learned from the system to provide the diagnosis for system issues
and efficient solutions for the solar system.
High precision diagnostics allow each solar panel to be analyzed for specific issues,
such as disconnected strings or dust accumulation, ensuring maximum energy yield. Additionally, DeepSolar isolates performance issues
caused by inverters, transformers, and other critical components. The software then produces insights based on the patterns and comparisons
it has learned from the system to provide the diagnosis for system issues and efficient solutions for the solar system. DeepSolar automatically
generates prioritized task lists daily, providing field technicians with precise instructions on what needs to be fixed and when. These
tasks are quantified by their ROI impact, enabling operators to make data-driven decisions. Focused and actionable recommendations are
delivered daily to improve operational efficiency, and decisions are guided by clear financial impact metrics, helping operators optimize
their Internal Rate of Return.
Research and Development
Over the past decade, significant amounts of time and expense have been invested in
the development of the DeepSolar technology. Our software development team is responsible for the design, development, integration, and
testing of our technology. We focus our efforts on developing our software to improve our algorithms, augment value with new revenue streams
and localize our capabilities based on geography and regulatory considerations. In addition, the DeepSolar technology hosts a robust library
of over 100 data-driven insights, designed to optimize solar system performance and maximize energy yield and profitability.
Sales and Marketing
We have a very limited sales and marketing infrastructure and are in the very early
stages of commercializing the DeepSolar solution having generated limited revenue to date. To achieve commercial success for our DeepSolar
solution or any future developed solution, we will need to establish a sales and marketing infrastructure or to out-license such activities.
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We are seeking to build a diverse customer base, including solar energy companies, solar
field maintenance providers and residential home owners. Additionally, the DeepSolar technology contains a residential mobile app “My
DeepSolar,” which is expected for use among homeowners seeking to monitor and enhance the performance of their solar installations.
Competition
We face significant competition in every aspect of our DeepSolar business. Our competitors
include among others Power Factors, Green Project Management and Meteocontrol. These companies may already have an established market
in our industry and companies have significantly greater financial and other resources than us and have been developing their products
and services longer than we have been developing ours. Their software often focuses on a specific market, industrial utilities, or residential
customers; whereas, the DeepSolar technology has the capability to be applied to industrial commercial, and residential use. Our software
can give specific benefits that we believe the market lacks, given our distinct focus on detailed diagnostics and ROI-driven actions complements,
enabling us to provide insights such as performance analytics that compares potential and actual usage, identification analytics of equipment
issues, production of equipment washing optimization plans, efficiency analytics of equipment components, data cleansing and pattern recognition
of user’s equipment usage, and event management and task assignments.
In addition to established industry players, we face competition from emerging startups
that are often agile and innovative, leveraging cutting-edge technologies to disrupt the market. These new entrants may introduce novel
solutions that challenge our existing offerings and capture market share. Furthermore, the competitive landscape is influenced by fluctuations
in regulatory policies and incentives, which can impact the adoption of solar technologies and the demand for our products. Although we
recognize the strengths of our competitors, we believe that we provide a significant value add to our users in that our DeepSolar solutions
provide AI analytics, Seamless Integration with all SCADA providers, an insights based report generator, and one software and portal for
all RES whereas many of our competitors only offer one or two of these features. We recognize that to remain competitive, we must continuously
invest in research and development, enhance our technological capabilities, and adapt to changing market conditions. Our ability to anticipate
and respond to these competitive pressures is crucial for sustaining our growth and maintaining our leadership position in the industry.
Intellectual Property
We rely on a combination of copyright, trademark and trade secret laws in the United
States and other jurisdictions, as well as contractual protections, to protect our proprietary technology. We do not hold any patents
or patent applications with respect to the DeepSolar business.
We cannot provide any assurance that our proprietary rights with respect to our solutions
will be viable or have value in the future since the validity, enforceability and type of protection of proprietary rights in software-related
industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products
is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an
extent as do the laws of the United States, and effective copyright, trademark, trade secret and patent protection may not be available
in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation
of such rights by others.
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Further, in recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in the software and Internet-related industries. We can become
subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with
competitive offerings. These claims, even if not meritorious, could be expensive to defend and could divert management’s attention
from operating our business. If we become liable to third parties for infringing their intellectual property rights, we could be required
to pay a substantial award of damages and to develop non-infringing technology, obtain a license or cease selling the products that contain
the infringing intellectual property. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable
terms, if at all.
Government Regulation
Government authorities in the U.S., at the federal, state, and local level, and in other
countries and jurisdictions, including the EU, extensively regulate, matters relating to, amongst other things, renewable energy, environmental
protection, technology deployment, and grid integration. Compliance with authorities such as the US Department of Energy, the Federal
Energy Regulatory Commission, and other foreign bodies, as well as with applicable domestic and international statutes and regulations.
As we operate in the solar energy market, we indirectly benefit from federal, state,
local and foreign incentives to promote solar electricity in the form of rebates, tax credits or exemptions and other financial incentives.
the reduction, elimination or expiration of government subsidies and incentives for on-grid solar electricity may negatively affect the
desirability of solar electricity and could harm or halt the growth of the solar electricity industry and our business. For example, in
2015 the U.S. congress passed a multi-year extension to the solar Investment Tax Credit (ITC), and such extension helped grow the U.S.
solar market. The IRA extended the term of the ITC through 2034. However, future reduction in the ITC could reduce the demand for solar
energy solutions in the U.S. which would have an adverse effect on our business, financial condition, and results of operations.
In addition to environmental and energy regulations, we are subject to a number foreign
and domestic laws and regulations that involve matters central to our business. These laws and regulations may involve privacy, data protection,
intellectual property, or other subjects. Many of the laws and regulations to which we are subject are still evolving and being tested
in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws
and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate. Because global laws and
regulations have continued to develop and evolve rapidly, it is possible that we, our products, or our technology may not be, or may not
have been, compliant with each such applicable law or regulation.
In particular, we are subject to a variety of federal, state and international laws
and regulations governing the processing of personal data. Many U.S. states have passed laws requiring notification to data subjects when
there is a security breach of personally identifiable data. There are also a number of legislative proposals pending before the U.S. Congress,
various state legislative bodies and foreign governments concerning data protection. In addition, data protection laws in Europe and other
jurisdictions outside the United States can be more restrictive than those within the United States, and the interpretation and application
of these laws are still uncertain and in flux.
For example, the General Data Protection Regulation, or GDPR,
which took effect on May 25, 2018, enhances data protection obligations for entities that process personal data about individuals, including
obligations to cooperate with European data protection authorities, implement security measures and keep records of personal data processing
activities. Noncompliance with the GDPR can trigger fines equal to the greater of €20 million or 4% of global annual revenue. In
addition, the California Consumer Privacy Act of 2018, or CCPA, effective as of January 1, 2020, gives California residents expanded rights
to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information
about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action
for data breaches, that is expected to increase data breach litigation. Further, we are subject to the Israeli Privacy Protection Law
of 1981, as amended and its regulations, as well as the guidelines of the Israeli Privacy Protection Authority, In August 2025, Amendment
No. 13 to the Israeli Privacy Protection Law became effective, significantly expanding the Israeli data protection framework and aligning
it more closely with the GDPR. Among other things, Amendment No. 13 broadens the definitions of personal data and sensitive data, enhances
the enforcement powers of the Israeli Privacy Protection Authority, introduces substantial administrative fines for violations, and imposes
new obligations relating to data protection officers, data processing practices, and breach notification. Failure to comply with the Israeli
Privacy Protection Law, as amended, may expose us to administrative fines, civil claims (including class actions and statutory damages),
and in certain cases criminal liability. Given the breadth and depth of changes in data protection obligations, meeting the requirements
of GDPR and other applicable laws and regulations has required significant time and resources, including a review of our technology and
systems currently in use against the requirements of GDPR and other applicable laws and regulations. We have taken various steps to prepare
for complying with GDPR and other applicable laws and regulations however there can be no assurance that these steps are sufficient to
assure compliance. Further, additional EU laws and regulations (and member states’ implementations thereof) further govern the protection
of individuals and of electronic communications. If our efforts to comply with GDPR or other applicable laws and regulations are not successful,
we may be subject to penalties and fines that would adversely impact our business and results of operations, and our ability to use personal
data of individuals could be significantly impaired.
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Legal proceedings
From time to time we may become involved in legal proceedings or be subject to claims
arising in the ordinary course of our business. We are currently not a party to any material legal or administrative proceedings and,
are not aware of any pending or threatened material legal or administrative proceedings against us.
Employees
As of December 31, 2025, we had six full-time employees and one part time employees
engaged in research and development, operations, and administration.
We are not bound by any collective bargaining agreements. We consider the relationship
with our employees to be good. We also use outside consultants and contractors with special expertise and skills for limited engagements,
including drug product manufacture and quality assurance.
|
C. |
Organizational Structure |
Our subsidiaries and the countries of their incorporation are as follows:
|
Name |
Jurisdiction of Incorporation | |
|
LayerBio, Inc. |
Delaware, U.S. |
71
|
D. |
Property, Plant and Equipment |
We have facilities in Tel Aviv, Israel. Our Tel Aviv facilities consist of approximately
2,300 square feet of office space under a lease that expires on August 22, 2026. The annual cost of the lease and management services
cost is approximately $72,000. We believe that our existing facilities are adequate for our current needs; however, we may require additional
space and facilities as our business expands.
Not applicable.
You should read the following discussion and analysis of our financial condition and
results of operations and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 20-F.
This discussion and other parts of this Annual Report on Form 20-F contain forward-looking statements that involve risk and uncertainties,
such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed
in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those
discussed in the section titled “Item 3.D.-Risk Factors” and elsewhere in this Annual Report in Form 20-F.
On June 8, 2023, we effected a reverse share split of the ordinary shares at the ratio
of 1-for-10, such that each ten (10) ordinary shares, par value NIS 0 per share, were consolidated into one (1) ordinary share, par value
NIS 0.30. July 3, 2023 was the first date when our ordinary shares began trading on Nasdaq after implementation of the reverse split.
On September 6, 2024, we effected a 1-for-6 reverse share split of our authorized ordinary
shares, including our issued and outstanding ordinary shares, and the par value of each share was decreased from NIS 0.30 per share, to
no par value per share. September 9, 2024 was the first date when our ordinary shares began trading on Nasdaq after implementation of
that reverse split.
On November 20, 2024, we effected a 1-for-4 reverse share split of our authorized ordinary
shares, no par value per share, including our issued and outstanding ordinary shares. November 21, 2024 was the first date when our ordinary
shares began trading on Nasdaq after implementation of that reverse split.
On February 3, 2026, we effected a 1-for-5 reverse share split of our authorized ordinary
shares, no par value per share, including our issued and outstanding ordinary shares. February 6, 2026 was the first date when our ordinary
shares began trading on Nasdaq after implementation of that reverse split.
Unless otherwise indicated herein, all share and per share data presented in this annual
report have been retroactively adjusted to reflect the aforementioned share splits for all periods presented, including comparative prior-period
amounts.
Overview
We are a specialty pharmaceutical company focused on the reformulation of established
therapeutics. Our proprietary extended-release drug-delivery system is designed to provide an extended period of post-surgical pain relief
without the need for repeated dose administration while reducing the potential need for the use of opiates. In March 2025, we acquired
the business operations related to an AI-driven solar analytics technology, DeepSolar.
72
Since our inception in November 2007, we have devoted substantially all of our efforts
to organizing and planning our business, building our management and technical team, developing our proprietary product candidates, and
raising capital.
We have never generated any significant revenue and have funded our business primarily
through the sale of our capital share and issuance of convertible loans.
During the year ended December 31, 2025, we raised gross proceeds of $4.0 million (net
proceeds, after deduction of issuance costs, were $3.8 million) under our ATM program.
As of December 31, 2025, 2024 and 2023, we had approximately $4.1 million, $4.3 million,
and $8.0 million in cash and cash equivalents (including short term deposits), respectively. We recorded net losses of $4.8 million, $14.6
million, and $9.3 million for the years ended December 31, 2025, 2024 and 2023, respectively, and had negative operating cash outflows
of $4.0, $12.6 and $6.7 for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had an accumulated
deficit of approximately $61.3 million.
We expect to continue to incur significant expenses and increasing losses for next several
years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures
on our other research and development and commercial development activities. We expect our expenses will increase substantially over time
as we:
|
|
● |
implement our acquisition of the DeepSolar business; |
|
|
● |
continue the ongoing and planned preclinical and clinical development of our drug
candidates; |
|
|
● |
build a portfolio of drug candidates through the acquisition or in-license of drugs,
drug candidates or technologies; |
|
|
● |
initiate preclinical studies and clinical trials for any additional drug candidates
that we may pursue in the future; |
|
|
● |
seek marketing approvals for our current and future drug candidates that successfully
complete clinical trials; |
|
|
● |
establish a sales, marketing and distribution infrastructure to commercialize any
drug candidate for which we may obtain marketing approval; |
|
|
● |
develop, maintain, expand and protect our intellectual property portfolio; |
|
|
● |
implement operational, financial and management systems; and |
|
|
● |
attract, hire and retain additional administrative, clinical, regulatory and scientific
personnel. |
Financial Operations Overview
Revenue
We have not generated any significant revenue and with respect to our drug development
do not expect to generate any revenue unless or until we obtain regulatory approval and commercialize one or more of our current or future
drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license
fees and other upfront or milestone payments. We expect to generate significant revenue in the future from the commercialization of the
DeepSolar technology.
73
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research
activities, which include, among other things:
|
|
● |
employee-related expenses, including salaries, benefits and stock-based compensation
expense; |
|
|
● |
fees paid to consultants for services directly related to our drug development and
regulatory effort; |
|
|
● |
expenses incurred under agreements with contract research organizations, as well as CMOs and consultants
that conduct preclinical studies and clinical trials; |
|
|
● |
costs associated with preclinical activities and development activities; and
|
|
|
● |
costs associated with technology and intellectual property licenses. |
Costs incurred in connection with research and development activities are expensed as
incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to
completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our
vendors.
Research and development activities are and will continue to be central to our business
model. We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug
candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary
to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any
preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of
our current and future drug candidates will depend on a variety of factors that include, but are not limited to, the following:
|
|
● |
number of clinical trials required for approval and any requirement for extension
trials; |
|
|
● |
per patient trial costs; |
|
|
● |
number of patients that participate in the clinical trials; |
|
|
● |
number of sites included in the clinical trials; |
|
|
● |
countries in which the clinical trial is conducted; |
|
|
● |
length of time required to enroll eligible patients; |
|
|
● |
potential additional safety monitoring or other studies requested by regulatory agencies;
and |
|
|
● |
efficacy and safety profile of the drug candidate. |
In addition, the probability of success for any of our current or future drug candidates
will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs
to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment
of each drug candidate’s commercial potential.
74
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses,
including salaries, benefits and share-based compensation. Other general and administrative expenses include directors’ and officers’
liability insurance premiums, costs associated with being a publicly traded company, fees associated with investor relations, professional
fees for consultants, tax and legal services and facility-related costs.
We expect that general and administrative expenses will increase in the future as we
expand our operating activities and incur additional costs. In addition, if our current or future drug candidates are approved for sale,
we expect that we will incur expenses associated with building our commercial and distribution infrastructure.
Financial (Income) Expenses, Net
Financial (income) expenses, net, primarily consists of interest from deposits, Issuance
costs of warrants, change in fair value of derivative warrant liability, losses from warrants issuing, bank management fees and commissions
and exchange rate differences expenses.
|
A. |
Operating Results |
The table below provides our results of operations for the years ended December 31,
2025, 2024 and 2023.
|
|
Year ended December 31, |
|||||||||||
|
2025 |
2024 |
2023 |
||||||||||
|
|
(US$ thousands) |
|||||||||||
|
Statements of comprehensive loss data: |
||||||||||||
|
Revenues |
(17 |
) |
- |
- |
||||||||
|
Cost of sales (exclusive of items shown separately below)
|
70 |
- |
- |
|||||||||
|
Selling and marketing expenses |
163 |
- |
- |
|||||||||
|
Amortization of intangible assets |
759 |
- |
- |
|||||||||
|
Research and development |
1,136 |
11,705 |
6,035 |
|||||||||
|
General and administrative |
3,011 |
2,968 |
3,549 |
|||||||||
|
Total operating loss |
5,122 |
14,673 |
9,584 |
|||||||||
|
financial (income) expenses, net |
(108 |
) |
(93 |
(248 |
) | |||||||
|
Loss before taxes |
5,014 |
14,580 |
9,336 |
|||||||||
|
Income tax expense |
8 |
8 |
8 |
|||||||||
|
Comprehensive loss |
5,022 |
14,488 |
9,344 |
|||||||||
|
Comprehensive loss attributable to non-controlling interests |
(184 |
) |
- |
- |
||||||||
|
Comprehensive loss attributable to shareholders of the Company |
4,838 |
14,588 |
9,344 |
|||||||||
Operating Expenses
Research and development expenses.
Research and development expenses were $1.1 million for the year ended December 31,
2025, compared to $11.7 million for the year ended December 31, 2024, a decrease of $10.6 million or 90.6%. The decrease in research and
development expenses during 2025 period is primarily due to extensive clinical trial cost in 2024. This decrease was partially offset
by additional research and development expenses incurred in 2025 in connection with the activities of LayerBio, Inc., our subsidiary,
which was acquired during the year ended December 31, 2025.
Research and development expenses were $11.7 million for the year ended December 31,
2024, compared to $6 million for the year ended December 31, 2023, an increase of $5.7 million or 95%. The increase in research and development
expenses during 2024 period is primarily due to an increase of $6.0 million in clinical trials and manufacturing expenses that was offset
by a decrease of $0.2 million in subcontractors and consultants’ expenses.
75
General and administrative expenses.
General and administrative expenses were approximately $3.0 million for the year ended
December 31, 2025 and 2024. Additional general and administrative expenses incurred in 2025 in connection with the activities of LayerBio,
our subsidiary acquired during the year ended December 31, 2025, were offset by decreases in insurance costs and other general and administrative
expenses.
General and administrative expenses were approximately $3.0 million for the year ended
December 31, 2024, compared to approximately $3.6 million for the year ended December 31, 2023, a decrease of approximately $0.6 million,
or 16.7%. The decrease in general and administrative expenses is primarily due to decrease in insurance costs and share based compensation
expenses.
Financial income (expenses).
Financial income were $108,000 for the year ended December 31, 2025, compared to financial
income of approximately $93,000 for the year ended December 31, 2024, an increase of approximately $15,000 or 16.1%. The increase
was primarily due to higher average deposits balances during 2025.
Financial income were $93,000 for the year ended December 31, 2024, compared to financial
income of approximately $248,000 for the year ended December 31, 2023, a decrease of approximately $155,000 or 62.5%. The decrease was
primarily due to a decrease of cash in 2024.
Net loss.
Net loss for the year ended December 31, 2025 was approximately $4.8 million, compared
to a net loss of approximately $14.6 million for the year ended December 31, 2024, a decrease of approximately $9.8 million or 67.1%,
due to the factors discussed above.
Net loss for the year ended December 31, 2024 was approximately $14.6 million, compared
to a net loss of approximately $9.3 million for the year ended December 31, 2023, an increase of approximately $5.3 million or 57.0%,
due to the factors discussed above.
Foreign Private Issuer Status
We report under the Exchange Act, as a non-U.S. company with foreign private issuer
status. As long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange
Act that are applicable to U.S. domestic public companies, including:
|
|
● |
the sections of the Exchange Act regulating the solicitation of proxies, consents
or authorizations in respect of a security registered under the Exchange Act; |
|
|
● |
the sections of the Exchange Act requiring principal shareholders to file public reports of their stock
ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
|
|
● |
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports
on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified
significant events; and |
|
|
● |
Regulation FD, which regulates selective disclosures of material information by issuers.
|
76
|
B. |
Liquidity and Capital Resources. |
Substantial Doubt About Ability to Continue as
a Going Concern
Since our inception, we have devoted substantially all of our efforts to research and
development, clinical trials, and capital raising activities. We are still in our development stage with respect to our development of
our product candidates and have not yet generated significant revenues. Developing drugs, conducting clinical trials and commercializing
products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives.
We have incurred significant losses and negative cash flows from operations since our
inception. For the years ended December 31, 2025 and 2024, we incurred losses of $4.8 million and $14.6 million, respectively, and had
negative operating cash outflows of $4.0 million and $12.6 million for the years ended December 31, 2025 and 2024, respectively. As of
December 31, 2025, we had an accumulated deficit of approximately $61.3 million. We have funded our operations to date primarily through
equity financings and, as of December 31, 2025, we had cash and cash equivalents (including short term deposits and restricted cash) of
approximately $4.1 million and a positive working capital of approximately $1.9 million.
We have incurred and expect to continue incurring losses, and negative cash flows from
operations until our product candidates and the DeepSolar solution, reaches commercial profitability. As a result of these expected losses
and negative cash flows from operations, based on our current cash position and projected operating requirements, there is uncertainty
regarding our ability to meet our financial obligations for at least the next 12 months. While our management is actively exploring various
financing and strategic alternatives, there can be no assurance that such measures will be successful in alleviating this uncertainty.
As a result, we will be required to raise additional capital in the future to support our operations. Therefore, there is substantial
doubt about our ability to continue as a going concern.
Management’s plans include raising capital through the sale of additional equity
securities, debt or capital inflows from strategic partnerships and generating revenues from the commercialization of the DeepSolar solution.
There are no assurances, however, that we will successfully obtain the level of financing needed for our operations. If we are unsuccessful
in raising capital, we may need to reduce activities, curtail, or abandon some or all of our operations, which could materially harm our
business, financial condition and results of operations.
These factors raise substantial doubt on our ability to continue to operate as a going
concern. The consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include
any adjustments that might result from the outcome of this uncertainty.
Overview
To date, we have funded our operations primarily through proceeds from our public offerings,
warrant exercises and private placements. As of December 31, 2025, we had an accumulated deficit of approximately $61.3 million cash and
cash equivalents (including short term deposits and restricted cash) of approximately $4.1 million and a positive working capital of approximately
$1.9 million.
On February 17, 2025, we entered into a business acquisition agreement, or the BladeRanger
Transaction, with Blade Ranger Ltd., or BladeRanger, an Israeli technology company established on December 3, 2015, specializing in innovative
solutions to optimize the efficiency and profitability of photovoltaic (PV) solar panels, pursuant to which we acquired 100% of the business
activities, software, and knowledge base associated with DeepSolar technology. The transaction closed on March 5, 2025. In consideration
of the acquisition we issued to BladeRanger the 35,754 Shares, representing 9.9% of the Company’s issued and outstanding share capital
(after such issuance) and the 44,759 Pre Funded Regular Warrants,) the 137,000 Pre Funded Milestone Warrants, the 217,513 Milestone
Warrant A, and the 217,513 Milestone Warrant B. In addition, certain employees of BladeRanger entered into employment agreements
with us.
77
Our estimate as to how long we expect our funds to support our operations is based on
assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Further,
changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently
anticipate, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors,
including:
|
|
● |
the costs, timing and outcome of manufacturing clinical trial and commercial quantities
of our product candidates; |
|
|
● |
the scope, progress, results and costs of our current and future clinical trials of
OcuRing™-K and potentially PRF-110 for our current targeted uses; |
|
|
● |
the costs, timing and outcome of regulatory review of our product candidates;
|
|
|
● |
the extent to which we acquire or invest in businesses, products and technologies,
including entering into or maintaining licensing or collaboration arrangements for our product candidates on favorable terms, although
we currently have no commitments or agreements to complete any such transactions; |
|
|
●
|
the costs and timing of future commercialization activities, including sales, marketing, manufacturing
and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing,
manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
|
|
● |
the cost to continue the development of the DeepSolar technology to develop a wider
portfolio of solutions; |
|
|
● |
the cost of establishing a sales, marketing, and technical support infrastructure to support the ramp up
of the DeepSolar solution; |
|
|
● |
the amount of revenue, if any, received from commercial sales of our product candidates,
should it receive marketing approval, or from DeepSolar solution; |
|
|
● |
the costs of preparing, filing and prosecuting patent applications, maintaining, defending
and enforcing our intellectual property rights and defending intellectual property-related claims; |
|
|
● |
our ability to establish strategic collaborations, licensing or other arrangements
and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due
under any such agreement; |
|
|
● |
our headcount growth and associated costs as we expand our business operations and
our research and development activities; |
|
|
● |
the costs of operating as a public company; |
|
|
● |
maintaining minimum shareholders’ equity requirements under the Nasdaq rules;
and |
|
|
● |
the impact of the current war between Israel and Hamas which may exacerbate the magnitude
of the factors discussed above. |
We expect our expenses to increase in connection with our planned operations. Until
such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings,
debt financings, collaborations, strategic alliances and/or licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities could include
liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder. In addition,
debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants
that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming
shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could
require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away
from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
78
If we raise additional funds through collaborations, strategic alliances or licensing
arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams or product candidates
or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required
to delay, reduce and/or eliminate our product candidate development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market ourselves.
We did not have during the periods presented, and we do not currently have, any off-balance
sheet arrangements, as defined in the rules and regulations of the SEC.
As of December 31, 2025, we had the following contractual obligations, as defined in
the rules and regulations of the SEC.
|
Payments due by period |
||||||||||||||||||||
|
(US$ thousands) |
||||||||||||||||||||
|
|
Less than 1 year |
1-3 Years |
3-5 Years |
More than 5 years |
Total |
|||||||||||||||
|
Obligations under master clinical research agreements(1) |
1,730 |
- |
- |
- |
1,730 |
|||||||||||||||
(1) Consists all payments (including pass-through payments) master clinical research
organization agreement (also refer to “D. Risk Factors, Risks Related to Our Drug Development and Business”).
Cash Flows
The following table summarizes our statement of cash flows for the years ended December
31, 2025, December 31, 2024 and December 31, 2023.
|
|
Years ended December 31, |
|||||||||||
|
|
(US$ thousands) |
|||||||||||
|
|
2025 |
2024 |
2023 |
|||||||||
|
Net cash used in operating activities |
(3,955 |
) |
(12,621 |
) |
(6,679 |
) | ||||||
|
Net cash provided by (used in) investing activities |
(982 |
) |
(13 |
) |
5,991 |
|||||||
|
Net cash provided by financing activities |
3,818 |
8,863 |
4,616 |
|||||||||
|
Effect of Exchange rate changes on cash, cash equivalents and restricted cash |
(2 |
) |
6 |
2 |
||||||||
|
(Decrease) Increase in cash and cash equivalents and restricted cash |
(1,121 |
) |
(3,765 |
) |
3,930 |
|||||||
|
Cash and cash equivalents and restricted cash, at the beginning of the year |
4,271 |
8,036 |
4,106 |
|||||||||
|
Cash and cash equivalents and restricted cash, at the end of the year |
3,150 |
4,271 |
8,036 |
|||||||||
79
Net cash used in operating activities
For the years ended December 31, 2025 and 2024, net cash used in operating activities
was approximately $4.0 million, and $12.6 million, respectively. A decrease of $8.7 million. The decrease was mainly due to a decrease
of payments for clinical trials and manufacturing.
For the years ended December 31, 2024 and 2023, net cash used in operating activities
was approximately $12.6 million, and $6.7 million, respectively. An increase of $5.9 million. The increase was mainly due to an increase
of payments for clinical trials and manufacturing.
Net cash used in investing activities
For the years ended December 31, 2025, the net cash used by investing activities was
approximately $982 and net cash provided from investing activities was $13,000 in the year ended December 31, 2024. An increase
of $969. The increase during the year ended December 31, 2025 was mainly due to investing in short term deposits.
For the years ended December 31, 2024, the net cash used by investing activities was
approximately $13,000 and net cash provided from investing activities was $6.0 million in the year ended December 31, 2023. The change
during the year ended December 31, 2024 was mainly due to proceeds from short term deposits in 2023.
Net cash provided by financing activities
For the year ended December 31, 2025, net cash provided by financing activities was
approximately $3.8 million. For the year ended December 31, 2024 we had $8.9 million provided by financing activities. The decrease in
net cash provided by financing activities was mainly due to lower proceeds from issuance of shares and exercise of warrants in 2025.
For the year ended December 31, 2024, net cash provided by financing activities was
approximately $8.9 million. For the year ended December 31, 2023 we had $4.6 million provided by financing activities. The increase in
net cash provided by financing activities was mainly due to increase of proceeds from issuance of shares and exercise of warrants in 2024.
Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
Our reporting and functional currency is the U.S. dollar, but some portion of our operational
expenses are in the New Israeli Shekel and Euro. As a result, we are exposed to some currency fluctuation risks. We may, in the future,
decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of
the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us and our operations could
be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.
Liquidity risk
We monitor forecasts of our liquidity reserve (comprising cash and cash equivalents).
We generally carry this out based on our expected cash flows in accordance with practice and limits set by our management. We are in the
process of expanding our operations and the expenses associated therewith and we are therefore exposed to liquidity risk.
We have incurred and expect to continue incurring losses, and negative cash flows from
operations until our products, including DeepSolar, OcuRing™-K and PRF-110, reaches commercial profitability. As a result of
these expected losses and negative cash flows from operations, based on our current cash position and projected operating requirements,
there is uncertainty regarding our ability to meet our financial obligations for at least the next 12 months. While our management is
actively exploring various financing and strategic alternatives, there can be no assurance that such measures will be successful in alleviating
this uncertainty. As a result, we will be required to raise additional capital in the future to complete our clinical trial. Therefore,
there is substantial doubt about our ability to continue as a going concern.
80
|
C. |
Research and Development, Patents and Licenses |
See above, under Item 5A - “Operating Results.”
|
D. |
Trend Information |
We are in a development stage with regard to drug development and early commercialization
with respect to our DeepSolar technology. It is not possible for us to predict with any degree of accuracy the outcome of our research,
development, or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any known trends,
uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income
from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily
be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands,
commitments and events are in this “Operating and Financial Review and Prospects.”
|
E. |
Critical Accounting Estimates |
We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing
so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities and expenses, as well as related disclosure
of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. Changes
in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially
from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition
or results of operations will be affected. For further significant accounting policies please see Note 2 to our audited consolidated financial
statements of this annual report. We believe that our accounting policies contained therein are critical in fully understanding and evaluating
our financial condition and operating results.
81
Estimates Related to the
assets acquisition
The accounting for the BladeRanger transaction required significant management judgment
and the use of estimates. The Company concluded that the acquired set of assets and activities did not meet the definition of a business
under ASC 805 and therefore accounted for the transaction as an asset acquisition under ASC 805-50. The transaction also required significant
estimates in determining the fair value of the consideration transferred and in allocating the purchase price to the acquired assets.
These estimates included the valuation of the equity instruments issued as consideration using option pricing models and the valuation
of the acquired intangible asset.
Business combinations
The accounting for business combinations requires management to make significant estimates
and assumptions in determining the fair value of assets acquired, liabilities assumed, non-controlling interests, identifiable intangible
assets and goodwill as of the acquisition date. In performing these valuations, we rely on valuation analyses, including purchase price
allocation reports, and use assumptions that management believes are reasonable under the circumstances. These assumptions may include,
among others, projected future operating results and cash flows, discount rates, market participant assumptions. Changes in these assumptions
or estimates may materially affect the amounts recorded in our consolidated financial statements and our results of operations.
82
|
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
|
A. |
Directors and Senior Management |
The following table sets forth certain information relating to our directors and senior
management as of March 15, 2026. Unless otherwise stated, the address for our directors and senior management is at the Company’s
registered address c/o 65 Yigal Alon St., Tel Aviv 6744316 Israel.
|
Name |
Age |
Position | |||
|
Senior Management |
|||||
|
Efi Cohen-Arazi(7) |
71 |
Interim Chief Executive Officer and Director |
|||
|
Dr. Ehud Geller(5) |
|
79 |
|
Executive Chairman of the Board and Director |
|
|
Eyal Broder |
|
55 |
|
Chief Financial Officer | |
|
Dr. Sigal Aviel |
62 |
Chief Operating Officer | |||
|
Non-Employee Director |
|||||
|
Asaf Shavit(1)(2)(6) |
65 |
Director | |||
|
Dr. Ellen S. Baron(1) (2) (3)(4) |
73 |
External Director | |||
|
Augustine Lawlor(1) (2) (3)(4) |
70 |
External Director | |||
|
(1) |
Member of the Compensation Committee |
|
(2) |
Member of the Audit Committee |
|
(3) |
Independent Director under Israeli Law |
|
(4) |
Independent Director under the Nasdaq Listing Rules |
|
(5) |
Class I Director |
|
(6) |
Class II Director |
|
(7) |
Class III Director |
Senior Management
Efi Cohen-Arazi has served as a director of the
company since 2020 and as our Interim Chief Executive Officer since March 2026. Mr. Arazi was the Co-Founder & CEO of Rainbow Medical,
Israel’s leading medical device innovation house since 2008. From 2004 to 2006 Mr. Cohen Arazi served as the CEO and Co-Founder
of IntecPharma Ltd. and as Chairman of CollPlant Ltd. since 2006. Mr. Cohen Arazi served as a board director for numerous biotech/medtech
companies since 2005. Mr. Cohen-Arazi was the Senior VP Head of Operations at Immunex Corporation in Seattle, Washington until 2002 when
it was acquired by Amgen where he served as VP and General Manager of the TO site in California. Mr. Cohen Arazi served at Merck-Serono
Group in Switzerland and Israel between 1988 and 2000. Mr. Cohen-Arazi graduated summa cum laude with a M.Sc. degree from the Hebrew University
of Jerusalem, Israel.
Dr. Ehud Geller has been the Chairman of our
Board of Directors since November 2008, and was our Interim Chief Executive Officer from June 2024 until March 2026. Since 1995, he has
been the General Partner of Medica Venture Partners and since 2022, he has served as the Chairman of the Board of Directors and Chief
Executive Officer of Regentis Biomaterials Ltd. Between 1979 and 1985, Dr. Geller was President of the Pharmaceutical Division of Teva
Pharmaceutical Industries (NYSE:TEVA) and Executive VP of the Teva Group. At Teva, he led the acquisition of Ikapharm Ltd. He served as
the President and CEO of Interpharm Laboratories, Ltd. from 1985 to 1990. During these years he also served as head of the Israeli Pharmaceutical
Manufacturers Association and as a Board Member on the Tel Aviv Stock Exchange (TASE). Dr. Geller has a B.Sc. degree in Chemical Engineering,
an MBA degree from Columbia University/Drexel Institute and a Ph.D. degree in pharmaceutical/chemical engineering from Drexel Institute,
Philadelphia. Since 1995, he has been the General Partner of Medica Venture Partners. Mr. Geller was selected to serve on the board of
directors as Chairman due to his significant experience leading and growing companies in the pharmaceutical industry and his significant
leadership experience. His experience leading the company’s management and the depth of his knowledge of our business enable him
to provide valuable leadership on complex business matters that we face on an ongoing basis.
83
Eyal Broder has served as our Chief Financial
Officer since October 2024. Previously, Mr. Broder served as our Finance Director from February 2023 until October 2024. Previously, Mr.
Broder served as Chief Financial Officer at several industry-leading companies, including Inomize, Tradenet Group, Elbit Imaging India
and Director of Finance at Koor Industries Ltd. Mr. Broder holds a BA in Accounting and Economics and an MBA in Business Management, both
from Tel Aviv University.
Dr. Sigal Aviel has served as our Chief Operating
Officer since 2014. Dr. Aviel held the position of Chief R&D Officer at MediWound Ltd. (NASDAQ:MDWD), a company specializing in deep
burns and chronic wound care, between 2013 and 2014. Previously, between 2011 and 2013, she served as a vice president of clinical and
regulatory affairs at Biokine Therapeutics Ltd. focusing on cancer therapy. Between 2005 and October 2010, she directed both platform
and project development at Protalix Biotherapeutics Ltd. (NYSE American: PLX). Dr. Aviel holds a PhD degree in Immunology and Microbiology
from Duke University Medical School as well as an executive MBA degree from the Kellogg School of Business and a BSc degree in Biology
from Tel Aviv University.
Non-Employee Directors
Asaf Shavit has served as a director of the Company
since September 2025. Mr. Shavit has more than 35 years of experience providing audit, tax and financial advisory services to public and
private companies, including public corporations and subsidiaries of foreign entities. His areas of expertise include audits of consolidated
financial statements, budget planning and control, taxation, mergers and acquisitions, corporate liquidations, valuations, and complex
cross-border and capital markets transactions. He currently serves as Managing Partner at Moalem-Shavit & Co., Certified Public Accountants,
since 1995, where he leads a team of more than 14 professionals. Mr. Shavit holds a B.A. in Accounting, Economics and Business Management
and an M.B.A. in Business Management with a concentration in Finance and Banking. He is also a Certified Public Accountant.
Dr. Ellen Baron has served as a director of the
company since September 2020. Dr, Baron has been a Managing Director of Outcome Capital LLC,
a specialized life science and technology advisory and investment banking firm since February 2017. From 2012 until joining Outcome Capital,
she served as a Managing Director of Healthios Capital Markets, LLC. Prior to joining Healthios, Dr. Baron served as a life science venture
capital Partner for Oxford Bioscience Partners and as Senior Vice President, Business Development at Human Genome Sciences, a publicly
traded biopharmaceutical company. Dr. Baron previously had spent 20 years at Schering-Plough Corporation in both Research and Development
and Business Development. Dr. Baron served as Chairman of the Board of Directors of Tetragenetics Inc., a biotech company recently acquired
by AbCellera on September 13, 2021, as an independent director at Sixth Element Capital, a UK-based oncology focused venture capital fund
and SFH, a Maine-based nutraceutical company. Dr. Baron holds a Ph.D. in Microbiology from Georgetown University School of Medicine, a
post-doctorate at the Public Health Research Institute in New York and bachelor’s degree from Goucher College.
84
Augustine Lawlor has served as a director of
the company since September 2020. Mr. Lawlor has been the Managing Director of HealthCare Ventures
since 2000. Mr Lawlor has been the Chief Operating Officer of Leap Therapeutics since 2016. Prior to joining HealthCare Ventures, Mr.
Lawlor served as Chief Operating Officer of LeukoSite Inc. Mr. Lawlor serves on the board of a number of private companies. He received
a B.A. from the University of New Hampshire and a master’s degree in management from Yale University.
Arrangements Concerning Election of Directors;
Family Relationships
We are not aware of any arrangements or understandings with major shareholders, customers,
suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management. In addition,
there are no family relationships among our executive officers and directors.
|
B. |
Compensation |
Compensation of Senior Management and Directors
Aggregate Executive Compensation
Aggregate Executive Compensation
The following table presents in the aggregate all compensation paid or accrued to and
benefits-in-kind granted to or accrued to all of our senior management and directors as a group for the year ended December 31, 2025.
The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during
this period.
|
|
Salaries, fees, commissions, and bonuses |
Pension, retirement and similar benefits |
Value of Options Granted(1) |
|||||||||
|
|
(in thousands of U.S. dollars) |
(in thousands of U.S. dollars) |
(in thousands of U.S. dollars)
|
|||||||||
|
All senior management and directors as a group, consisting of 8 persons |
1,141 |
128 |
408 |
|||||||||
|
(1) |
Consists of amounts recognized as share-based compensation expense for the year ended
December 31, 2025. Assumptions and key variables used in the calculation of such amounts are discussed in Note 8 of our consolidated financial
statements. |
Individual Compensation of Covered
Executives The table and summary below outline the compensation granted to our five most highly compensated “office holders”
during or with respect to the year ended December 31, 2025 as required by the Companies Law. The Companies Law defines the term “office
holder” of a company to include the chief executive officer (referred to in the Companies Law as the general manager), the chief
business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions
regardless of that person’s title, a director and any other manager directly subordinate to the general manager. We refer to the
five individuals for whom disclosure is provided herein as our “Covered Executives.”
85
|
Name and Position(1)
|
Salary |
Social
Benefits (2)
|
Bonuses |
Value of Options
Granted (3)
|
All Other
Compensation(4)
|
Total |
||||||||||||||||||
|
|
(in thousands of U.S. dollars) |
|||||||||||||||||||||||
|
Ehud Geller,
Interim Chief Executive Officer and Chairman |
27 |
- |
- |
367 |
270 |
664 |
||||||||||||||||||
|
Sigal Aviel
Chief Operating Officer |
284 |
57 |
- |
13 |
- |
354 |
||||||||||||||||||
|
Eyal Broder,
Chief Financial Officer |
282 |
71 |
- |
9 |
- |
362 |
||||||||||||||||||
|
Eli Hazum
(5)
Former Chief Technology Officer |
14 |
69 |
83 |
|||||||||||||||||||||
|
(1) |
Mr. Geller and Dr. Hazum were employed on a part-time basis during 2025. Mr. Aviel and Mr. Broder were
employed on a full time basis during 2025. |
|
(2) |
“Social Benefits” include payments to the National Insurance Institute,
advanced education funds, managers’ insurance and pension funds, vacation pay and recuperation pay as mandated by Israeli law.
|
|
(3) |
Consists of amounts recognized as share-based compensation expense for the year ended
December 31, 2024. Assumptions and key variables used in the calculation of such amounts are discussed in Note 10 of our consolidated
financial statements. |
|
(4) |
“All Other Compensation” includes chairman of the board of directors’ annual fee and
directors’ consulting related fees. |
| (5) |
Effective September 30, 2025, Professor Eli Hazum resigned. |
Employment and Consulting Agreements
We have entered into employment or consulting agreements with all of our executive officers
and key employees. These agreements contain standard provisions for a company in our industry regarding non-solicitation, confidentiality
of information, non-competition and assignment of inventions. Our executive officers will not receive benefits upon the termination of
their respective engagement with us, other than, as the case may be prior notice payment or mandatory severance payments salary and benefits
(including accrued pension and limited accrual of vacation days) during the required notice period for termination of their employment,
which varies for each individual. The agreements are terminable by us at will, subject to prior notice, which varies for each individual.
Employment Agreement with Eyal Broder: On February
1, 2023, we entered into an employment agreement with Eyal Broder, pursuant to which Mr. Broder will begin serving as our Chief Financial
Officer, Mr. Broder current gross monthly salary is NIS 61,000. Mr. Broder is entitled to an allocation to a manager’s insurance
policy equivalent to an amount up to 5% of his gross monthly salary, up to 2.5% of his gross monthly salary for disability insurance and
7.5% of her gross monthly salary for a study fund. The foregoing amounts are paid by us. 6% percent of his gross monthly salary is deducted
for the manager’s insurance policy and 2.5% is deducted for the study fund. Mr. Broder is also entitled to reimbursement for reasonable
out-of-pocket expenses, including travel expenses, and use of a mobile phone.
86
Mr. Broder is also entitled to receive options exercisable into our ordinary shares
from time to time. As of March 15, 2026, we have granted him options to purchase 2,180 ordinary shares.
The term of Mr. Broder’s employment agreement is indefinite, unless earlier terminated
for cause by either party, upon the death, disability or retirement age, or without cause by either party, subject to 60 days’ advanced
notice. Furthermore, a standard twelve (12) months after termination non-competition clause is included in the Agreement.
Consulting Agreement with Eli Hazum. On April
1, 2018, we entered into a consultancy agreement with Prof. Hazum under which he was engaged to serve as our CEO on a 3 days per week
basis. In December 2019, he was appointed as our Chief Technology Officer and efffective September 30, 2025, Professor Eli Hazum resigned.
In consideration for his services, Prof. Hazum was entitled to a monthly fee of $12,000. The engagement was terminable upon 60 days’
prior written notice by either party.
Mr. Hazum was also entitled to receive options exercisable into our ordinary shares
from time to time. As of March 15, 2026, all his options expired after his resignation.
Employment Agreement with Sigal Aviel. Dr. Sigal
Aviel has provided consulting services to our company since October 2014 as Chief Operating Officer. On January 1, 2019, we entered into
an employment agreement with Dr. Aviel pursuant to which she continues to serve as our Chief Operating Officer. Dr. Aviel’s employment
agreement provides for 100% of full-time employment in consideration of a monthly gross base salary of approximately 64,660 NIS. Dr. Aviel
will also be entitled to 24 days annual vacation days as well as full social benefits. The employment may terminate upon 60 days’
prior written notice by either party.
Ms. Aviel is also entitled to receive options exercisable into our ordinary shares from
time to time. As of March 15, 2026, we have granted Ms. Aviel options to purchase 3,759 ordinary shares.
Compensation of Directors
At our extraordinary general meeting held in February 2021 our shareholders approved,
following the approval of our Compensation Committee and Board of Directors, the payment to each of our directors the following fees:
(i) our non-executive directors (other than the external directors) are each entitled to an annual payment of between $13,835.00 to $23,745.00
and $350 per meeting, and (ii) our external directors are each entitled to the fixed compensation set under the Companies Regulations
(Rules regarding Remuneration and Expenses for an External Director), 5764-2000, or the Remuneration Regulations. Under the current Remuneration
Regulations, each external director is entitled to an annual payment of between $13,835.00 to $23,745.00 a $450 per meeting. The directors
are also entitled to reimbursement of expenses (including travel, stay and lodging), subject to the Companies Law and the regulations
promulgated thereunder, and in accordance with our company practices and our Compensation Policy for Executive Officers and Directors,
or the Compensation Policy.
On July 6, 2020, our shareholders approved a yearly payment of $150,000.00 to Dr.
Ehud Geller in consideration of his services, payable quarterly, for his services as Chairman of our Board of Directors. In connection
with Dr. Geller’s service as our Interim Chief Executive Officer in 2025, he was awarded an additional $150,000 for total yearly
compensation of $300,000.
Dr. Ehud Geller is also entitled to receive options to purchase our ordinary shares
from time to time. As of March 15, 2026, we have granted Dr. Ehud Geller options to purchase 21,916 ordinary shares.
87
See also “Item 6. Directors, Senior Management and Employees-C. Board Practices-External
Directors” and “Item 7. Major Shareholders and Related Party Transactions-C. Related Party Transactions” below.
For the outstanding equity-based awards granted to our directors, see below under “Item
6. Directors, Senior Management and Employees-E. Share Ownership-Certain Information Concerning Equity Awards to Office Holders.”
For information on exemption and indemnification letters granted to our directors and
officers, please see “C. Board Practices - Exculpation, Insurance and Indemnification of Directors and Officers”.
|
C. |
Board Practices |
Board of Directors
Our amended and restated articles of association provide that we may have between five
and eight directors, including directors who serve as external directors under the Companies Law. Our board of directors currently consists
of six directors. Other than our external directors, (who are elected and serve in office in strict accordance with the provisions of
the Companies Law), our directors are classified, with respect to the term for which they each severally hold office, into three classes,
as nearly equal in number as practicable, designated as Class I, Class II and Class III. Each class of directors serves a three-year term,
with the terms staggered so that approximately one-third of the directors are elected each year. Notwithstanding the foregoing, our amended
and restated articles of association provide that Article 30(b) of our articles of association (concerning the classified board) may only
be amended, replaced or suspended by a resolution adopted at a general meeting by a majority of 65% of the voting power represented at
the general meeting in person or by proxy and voting thereon..
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
up for election or re-election, subject to the special approval requirements for external directors.
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 not less than the minimum number specified in our amended and restated
articles of association. If the number of serving directors is lower than such minimum number, then our board of directors may only act
in an emergency or to fill the office of director which has become vacant up to a number equal to the minimum number provided for pursuant
to our amended and restated articles of association, or in order to call a general meeting of our shareholders for the purpose of electing
directors to fill any vacancies. The board of directors is entitled at any time and from time to time to appoint any person as a director,
provided that the number of directors does not exceed the maximum number specified above. A director who is so appointed shall serve insofar
as his or her office is not vacated in accordance with the provisions of our amended and restated articles of association.
Pursuant to the Companies Law and our amended and restated 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 voting. 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.
Under the Companies Law, the chief executive officer of a public company may not serve
as the chairman of the board of directors of the company unless approved by the holders of a majority of the shares of the company represented
and voted at the meeting in person or by proxy or written ballot and for a term not exceeding three (3) years from the date of the shareholder’s
meeting, provided that:
|
|
● |
at least a majority of the shares of non-controlling shareholders or shareholders
that do not have a personal interest in the approval voted at the meeting are voted in favor (disregarding abstentions); or |
88
|
|
● |
the total number of shares of non-controlling shareholders or shareholders that do
not have a personal interest in the approval voted against the proposal does not exceed 2% of the aggregate voting rights in the company.
|
In addition, a person subordinated, directly or indirectly, to the chief executive officer
may not serve as the chairman of the board of directors; the chairman of the board of directors may not be vested with authorities that
are granted to those subordinated to the chief executive officer; and the chairman of the board of directors may not serve in any other
position in the company or a controlled company, except as a director or chairman of a controlled company.
In addition, under the Companies Law, our board of directors must determine the minimum
number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial
and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of
proficiency in and understanding of business accounting matters and consolidated financial statements. He or she must be able to thoroughly
comprehend the consolidated financial statements of the listed company and initiate debate regarding the manner in which financial information
is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other
things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we
require at least two directors with the requisite financial and accounting expertise. The board of directors has determined that Mr. Lawlor,
Dr. Baron and Dr. Ehud Geller have the requisite financial and accounting expertise.
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. While the Companies Law carves out certain exemptions, we cannot avail ourselves of these exemptions
at this time.
A person may not be appointed as an external director if the person is a relative of
a controlling shareholder or if on the date of the person’s appointment or within the preceding two years the person or his or her
relatives, partners, employers or anyone to whom that person is subordinate, whether directly or indirectly, or entities under the person’s
control have or had any affiliation with any of the following, or an affiliated entity: (1) us; (2) any person or entity controlling us
on the date of such appointment; (3) any relative of a controlling shareholder; or (4) any entity controlled, on the date of such appointment
or within the preceding two years, by us or by a controlling shareholder. If there is no controlling shareholder or any shareholder holding
25% or more of voting rights in the company, a person may not be appointed as an external director if the person has any affiliation to
the chairman of the board of directors, the chief executive officer (referred to in the Companies Law as a general manager), any shareholder
holding 5% or more of the company’s shares or voting rights or the senior financial officer as of the date of the person’s
appointment.
The term “controlling shareholder” means a shareholder with the ability
to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to have “control”
of the company and thus to be a controlling shareholder of the company if the shareholder holds 50% or more of the “means of control”
of the company. “Means of control” is defined as (1) the right to vote at a general meeting of a company or a corresponding
body of another corporation; or (2) the right to appoint directors of the corporation or its general manager. For the purpose of approving
related-party transactions, the term also includes any shareholder that holds 25% or more of the voting rights of the company if the company
has no shareholder that owns more than 50% of its voting rights. For the purpose of determining the holding percentage stated above, two
or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint
holders.
The term affiliation includes:
|
|
● |
an employment relationship; |
89
|
|
● |
a business or professional relationship maintained on a regular basis; |
|
|
● |
control; and |
|
|
● |
service as an office holder, excluding service as a director in a private company
prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to
serve as an external director following the initial public offering. |
The term “relative” is defined as a spouse, sibling, parent, grandparent,
descendant, spouse’s descendant, sibling and parent and the spouse of each of the foregoing.
A person may not serve as an external director if that person or that person’s
relative, partner, employer, a person to whom such person is subordinate (directly or indirectly) or any entity under the person’s
control has a business or professional relationship with any entity that has an affiliation with any affiliated entity, even if such relationship
is intermittent (excluding insignificant relationships). Additionally, any person who has received compensation intermittently (excluding
insignificant relationships) other than compensation permitted under the Companies Law may not continue to serve as an external director.
No person can serve as an external director if the person’s position or other
affairs create, or may create, a conflict of interest with the person’s responsibilities as a director or may otherwise interfere
with the person’s ability to serve as a director or if such a person is an employee of the Israeli Securities Authority or of an
Israeli stock exchange. If at the time an external director is appointed all current members of the board of directors, who are not controlling
shareholders or relatives of controlling shareholders, are of the same gender, then the external director to be appointed must be of the
other gender. In addition, a person who is a director of a company may not be elected as an external director of another company.
According to regulations promulgated under the Companies law, at least one of the external
directors is required to have “financial and accounting expertise,” unless another member of the audit committee, who is an
independent director under the Nasdaq Stock Market rules, has “financial and accounting expertise,” and the other external
director or directors are required to have “professional expertise.” An external director may not be appointed to an additional
term unless: (1) such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,”
and on the date of appointment for another term there is another external director who has “accounting and financial expertise”
and the number of “accounting and financial experts” on the board of directors is at least equal to the minimum number determined
appropriate by the board of directors.
The regulations promulgated under the Companies Law define an external director with
requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic
degree in either economics, business administration, accounting, law or public administration, (2) the director either holds an academic
degree in any other field or has completed another form of higher education in the company’s primary field of business or in an
area which is relevant to his or her office as an external director in the company, or (3) the director has at least five years of experience
serving in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities:
(a) a senior business management position in a company with a substantial scope of business, (b) a senior position in the company’s
primary field of business or (c) a senior position in public administration.
Until the lapse of a two-year period from the date that an external director of a company
ceases to act in such capacity, the company in which such external director served, and its controlling shareholder or any entity under
control of such controlling shareholder may not, directly or indirectly, grant such former external director, or his or her spouse or
child, any benefit, including by way of (i) the appointment of such former director or his or her spouse or his child as an officer in
the company or in an entity controlled by the company’s controlling shareholder, (ii) the employment of such former director, and
(iii) the engagement, directly or indirectly, of such former director as a provider of professional services for compensation, directly
or indirectly, including via an entity under his or her control. With respect to a relative who is not a spouse or a child, such limitations
only apply for one year from the date such external director ceased to be engaged in such capacity.
90
The provisions of the Companies Law set forth special approval requirements for the
election of external directors. External directors must be elected by a majority vote of the shares present and voting at a shareholders
meeting, provided that either:
|
|
●
|
such majority includes at least a majority of the shares held by shareholders who
are non-controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest
not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer
as a disinterested majority; or |
|
|
● |
the total number of shares voted by non-controlling shareholders and by shareholders
who do not have a personal interest in the election of the external director, against the election of the external director, does not
exceed 2% of the aggregate voting rights in the company. |
The initial term of an external director is three years. Thereafter, an external director
may be reelected by shareholders to serve in that capacity for up to two additional three-year terms, provided that:
|
|
●
|
his or her service for each such additional term is recommended by one or more shareholders
holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where
the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate
voting rights in the company. In such event, the external director so reappointed may not be a Related or Competing Shareholder, as defined
below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with a Related or
Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as
external director. The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder
holding 5% or more of the outstanding shares or voting rights of the company, provided, that at the time of the reappointment, such shareholder,
the controlling shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with the company
or are competitors of the company; |
|
|
● |
the external director proposed his or her own nomination, and such nomination was
approved in accordance with the requirements described above; |
|
|
● |
his or her service for each such additional term is recommended by the board of directors
and is approved at a shareholders meeting by the same majority required for the initial election of an external director (as described
above). |
The term of office for external directors for Israeli companies traded on certain foreign
stock exchanges, including the Nasdaq Marketplace Rules, may be extended indefinitely in increments of additional three-year terms, in
each case provided that the audit committee and the board of directors of the company confirm that, in light of the external director’s
expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s)
is beneficial to the company, and provided that the external director is reelected subject to the same shareholder vote requirements as
if elected for the first time (as described above).
External directors may be removed from office by a special general meeting of shareholders
called by the board of directors, which approves such dismissal by the same shareholder vote percentage required for their election, after
receiving the board of directors arguments for such removal, or by a court, in each case, only under limited circumstances, including
ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an external directorship
becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required
under the Companies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.
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Each committee of the board of directors that is authorized to exercise the powers of
the board of directors must include at least one external director, except that the audit committee and the compensation committee must
include all external directors then serving on the board of directors.
External directors may be compensated only in accordance with regulations adopted under
the Companies Law.
Role of Board of Directors in Risk Oversight Process
Risk assessment and oversight are an integral part of our governance and management
processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy
and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific
strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout
the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations
that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate
such risks.
Leadership Structure of the Board of Directors
In accordance with the Companies Law and our articles of association, our board of directors
is required to appoint one of its members to serve as chairman of the board of directors. Our board of directors has appointed Dr. Ehud
Geller to serve as chairman of the board of directors.
Committees of the Board of Directors
Audit Committee
Our audit committee currently consists of three (3) persons. The current members of
the audit committee are Asi Shavit, Dr. Ellen Baron and Augustine Lawlor. Mr. Lawlor serves as chairman of the committee. Our board of
directors has determined that Mr. Lawlor 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.
Under the Nasdaq Marketplace 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.
Under the Companies Law, we are required to appoint an audit committee. The audit committee
must be comprised of at least three directors, including all of the external directors, one of whom must serve as chairman of the committee.
Under the Companies Law, the audit committee may not include the chairman of the board of directors, a controlling shareholder of the
company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis to the company, to
a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a
controlling shareholder.
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In addition, as explained above, under the Companies Law, the audit committee of a publicly
traded company must consist of a majority of unaffiliated directors. In general, an “unaffiliated director” under the Companies
Law is defined as either an external director or as a director who meets the following criteria:
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he or she meets the qualifications for being appointed as an external director, except
for the requirement that the director be an Israeli resident (which does not apply to companies whose securities have been offered outside
of Israel or are listed outside of Israel); and |
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he or she has not served as a director of the company for a period exceeding nine
consecutive years, provided that, for this purpose, a break of less than two years in service shall not be deemed to interrupt the continuation
of the service. |
The Companies Law further requires that generally, any person who does not qualify to
be a member of the audit committee may not attend the audit committee’s meetings and voting sessions, unless such person was invited
by the chairperson of the committee for the purpose of presenting on a specific subject; provided, however, that an employee of the company
who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of the committee, provided
that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretary
who are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required
by the committee.
The quorum required for the convening of meetings of the audit committee and for adopting
resolutions by the audit committee is a majority of the members of the audit committee, provided such majority is comprised of a majority
of independent directors, at least one of whom is an external director.
Approval of transactions with related parties
Under the Companies Law, the approval of the audit committee is required to effect specified
actions and transactions with office holders and controlling shareholders and their relatives, or in which they have a personal interest.
See “Management-Fiduciary duties and approval of specified related party transactions under Israeli law.” The audit committee
may not approve an action or a transaction with a controlling shareholder or with an office holder unless at the time of approval the
audit committee meets the composition requirements under the Companies Law.
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 Marketplace Rules, which include, among others:
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retaining and terminating our independent auditors, subject to the ratification of
the board of directors, and in the case of retention, to that of the shareholders; |
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pre-approving of audit and non-audit services and related fees and terms, to be provided
by the independent auditors; |
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overseeing the accounting and financial reporting processes of the Company and audits
of our consolidated financial statements, the effectiveness of our internal control over financial reporting and making such reports as
may be required of an audit committee under the rules and regulations promulgated under the Exchange Act; |
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reviewing with management and our independent auditor our annual and quarterly consolidated
financial statements prior to publication or filing (or submission, as the case may be) to the SEC; |
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recommending to the board of directors the retention and termination of the internal
auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly
or periodic work plan proposed by the internal auditor; |
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reviewing with our general counsel and/or external counsel, as deem necessary, legal
and regulatory matters that could have a material impact on the consolidated financial statements; |
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identifying irregularities in our business administration, inter alia, by consulting
with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors; and |
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reviewing policies and procedures with respect to transactions (other than transactions
related to the compensation or terms of services) between the company and officers and directors, or affiliates of officers or directors,
or transactions that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions
if so required under the Companies Law. |
Under the Companies Law, our audit committee is responsible for:
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determining whether there are deficiencies or irregularities in the business management
practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to
the board of directors to improve such practices; |
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determining the approval process for transactions with a controlling shareholder or
in which a controlling shareholder has a personal interest; |
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determining whether to approve certain related party transactions (including transactions
in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) (see
“- Approval of Related Party Transactions under Israeli Law”); |
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where the board of directors approves the working plan of the internal auditor, to
examine such working plan before its submission to the board of directors and proposing amendments thereto; |
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examining our internal controls and internal auditor’s performance, including
whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
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examining the scope of our auditor’s work and compensation and submitting a
recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment
of our auditor; and |
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establishing procedures for the handling of employees’ complaints as to the
management of our business and the protection to be provided to such employees. |
Compensation Committee and Compensation Policy
The members of our compensation committee are Asi Shavit, Dr. Ellen Baron and Augustine
Lawlor. Asi Shavit serves as chairperson of the committee.
Israeli Companies Law Requirements
Under the Companies Law, the board of directors of a public company must appoint a compensation
committee. The duties of the compensation committee include the recommendation to our board of directors of a policy regarding the terms
of engagement of office holders (as defined in the Companies Law), to which we refer as a Compensation Policy. The term “office
holder” is defined under the Companies Law as a chief executive officer (referred to in the Companies Law as the general manager),
chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions
regardless of that person’s title, a director and any other manager directly subordinate to the general manager. That policy must
be adopted by our board of directors, after considering the recommendations of the compensation committee, and will need to be approved
by our shareholders, which approval requires what we refer to as a Special Majority Approval for Compensation. A Special Majority Approval
for Compensation requires shareholder approval by a majority vote of the ordinary shares present and voting at a meeting of shareholders
called for such purpose, provided that either: (i) such majority includes at least a majority of the ordinary shares held by all shareholders
who are not controlling shareholders and do not have a personal interest in such compensation arrangement, excluding abstentions; or (ii)
the total number of ordinary shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation
arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.
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Even if our shareholders do not approve the Compensation Policy, the board of directors
may resolve to approve the compensation policy if and to the extent the compensation committee and the board determine, in its judgment
following internal discussions and after reconsidering the compensation policy, that approval of the compensation policy is in the best
interests of the company.
Subject to certain exceptions, the Compensation Policy must be approved by such company’s
shareholders every three years. Our current Compensation Policy was approved by our shareholders at an extraordinary general meeting of
shareholders held on February 23, 2021. In addition, the Board of Directors is required to periodically examine the Compensation Policy
and the need for adjustments in the event of a material change in the circumstances prevailing during the adoption of the compensation
policy or for other reasons. As our shareholders have yet to approve a compensation policy, the shareholders are requested to approve
the new Compensation Policy, as set forth herein.
A Compensation Policy must be based on, and must include and reference certain matters
and provisions set forth in the Companies Law, which include: (i) promoting the company’s goals, work plan and policy with a long-term
view; (ii) creating appropriate incentives for the company’s office holders, considering, among other things, the company’s
risk management policy; (iii) the company’s size and nature of operations; and (iv) with respect to variable elements of compensation
(such as annual cash bonuses), the office holder’s contribution to achieving company objectives and maximization of the company’s
profits, with a long-term view and in accordance with his or her position.
Our Compensation Policy is designed to support the achievement of our long-term work
plan goals and to ensure that:
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Officers’ interests are as closely as possible aligned with our interests;
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The correlation between pay and performance will be enhanced; |
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We will be able to recruit and retain top level executives capable of leading us to further business success,
facing the challenges ahead; |
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Our officers will be motivated to achieve a high level of business performance without taking unreasonable
risks. Therefore, the variable compensation component may not be based on extreme business performance goals which might potentially impose
unreasonable risks on our officers; and |
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An appropriate balance between different compensation elements (e.g., fixed vs. variable, short-term vs.
long-term and cash payments vs. equity-based compensation). |
Our compensation committee and board of directors believe that the most effective executive
compensation program is one that is designed to reward achievement and that aligns executives’ interests with those of ours and
our shareholders by rewarding performance, with the ultimate objective of improving shareholder value and building a sustainable company.
Our compensation committee and board of directors also seek to ensure that we maintain our ability to attract and retain superior employees
in key positions and that the compensation provided to key employees remains competitive relative to the compensation paid to similarly
situated executives of a selected group of our peer companies and the broader marketplace from which we recruit and compete for talent.
Our Board of Directors believes that the proposed Compensation Policy properly balances the requirements of the Companies Law and the
philosophy and objectives described above.
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Compensation that may be granted to an executive officer may include base salary, an
annual bonus, other cash bonuses (such as a signing bonus or special bonus for special achievements, such as an outstanding personal achievement,
outstanding personal effort or outstanding company performance), equity-based compensation, benefits and retirement compensation and termination
of service arrangements. All cash bonuses will be limited to a maximum amount linked to the executive officer’s base salary. In
addition, the total variable compensation components (cash bonuses and equity-based compensation) may not exceed 85% of each executive
officer’s total compensation package with respect to any given calendar year.
The annual cash bonus that may be granted to our executive officers (excluding our chief
executive officer) will be based on performance objectives and a discretionary evaluation of the executive officer’s overall performance
by our chief executive officer and is subject to minimum thresholds. The annual cash bonus that may be granted to executive officers (excluding
our chief executive officer) may be based entirely on a discretionary evaluation. Furthermore, our chief executive officer will be entitled
to recommend performance objectives, and such performance objectives will be approved by our compensation committee and, if required by
law, by our board of directors.
The performance-measurable objectives of our chief executive officer will be determined
annually by our compensation committee and board of directors. Such objectives will include the weight assigned to each achievement in
the overall evaluation. A less significant portion of the chief executive officer’s annual cash bonus may be based on a discretionary
evaluation of the chief executive officer’s overall performance by the compensation committee and the board of directors based on
quantitative and qualitative criteria.
Equity-based compensation for executive officers (including members of our board of
directors) will be designed in a manner consistent with the underlying objectives in determining such person’s annual cash bonus;
namely, to enhance the alignment between such person’s interests with the company’s long-term interests and those of our shareholders
and to strengthen the retention and motivation of such persons in the medium to long term.
Our Compensation Policy provides for executive officer’s compensation to be in
the form of share options or other equity-based awards, such as restricted shares and restricted share units, in accordance with our share
incentive plan then in place. All equity-based incentives granted to executive officers shall be subject to vesting periods in order to
promote long-term retention of the awarded executive officers. Equity-based compensation shall be granted from time to time and will be
individually determined and awarded based on the performance, educational background, prior business experience, qualifications, role
and the personal responsibilities of the executive officer.
In addition, our Compensation Policy contains compensation recovery provisions that
will allow the company, under certain conditions, to recover bonuses paid in excess of what should have been received. Moreover, the Compensation
Policy enables our chief executive officer to approve immaterial changes to the terms of an executive officer’s employment (provided
that the changes of the terms of employment are in accordance our compensation policy) and will allow the company to exculpate, indemnify
and insure our executive officers and directors subject to certain limitations.
Our Compensation Policy also provides for compensation for the members of our board
of directors to be determined either (i) in accordance with the amounts set forth in the Remuneration Regulations as such regulations
may be amended from time to time, or (ii) in accordance with the amounts determined in our Compensation Policy.
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Compensation Committee Roles
The compensation committee is responsible for (i) recommending the compensation policy
to our board of directors for its approval (and subsequent approval by our shareholders) and (ii) undertaking duties related to the compensation
policy and to the compensation of our office holders, including:
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recommending whether a compensation policy should continue in effect, if the then-current
policy has a term of greater than five years from the company’s initial public offering, or otherwise three years (approval of either
a new compensation policy or the continuation of an existing compensation policy must in any case occur five years from the company’s
initial public offering, or otherwise every three years); |
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recommending to the board of directors periodic updates to the compensation policy;
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assessing implementation of the compensation policy; |
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determining whether to approve the terms of compensation of certain office holders
which, according to the Companies Law, require the committee’s approval; and |
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determining whether the compensation terms of a candidate for the position of the
chief executive officer of the company needs to be brought to approval of the shareholders according to the Companies Law. |
Our compensation committee charter sets forth the responsibilities of the compensation
committee, which include:
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the responsibilities set forth in the compensation policy; |
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reviewing and approving the granting of options and other incentive awards to the
extent such authority is delegated by our board of directors; and |
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reviewing, evaluating and making recommendations regarding the compensation and benefits
for our non-employee directors. |
In addition, our compensation committee is responsible for:
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overseeing our corporate governance functions on behalf of the board; |
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making recommendations to the board regarding corporate governance issues; |
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identifying and evaluating candidates to serve as our directors consistent with the
criteria approved by the board; |
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reviewing and evaluating the performance of the board; |
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serving as a focal point for communication between director candidates, non-committee
directors and our management; selecting or recommending to the board for selection candidates to the board; and |
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making other recommendations to the board regarding affairs relating to our directors.
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Internal Auditor
Under the Companies Law, the board of directors of a public company must appoint an
internal auditor based on the recommendation of the audit committee. The role of the internal auditor is to examine, among other things,
our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities and to assess
the performance of the internal auditor as well as to review the internal auditor’s work plan.
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An internal auditor may not be:
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a person (or a relative of a person) who holds more than 5% of the company’s
outstanding shares or voting rights; |
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a person (or a relative of a person) who has the power to appoint a director or the
general manager of the company; |
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an office holder or director (or a relative of an officer or director) of the company;
or |
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a member of the company’s independent accounting firm, or anyone on its behalf.
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Our internal auditor is Yisrael Gewirtz, partner, Fahn Kanne Grant Thornton Israel,
effectively starting in January 2021.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Officers
The Companies Law imposes a duty of care and a fiduciary duty on all office holders
of a company. Each person listed in the table under “Management-Senior Management and Directors” is an office holder under
the Companies Law.
The duty of care requires an office holder to act with the degree of proficiency with
which a reasonable office holder in the same position would have acted under the same circumstances. The fiduciary duty requires that
an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
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information on the advisability of a given action brought for his or her approval
or performed by virtue of his or her position; and |
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all other important information pertaining to these actions. |
The fiduciary duty includes a duty to:
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refrain from any act involving a conflict of interest between the performance of his
or her duties to the company and his or her other duties or personal affairs; |
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refrain from any activity that is competitive with the company; |
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refrain from exploiting any business opportunity of the company to receive a personal
gain for himself or herself or others; and |
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disclose to the company any information or documents relating to the company’s
affairs which the office holder received as a result of his or her position as an office holder. |
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Disclosure of Personal Interests of an Office
Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the company any
personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed
transaction by the company. An interested office holder’s disclosure must be made promptly and, in any event, no later than the
first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose a personal
interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered as an extraordinary
transaction.
A “personal interest” is defined under the Companies Law to include a personal
interest of any person in an act or transaction of a company, including the personal interest of such person’s relative or of a
corporate body in which such person or a relative of such person is a 5% or greater shareholder, director, or general manager or in which
he or she has the right to appoint at least one director or the general manager, but excluding a personal interest solely stemming from
one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom
the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person
for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obliged
to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered
an extraordinary transaction.
Under the Companies Law, an extraordinary transaction is defined as any of the following:
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a transaction other than in the ordinary course of business; |
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a transaction that is not on market terms; or |
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a transaction that may have a material impact on the company’s profitability,
assets, or liabilities. |
If it is determined that an office holder has a personal interest in a transaction which
is not an extraordinary transaction, approval by the board of directors is required for such transaction, unless the company’s articles
of association provide for a different method of approval. An extraordinary transaction in which an office holder has a personal interest
requires approval first by the company’s audit committee and subsequently by the board of directors. In general, the compensation
of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation
committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure
is inconsistent with the company’s stated compensation policy or if the office holder is the chief executive officer (apart from
a number of specific exceptions), then such arrangement is subject to a special majority approval. Arrangements regarding the compensation,
exculpation, indemnification, or insurance of a director require the approval of the compensation committee, board of directors, and shareholders
by ordinary majority, in that order, and under certain circumstances, a special majority approval.
Generally, a person who has a personal interest in a matter which is considered at a
meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman
of the relevant committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction
that is subject to approval. If a majority of the members of the audit committee or the board of directors (as applicable) has a personal
interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors
(as applicable) on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure of Personal Interests of Controlling
Shareholders and Approval of Certain Transactions
Under Israeli Law, the term “controlling shareholder” means a shareholder
with the ability to direct the activities of our company, other than by virtue of being an executive officer or director. A shareholder
is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to
appoint at least half of the directors of the company or its general manager. For the purpose of approving transactions with controlling
shareholders, a controlling shareholder is deemed to include any shareholder that holds 25% or more of the voting rights in a public company
if no other shareholder holds more than 50% of the voting rights in the company. For purposes of determining the holding percentage stated
above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed
as joint holders.
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Pursuant to Israeli law, the disclosure requirements regarding personal interests that
apply to directors and executive officers also apply to a controlling shareholder of a public company. See “-External Directors”
above for a definition of controlling shareholder. In the context of a transaction involving a shareholder of the company, a controlling
shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than
50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction
will be aggregated. The approval of the audit committee or compensation committee, the board of directors, and a special majority, in
that order, is required for: (i) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a
personal interest; (ii) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for the provision
of services to the company; (iii) the terms of engagement and compensation of a controlling shareholder or his or her relative who is
not an office holder; or (iv) the employment of a controlling shareholder or his or her relative by the company, other than as an office
holder. For this purpose, a “special majority” approval requires shareholder approval by a majority vote of the shares present
and voting at a meeting of shareholders called for such purpose, provided that either: (a) such majority includes at least a majority
of the shares held by all shareholders who do not have a personal interest in such compensation arrangement; or (b) the total number of
shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote
against the arrangement does not exceed 2% of the company’s aggregate voting rights.
To the extent that any such transaction with a controlling shareholder is for a period
extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee
determines that the duration of the transaction is reasonable given the circumstances related thereto.
Arrangements regarding the compensation, exculpation, indemnification, or insurance
of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee and board of
directors, and, in general, approval by a special majority of shareholders.
Pursuant to regulations promulgated under the Companies Law, certain transactions with
a controlling shareholder or his or her relative, or with directors, that would otherwise require approval of a company’s shareholders
may be exempt from shareholder approval upon certain determinations of the audit committee or compensation committee and board of directors.
Shareholders’ Duties
Under the Companies Law, a shareholder has a duty to act in good faith and in a customary
manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things,
in voting at general meetings of shareholders and class meetings of shareholders with respect the following matters:
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an amendment of the articles of association of the company; |
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an increase in the company’s authorized share capital; |
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a merger; or |
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the approval of related party transactions and acts of office holders that require shareholder approval.
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A shareholder also has a general duty to refrain from discriminating against other shareholders.
In addition, certain shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder,
any shareholder who knows that he or she has the power to determine the outcome of a shareholder vote and any shareholder who has the
power to appoint or to prevent the appointment of an office holder of the company or other power. The Companies Law does not define the
substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in
the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of
Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability
for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole
or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation
is included in its articles of association. Our articles of association include such a provision. A company may not exculpate a director
from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law and the Israeli Securities Law, an Israeli company may indemnify
an office holder with respect to the following liabilities and expenses incurred for acts performed as an office holder, either in advance
of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
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financial liability imposed on him or her in favor of another person pursuant to a
judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder
with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the
board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount
or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking must detail
the abovementioned foreseen events and amount or criteria; |
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reasonable litigation expenses, including attorneys’ fees, incurred by the office holder: (i) as
a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding,
provided that (a) no indictment was filed against such office holder as a result of such investigation or proceeding and (b) no financial
liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or,
if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
(ii) in connection with a monetary sanction; |
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expenses associated with an administrative procedure, as defined in the Israeli Securities
Law, conducted regarding an office holder, including reasonable litigation expenses and reasonable attorneys’ fees; and |
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reasonable litigation expenses, including attorneys’ fees, incurred by the office
holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party or in connection
with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require
proof of criminal intent. |
Under the Companies Law and the Israeli Securities Law, a company may insure an office
holder against the following liabilities incurred for acts performed as an office holder if, and to the extent, provided in the company’s
articles of association:
|
|
● |
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent
conduct of the office holder; |
101
|
|
● |
a breach of fiduciary duty to the company, to the extent that the office holder acted in good faith and
had a reasonable basis to believe that the act would not prejudice the company; |
|
|
● |
a monetary liability imposed on the office holder in favor of a third party; and |
|
|
● |
expenses incurred by an office holder in connection with an administrative procedure, including reasonable
litigation expenses and reasonable attorneys’ fees. |
Under the Companies Law, a company may not indemnify or insure an office holder against
any of the following:
|
|
● |
a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty
to the company and to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not
prejudice the company; |
|
|
● |
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent
conduct of the office holder; |
|
|
● |
an act or omission committed with intent to derive illegal personal benefit; or |
|
|
● |
a fine or forfeit levied against the office holder. |
Under the Companies Law, exculpation, indemnification, and insurance of office holders
in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders
or under certain circumstances, by the shareholders.
Our articles of association and compensation policy allow us to exculpate, indemnify,
and insure our office holders according to applicable law.
As of the date of this Annual Report on Form 20-F, no claims for directors’ and
officers’ liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or
proceeding involving any of our directors or officers in which indemnification is sought.
We have obtained directors’ and officers’ liability insurance for the benefit
of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted
by the Companies Law. In addition, we have entered into agreements with each of our current office holders undertaking to indemnify them
to the fullest extent permitted by the Companies Law and our articles of association, to the extent that these liabilities are not covered
by insurance.
In the opinion of the Securities and Exchange Commission, indemnification of directors
and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
There is no pending litigation or proceeding against any of our directors or officers
as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification
by any director or officer.
|
D. |
Employees. |
See “Item 4.B. Business Overview―Employees.”
102
|
E. |
Share Ownership. |
See “Item 7.A. Major Shareholders” below.
Share Incentive Plan
2019 PainReform Option Plan
We adopted our 2019 PainReform Option Plan, or the 2019 Plan, on July 2, 2019 and it
is scheduled to expire on July 1, 2029. The 2019 Plan provides for the grant of options to our directors, officers, employees, consultants,
advisers, and service providers.. As of March 15, 2026, options to purchase 43,551 ordinary shares were outstanding with a weighted average
exercise price of $42.36 per share, and options to purchase 36,449 ordinary shares were available for future issuance. Of such outstanding
options, options to purchase 27,786 ordinary shares were vested as of March 15, 2026, with a weighted average exercise price of $59.27
per share.
The 2019 Plan provides for options to be granted at the determination of our board of
directors (which is entitled to delegate its powers under the 2019 Plan to our compensation committee) subject to applicable laws. Upon
termination of employment for any reason, other than in the event of death or disability or for cause, all unvested options will expire
and all vested options at time of termination will generally be exercisable for 90 days following termination, subject to the terms of
the 2019 Plan and the governing option agreement. If we terminate a grantee’s employment or engagement for cause (as defined in
the 2019 Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately.
Upon termination of employment due to death or disability, all the vested options at the time of termination will be exercisable for 12
months after date of termination, subject to the terms of the 2019 Plan and the governing option agreement.
Pursuant to the 2019 Plan, we may award options pursuant to Section 102 of the Israeli
Income Tax Ordinance [New Version], 5721-1961, or the Ordinance, and section 3(I) of the Ordinance, based on entitlement and compliance
with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinance provides to employees, directors
and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to be entitled
to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation
in the form of shares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit
of the applicable employee, director or officer and are (or were) to be held by the trustee for at least two years after the date of grant
or issuance. Options granted under Section 102 of the Ordinance will be deposited with a trustee appointed by us in accordance with Section
102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in the employee income track or the capital
gains track.
Options granted under the 2019 Plan are subject to applicable vesting schedules and
generally expire 10 years from the grant date.
In the event that options allocated under the 2019 Plan expire or otherwise terminate
in accordance with the provisions of the 2019 Plan, such expired or terminated options will become available for future grant awards and
allocations under the 2019 Plan.
|
F. |
Disclosure of a Registrant’s Action to Recover Erroneously
Awarded Compensation |
There was no erroneously awarded compensation that was required to be recovered pursuant
to the PRF-technologies Ltd. Executive Officer Clawback Policy during the fiscal year ended December 31, 2025.
103
|
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
|
A. |
Major Shareholders |
The following table sets forth information with respect to the beneficial ownership
of our ordinary shares as of March 15, 2026 by:
|
|
● |
each of our directors and senior management; |
|
|
● |
all of our directors and senior management as a group; and |
|
|
● |
each person (or group of affiliated persons) known by us to be the beneficial owner of 5% or more of the
outstanding ordinary shares. |
Beneficial ownership is determined in accordance with the rules of the SEC. These rules
generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to
those securities, and include shares subject to options and warrants that are exercisable within 60 days after March 26, 2026. Such shares
are also deemed outstanding for purposes of computing the percentage ownership of the person holding the option, but not the percentage
ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the table have
sole voting and investment power with respect to their shares, except to the extent that authority is shared by spouses under community
property laws. None of our shareholders has informed us that he, she, or it is affiliated with a registered broker-dealer or is in the
business of underwriting securities. None of our shareholders has different voting rights from other shareholders.
|
|
Ordinary Shares Beneficially Owned |
Percentage Owned** |
||||||
|
Senior Management and Directors |
||||||||
|
Dr. Ehud Geller(1) |
21,916 |
2.5 |
% | |||||
|
Eyal Broder (2) |
1,103 |
* |
||||||
|
Dr. Sigal Aviel(3) |
2,009 |
* |
||||||
|
Asaf Shavit (4) |
500 |
* |
||||||
|
Ellen S. Baron(5) |
233 |
* |
||||||
|
Augustine Lawlor(6) |
233 |
* |
||||||
|
Efi Cohen-Arazi(7) |
1,604 |
* |
||||||
|
All senior management and directors as a group
(7 persons) |
27,598 |
3.2 |
% | |||||
|
More than 5% Shareholders |
||||||||
|
Bladeranger Ltd (8) |
52,689 |
5.9 |
% | |||||
|
* |
Less than 1% |
|
|
|
|
** |
Based on 844,551 ordinary shares outstanding. |
|
(1) |
Consists of options to purchase 21,916 ordinary shares that are exercisable at an average exercise price
of $19.1 per share and expiring up to February 20, 2035. |
|
(2) |
Consists of options to purchase (i) 180 ordinary shares exercisable at $30.0 per share and expiring on
October 10, 2034, and (ii) options to purchase 833 ordinary shares exercisable at $15.75 per share and expiring on February 20, 2035.
Does not include options to purchase 1,167 ordinary shares exercisable at $15.75 per share and expiring on February 20, 2035, that vest
in more than 60 days from March 26, 2025. |
104
|
(3)
|
Consists of options to purchase (i) 43 ordinary shares exercisable at $288.0 per share and expiring on
May 23, 2029, (ii) 104 ordinary shares exercisable at $684.0 expiring on November 23, 2032, (iii) 612 ordinary shares exercisable at $30.0
expiring on November 23, 2032, and (ii) 1,250 ordinary shares exercisable at $15.75 expiring on February 20, 2035. Does not include options
to purchase 1,750 ordinary shares exercisable at $15.75 per share and expiring on February 20, 2035, that vest in more than 60 days from
March 26, 2025. |
|
(4)
|
Consists of options to purchase 500 ordinary shares exercisable at $5.55 per share
and expiring on November 24, 2035. Does not include options to purchase 2,500 ordinary shares exercisable at $5.55 per share and expiring
on November 24, 2035, that vest in more than 60 days from March 26, 2025 |
|
(5) |
Consists of options to purchase 50 ordinary shares exercisable at $5,400.0 per share
and expiring on February 23, 2031 and options to purchase 183 ordinary shares exercisable at $30.0 per share and expiring on July 18,
2034. |
|
(6) |
Consists of options to purchase 50 ordinary shares exercisable
at $5,400.0 per share and expiring on February 23, 2031 and options to purchase 183 ordinary shares exercisable at $30.0 per share and
expiring on July 18, 2034. |
|
(7)
|
Consists of options to purchase (i) 50 ordinary shares exercisable at $5,400 per share and expiring on
February 23, 2031, (ii) options to purchase 183 ordinary shares exercisable at $30.0 per share and expiring on July 18, 2034, (iii) 150
ordinary shares exercisable at $706.8 per share and expiring on June 8, 2033, and (iv) 1,250 ordinary shares exercisable at $15.75 expiring
on February 20, 2035. Does not include options to purchase 1,750 ordinary shares exercisable at $15.75 per share and expiring on February
20, 2035, that vest in more than 60 days from March 26, 2025. |
|
(8) |
The securities are directly held by BladeRanger, an Israeli public
company. Consists of 52,689 ordinary shares . BladeRanger’s holdings is subject to a beneficial ownership limitation of 9.99%,
which such limitation restricts the holder from exercising that portion of the warrant that would result in the shareholder and its affiliates
owning, after exercise, a number of shares in excess of the beneficial ownership limitation. The address of BladeRanger is 1 Hayasmin
St., Ramat-Efal, Israel. See also “Item 4.B. Business Overview - DeepSolar AI Analytics Software Business – Business Acquisition
Agreement.” |
Record Holders
As of March 15, 2026, based on information provided to us by our transfer agent in the
United States and other information reasonably available to us, we had 6 holders of record of our ordinary shares in the United States.
Such holders of record held, as of that date, 99.7% of our outstanding ordinary shares. The number of record holders is not representative
of the number of beneficial holders of our ordinary shares, as 99.7% of our outstanding ordinary shares are recorded in the name of Cede
& Co. as nominee for the Depository Trust Company, in whose name all shares held in “street name” are held in the United
States.
Except as set forth in our SEC reports, to our knowledge, there has been no significant
change in the percentage ownership held by any major shareholder since January 1, 2023. other than the below:
Zori Medica III, an entity which beneficially owned approximately 0.33% of our ordinary
shares as of February 28, 2026, closed its fund on March 1, 2026 and distributed the ordinary shares held by the fund on a pro rata basis
to the members of the fund. Dr. Ehud Geller, our Executive Chairman, is the general partner of Zora Medica III.
|
B. |
Related Party Transactions |
The following is a description of the material terms of those transactions with related
parties to which we are party and which were in effect since January 1, 2025.
105
We believe that we have executed all of our transactions with related parties on terms
no less favorable to us than those we could have obtained from third parties. See “Item 6.C. Board Practices-Approval of Related
Party Transactions under Israeli Law.”
Relationships and Transactions with Related Parties
DeepSolar Acquisition
As a result of the acquisition of the DeepSolar technology from BladeRanger, BladeRanger
became a more than 5% beneficial ownership of our ordinary shares. See “Item 4.B. Business Overview - DeepSolar AI Analytics Software
Business - Business Acquisition Agreement” for a summary of the transaction.
In addition, on March 16, 2026, we entered
into an agreement with BladeRanger pursuant to which Blade Ranger will identify and introduce potential business prospects to us for the
purpose of exploring commercial collaborations for DeepSolar, the Company’s solar energy business unit focused on next-generation
AI-driven solar analytics. As consideration for its services, BladeRanger may receive warrants to purchase 100,000 restricted ordinary
shares of the Company for each of up to three prospects introduced by Blade Ranger, to the extent such prospects enter into a definitive
binding agreements with the Company, on terms acceptable to the Company, for the Company’s DeepSolar product covering a minimum
scope of at least 150 megawatts, for an aggregate maximum of 300,000 ordinary shares issuable upon exercise of the warrants. The warrants
will be exercisable at an exercise price of $0.01 per warrant share, subject to adjustment as provided therein, and will have a term of
12 months from the applicable issuance date. We agreed, upon written request from BladeRanger, to file a registration statement registering
for resale of the warrant shares. BladeRanger is required to reimburse 50% of the expenses incurred by us in connection with the preparation,
filing, and effectiveness of such registration statement.
Insurance, Exculpation, and Indemnification Agreements
We have entered into indemnification agreements with each of our current directors and
executive officers exculpating them from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited
exceptions, and undertaking to indemnify them to the fullest extent permitted by Israeli law, subject to limited exceptions, and including
with respect to liabilities resulting from an offering of securities by us to the public, including the offering of securities by a shareholder
in connection with a secondary offering. See “Item 6.C. Board Practices-Approval of Related Party Transactions Under Israeli Law-Exculpation,
Insurance and Indemnification of Directors and Officers.”
Employment and Services Agreements
We have entered into employment or services agreements with our senior management. See
“Item 6.B. Compensation.”
Options
We have granted options to purchase our ordinary shares to certain of our officers and
directors. See “Item 6.B. Compensation” and “Item 7.A. Major Shareholders.”. We describe our option plans under
“Item 6.E. Share Ownership” and “Item 7.A. Major Shareholders.”
Indemnification Agreements
We have entered into indemnification agreements with each of our current directors and
executive officers exculpating them from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited
exceptions, and undertaking to indemnify them to the fullest extent permitted by Israeli law, subject to limited exceptions, and including
with respect to liabilities resulting from an offering of securities by us. See “Item 6.C. Board Practices-Approval of Related Party
Transactions Under Israeli Law-Exculpation, Insurance and Indemnification of Directors and Officers.”
|
C. |
Interests of Experts and Counsel
Not applicable. |
106
|
ITEM 8.
FINANCIAL INFORMATION. |
|
A. |
Consolidated Statements and Other Financial Information.
|
See “Item 18. Financial Statements.”
Legal Proceedings
See “Item 4.B. Business Overview―Legal Proceedings.”
Dividends
We have never declared or paid cash dividends to our shareholders. Currently, we do
not intend to pay cash dividends. We intend to reinvest any earnings in developing and expanding 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. In addition, the distribution of dividends is limited by Israeli
law, which permits the distribution of dividends only out of distributable profits.
|
B. |
Significant Changes |
Other than as otherwise described in this Annual Report on Form 20-F and as set forth
below, no significant change has occurred in our operations since the date of our consolidated financial statements included in this Annual
Report on Form 20-F.
|
ITEM 9.
THE OFFER AND LISTING |
|
A. |
Offer and Listing Details
On September 1, 2020, our ordinary shares commenced trading on the Nasdaq Capital
Market under the symbol “PRFX.” |
|
B. |
Plan of Distribution
Not applicable. |
|
C. |
Markets
Our ordinary shares are listed on the Nasdaq Capital Market. |
|
D. |
Selling Shareholders
Not applicable. |
|
E. |
Dilution
Not applicable. |
|
F. |
Expenses of the Issue
Not applicable. |
107
|
ITEM 10.
ADDITIONAL INFORMATION |
|
A. |
Share Capital
Not applicable. |
|
B. |
Memorandum and Articles of Association |
A copy of our Amended and Restated Articles of Association is attached as Exhibit 1.1
to this Annual Report. Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.1 to this Annual
Report and is incorporated by reference into this Annual Report.
|
C. |
Material Contracts |
We have not entered into any material contracts other than in the ordinary course of
business and other than those described in Item 4. “Information on Our Company,” Item 7B “Major Shareholders and Related
Party Transactions - Related Party Transactions” or elsewhere in this Annual Report.
|
D. |
Exchange Controls |
There are currently no Israeli currency control restrictions on remittances of dividends
on our ordinary shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for shareholders
who are subjects of countries that are, or have been, in a state of war with Israel.
|
E. |
Taxation. |
The following description is not intended to constitute a complete
analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your
own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the
laws of any state, local, foreign, or other taxing jurisdiction.
Israeli Tax Considerations and Government Programs
The following is a brief summary of the material Israeli tax laws applicable to us and
certain Israeli Government programs that benefit us. This section also contains a discussion of material Israeli tax consequences concerning
the ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment
under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes
not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial
or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed
in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable
judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
General Corporate Tax Structure in Israel
Israeli resident (as defined below) companies, such as us, are generally subject to
corporate tax at the rate of 23% as of 2018. However, the effective tax rate payable by a company that derives income from a Preferred
Enterprise or a Preferred Technology Enterprise (as discussed below) may be considerably lower. Capital gains derived by an Israeli company
are generally subject to tax at the prevailing corporate tax rate.
108
Law for the Encouragement of Industry (Taxes),
5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, or the Industry Encouragement
Law, provides several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company” as a company
resident in Israel, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial
Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given
tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
|
|
● |
amortization over an eight-year period of the cost of patents and rights to use a
patent and know-how which were purchased in good faith and are used for the development or advancement of the Industrial Enterprise;
|
|
|
● |
deduction over a three-year period of expenses incurred in connection with the issuance and listing of
shares on a stock market; and |
|
|
● |
under certain conditions, an election to file tax returns with related Israeli Industrial Companies.
|
There can be no assurance that we currently qualify, or will continue to qualify, as
an Industrial Company or that the benefits described above will be available in the future.
Law for the Encouragement of Capital Investments,
5719-1959
Tax Benefits for Income from Preferred Enterprise
The Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law,
currently provides certain tax benefits for income generated by “Preferred Companies” from their “Preferred Enterprises.”
The definition of a Preferred Company includes, inter alia, a company incorporated in Israel that
is not wholly owned by a governmental entity, which:
|
|
●
|
owns a Preferred Enterprise, which is defined as an “Industrial Enterprise”
(as defined under the Investment Law) that is classified as either a “Competitive Enterprise” (as defined under the Investment
Law) or a “Competitive Enterprise in the Field of Renewable Energy” (as defined under the Investment Law); |
|
|
● |
is controlled and managed from Israel; |
|
|
● |
is not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective
community) as defined under the Income Tax Ordinance; |
|
|
● |
keeps acceptable books of account and files reports in accordance with the provisions of the Investment
Law and the Income Tax Ordinance; and |
|
|
● |
was not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the
tax year with respect to which benefits are being claimed. |
109
As of January 1, 2017, a Preferred Company is currently entitled to a reduced corporate
tax rate of 16% with respect to its income derived by its Preferred Enterprise, unless the Preferred Enterprise is located in development
area A, in which case the rate is currently 7.5% (our operations are currently not located in development area A).
Dividends paid out of income attributed to a Preferred Enterprise are generally subject
to tax at the rate of 20% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an
Israeli company, such dividends should be exempt from tax (although, if such dividends are subsequently distributed to individuals or
a non-Israeli company, tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply).
If in the future we generate taxable income, to the extent that we qualify as a “Preferred
Company,” the benefits provided under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the
termination or substantial reduction of the benefits available under the Investment Law could materially increase our tax liabilities.
Tax Benefits for Income from Preferred Technology Enterprise
An amendment to the Investment Law was enacted as part of the Economic Efficiency Law
that was published on December 29, 2016, and became effective as of January 1, 2017, or the 2017 Amendment. The 2017 Amendment provides
new tax benefits to Preferred Companies for “Technology Enterprises,” as described below, and is in addition to the Preferred
Enterprise regime provided under the Investment Law.
The 2017 Amendment provides that a technology company satisfying certain conditions
will qualify as a “Preferred Technology Enterprise” and may thereby enjoy a reduced corporate tax rate of 12% on income that
qualifies as “Preferred Technology Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for
a Preferred Technology Enterprise located in development area A. In addition, a Preferred Technology Enterprise may enjoy a reduced capital
gains tax rate of 12% on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the Investment
Law) to a related foreign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1, 2017
for at least NIS 200 million, and the sale receives prior approval from the IIA.
Dividends distributed by a Preferred Technology Enterprise that are paid out of Preferred
Technology Income are subject to tax at the rate of 20%, but if they are distributed to a foreign company and at least 90% of the shares
of the distributing company are held by foreign resident companies then the tax rate may be as low as 4%, subject to the fulfillment of
certain conditions.
As we have not yet generated taxable income, there is no assurance that we qualify as
a Preferred Technology Enterprise or that the benefits described above will be available to us in the future.
If in the future we generate taxable income, to the extent that we qualify as a “Preferred
Company,” the benefits provided under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the
termination or substantial reduction of the benefits available under the Investment Law could materially increase our tax liabilities.
The Encouragement of Research, Development and
Technological Innovation in the Industry Law 5744
Under the Encouragement of Research, Development and Technological Innovation in the
Industry Law 5744-1984 (formerly known as the Law for the Encouragement of Research and Development in Industry 5744-1984), or Innovation
Law, and the regulations and guidelines promulgated thereunder, research and development programs which meet specified criteria and are
approved by a committee of the IIA, are eligible for grants. The grants awarded are typically up to 50% of the project’s expenditures,
as determined by the research committee. 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 income generated
from products and services based on technology developed using grants, until 100% of the grant, linked to the dollar and bearing interest
at the LIBOR rate, is repaid. In July 2017, new regulations came into force. According to the new regulations, the royalties range between
1.3-5% depending on the company’s size and sector. The terms of the IIA participation also require that products developed with
IIA grants be manufactured in Israel and that the know-how developed thereunder may not be transferred outside of Israel, unless approval
is received from the IIA and additional payments are made to the IIA. However, this does not restrict the export of products that incorporate
the funded know-how. The royalty repayment ceiling can reach up to three times the amount of the grant received (plus interest) if manufacturing
is transferred outside of Israel, and repayment of up to six times the amount of the grant (plus interest) may be required if the technology
itself is transferred outside of Israel or license to use it was granted to a foreign entity.
110
Taxation of our Shareholders
Capital Gains Tax
Israeli law generally imposes a capital gains tax (i) on the sale of any capital assets
by residents of Israel, as defined for Israeli tax purposes, and (ii) on the sale of capital assets located in Israel, including shares
of Israeli companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the
shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary
surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is
attributable to the increase in the Israeli consumer price index or a foreign currency exchange rate between the date of purchase and
the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Israeli Residents
Generally, as of January 1, 2012 and thereafter, the tax rate applicable to real capital
gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder
claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of
30%. Additionally, if such shareholder is considered a “substantial shareholder” at the time of the sale or at any time during
the 12-month period preceding such sale, the tax rate will be 30%. A “substantial shareholder” is defined as one who holds,
directly or indirectly, alone or “together with another” (i.e., together with a relative, or together with someone who is
not a relative but with whom, according to an agreement, there is regular cooperation in material matters of the company, directly or
indirectly), holds, directly or indirectly, at least 10% of any of the “means of control” in the company. “Means of
control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon
liquidation, or instruct someone who holds any of the aforementioned rights regarding the manner in which such rights are to be exercised.
However, different tax rates will apply to dealers in securities. Israeli companies are subject to capital gains tax at the regular corporate
tax rate (i.e., 23% for the tax year 2018 and thereafter) on real capital gains derived from the sale of listed shares.
As of January 1, 2019, Israeli resident shareholders who are individuals with taxable
income that exceeds NIS 649,500 in a tax year (linked to the Israeli consumer price index each year) will be subject to an additional
tax at the rate of 3% on the portion of their taxable income for such tax year that is in excess of NIS 649,500 (linked to the Israeli
consumer price index each year). For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable
income from dividend distributions.
In some instances where our shareholders are liable for Israeli tax on the sale of their
ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
111
Non-Israeli Residents
A non-Israeli resident who derives capital gains from the sale of shares in an Israeli
resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel will be exempt from
Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However,
non-Israeli resident corporations will not be entitled to the foregoing exemption if (i) an Israeli resident has a controlling interest,
directly or indirectly, alone, “together with another” (as defined above), or together with another Israeli resident, of more
than 25% in one or more of the “means of control” (as defined above) in such non-Israeli resident corporation, or (ii) Israeli
residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli resident corporation,
whether directly or indirectly.
In addition, a sale of securities by a non-Israeli resident may be exempt from Israeli
capital gains tax under the provisions of an applicable tax treaty. For example, pursuant to the provisions of the Convention between
the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended,
or the U.S.-Israel Tax Treaty, capital gains arising from the sale, exchange or disposition of our ordinary shares by (i) a person who
qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty, (ii) who holds the shares as a capital
asset, and (iii) who is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty generally is generally exempt
from Israeli capital gains tax. Such exemption will not apply if: (i) such person holds, directly or indirectly, shares representing 10%
or more of our voting power during any part of the 12-month period preceding such sale, exchange, or disposition, subject to particular
conditions; (ii) the capital gains from such sale, exchange, or disposition are attributable to a permanent establishment in Israel; or
(iii) such person is an individual and was present in Israel for 183 days or more during the relevant tax year. In such case, the capital
gain arising from the sale, exchange, or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable;
however, under the U.S.-Israel Tax Treaty, the taxpayer may be permitted to claim a credit for such taxes against the U.S. federal income
tax imposed with respect to such sale, exchange, or disposition, subject to the limitations under U.S. law applicable to foreign tax credits.
The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
Shareholders may be required to demonstrate that they are exempt from tax on their capital
gains in order to avoid withholding at source at the time of sale.
It should be noted that in the event that the real capital gain realized by an individual
shareholder is not exempt from tax in Israel, the tax rates applicable to Israeli resident individual shareholders should generally apply.
In some instances where our shareholders may be liable for Israeli tax on the sale of
their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
Taxation of Dividend Distributions
Israeli Residents
Israeli resident individuals are generally subject to Israeli income tax on the receipt
of dividends paid on our ordinary shares, other than bonus shares (share dividends). As of January 1, 2012 and thereafter, the tax rate
applicable to such dividends is generally 25%. With respect to a person who is a “substantial shareholder” (as defined above)
at the time the dividend is received or at any time during the preceding 12-month period, the applicable tax rate is 30%. Dividends paid
from income derived from Preferred Enterprises and Preferred Technology Enterprises will generally be subject to income tax at a rate
of 20%.
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As of January 1, 2019, Israeli resident shareholders who are individuals with taxable
income that exceeds NIS 649,500 in a tax year (linked to the Israeli consumer price index each year) will be subject to an additional
tax at the rate of 3% on the portion of their taxable income for such tax year that is in excess of NIS 649,500 (linked to the Israeli
consumer price index each year). For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable
income from dividend distributions.
Dividends paid to an Israeli resident individual shareholder on our ordinary shares
will generally be subject to withholding tax at the rates corresponding with the income tax rates detailed above unless we are provided
in advance with a withholding tax certificate issued by the Israel Tax Authority stipulating a different rate.
Notwithstanding the above, dividends paid to an Israeli resident “substantial
shareholder” (as defined above) on publicly traded shares, like our ordinary shares, which are held via a “nominee company”
(as defined under the Israeli Securities Law), are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate
is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding
tax rate is obtained in advance.
If the dividend is attributable partly to income derived from a Preferred Enterprise
or a Preferred Technology Enterprise and partly to other sources of income, the tax rate will be a blended rate reflecting the relative
portions of the various types of income. We cannot assure you that we will designate the profits that are being distributed in a way that
will reduce shareholders’ tax liability.
Israeli resident companies are generally exempt from tax on the receipt of dividends
paid on our ordinary shares.
Non-Israeli Residents
Non-Israeli Residents
Unless relief is provided in a treaty between Israel and the shareholder’s country
of residence, non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares
at the rate of 25%. With respect to a person (including a corporation) who is a “substantial shareholder” (as defined above)
at the time of receiving the dividend or at any time during the preceding 12-month period, absent treaty relief as mentioned above, the
applicable Israeli income tax rate is 30%. Notwithstanding the above, dividends paid from income derived from Preferred Enterprises will
be subject to Israeli income tax at a rate of 20%. In addition, dividends distributed by a Preferred Technology Enterprise that are paid
out of Preferred Technology Income are subject to tax at the rate of 20%, but if they are distributed to a foreign company and at least
90% of the shares of the distributing company are held by foreign resident companies then the tax rate may be as low as 4%, subject to
the fulfillment of certain conditions.
In this regard, dividends paid to a non-Israeli resident shareholder on our ordinary
shares will generally be subject to withholding tax at the rates corresponding with the income tax rates detailed above unless we are
provided in advance with a withholding tax certificate issued by the Israel Tax Authority stipulating a different rate (e.g., in accordance
with the provisions of an applicable tax treaty).
Notwithstanding the above, dividends paid to a non-Israeli resident “substantial
shareholder” (as defined above) on publicly traded shares, like our ordinary shares, which are held via a “nominee company”
(as defined under the Israeli Securities Law), are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate
is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding
tax rate is obtained in advance.
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In addition, it should be noted that an additional 3% tax might be applicable to individual
shareholders if certain conditions are met.
Under the U.S.-Israel Tax Treaty, the maximum Israeli tax on dividends paid to a holder
of ordinary shares who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty is 25%. Such tax
rate is generally reduced to 12.5% if: (i) the shareholder is a U.S. corporation and holds at least 10% of the outstanding shares of our
voting stock during the part of our tax year that precedes the date of payment of the dividends and during the whole of our prior tax
year; (ii) not more than 25% of our gross income in the tax year preceding the payment of the dividends consists of interest or dividends,
other than dividends or interest received from subsidiary corporations 50% or more of the outstanding shares of voting stock of which
is owned by us at the time such dividends or interest are received by us; and (iii) the dividends are not sourced from income derived
during a period for which we were entitled to the reduced tax rate applicable to a Preferred Enterprise under the Investment Law. If the
dividends are sourced from income derived during a period for which we are entitled to the reduced tax rate applicable to a Preferred
Enterprise or a Preferred Technology Enterprise under the Investment Law, to the extent that the first two conditions detailed above are
met, the Israeli tax rate applicable to such dividends should be 15%.
If the dividend is attributable partly to income derived from a Preferred Enterprise
or a Preferred Technology Enterprise and partly to other sources of income, the tax rate will be a blended rate reflecting the relative
portions of the various types of income. We cannot assure you that we will designate the profits that are being distributed in a way that
will reduce shareholders’ tax liability.
Estate and gift tax
Israeli law presently does not impose estate tax.
Israeli law also does not presently impose gift taxes upon the transfer of assets to
Israeli resident individuals so long as it is demonstrated to the satisfaction of the Israel Tax Authority that the transfer was executed
in good faith.
Certain Material U.S. Federal Income Tax Consequences
The following summary describes certain material U.S. federal income tax consequences
relating to an investment in the ordinary shares by U.S. Holders (as defined below). This summary deals only with ordinary shares that
are held as capital assets within the meaning of section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code (generally,
property held for investment). This summary does not address tax considerations of holders that may be subject to special tax rules, including,
without limitation, dealers or traders in securities or currencies, brokers, financial institutions, tax-exempt organizations, insurance
companies, regulated investment companies, real estate investment trusts, grantor trusts, certain former citizens or residents of the
United States, persons who acquire our ordinary shares through the exercise or cancellation of employee stock options or otherwise as
compensation for their services, persons that mark their securities to market for U.S. federal income tax purposes, individual retirement
and tax-deferred accounts, persons holding ordinary shares as part of a hedging, integrated, conversion or constructive sale transaction,
or a straddle, persons subject to the alternative minimum tax, or persons who have a functional currency other than the U.S. dollar. In
addition, this discussion does not address the tax treatment of U.S. Holders (as defined below) who own, directly, indirectly, or constructively,
10% or more of our outstanding stock, by vote or value. The discussion below is based upon the Code, final, temporary and proposed Treasury
regulations promulgated thereunder, applicable administrative rulings and judicial interpretations thereof, and the U.S.-Israel Tax Treaty,
all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open
to differing interpretations. In addition, this summary does not consider the possible application of U.S. federal gift or estate taxes
or any aspect of state, local, or non-U.S. tax laws or any additional U.S. federal tax consequences other than U.S. federal income tax
consequences. Furthermore, we will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment
in our ordinary shares and can provide no assurance that the tax consequences contained in this summary will not be challenged by the
IRS or will be sustained in a court if challenged.
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As used in this summary the term “U.S. Holder” means a beneficial owner
of ordinary shares that is, for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States, (ii) a corporation
(or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United
States or any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust if either (a) a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or
(b) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. This summary does not
consider the U.S. federal tax considerations to a person that is not a U.S. Holder. In addition, the tax treatment of persons who hold
ordinary shares through a partnership or other pass-through entity treated as a partnership for U.S. federal income tax purposes generally
depends upon the status of the partner and the activities of the partnership. The tax consequences to such a person or entity are not
considered in this summary and such persons and entities should consult their tax advisors with respect to the U.S. federal tax consequences
of investing in the ordinary shares.
This summary does not discuss all aspects of U.S. federal income
taxation that may be relevant to a particular investor in light of its circumstances. Prospective purchasers of the ordinary shares should
consult their own tax advisors with respect to the specific U.S. federal income tax consequences to such person of purchasing, holding,
or disposing of the ordinary shares, as well as the effect of any state, local, or other tax laws.
Distributions on ordinary shares
As noted above, we have no current plans to pay dividends However, subject to the discussion
under the heading “Passive Foreign Investment Company Consequences,” U.S. Holders are required to include in gross income
the amount of any distribution paid on ordinary shares to the extent the distribution is paid out of our current and/or accumulated earnings
and profits, as determined for U.S. federal income tax purposes. To the extent a distribution paid with respect to our ordinary shares
exceeds our current and accumulated earnings and profits, such amount will be treated first as a non-taxable return of capital, reducing
a U.S. Holder’s tax basis for the ordinary shares to the extent thereof, and thereafter as either long-term or short-term capital
gain depending upon whether the U.S. Holder has held our ordinary shares for more than one year as of the time such distribution is received.
Preferential tax rates for long-term capital gains are applicable for U.S. Holders that are individuals, estates, or trusts. However,
we do not expect to maintain calculations of our earnings and profits under United States federal income tax principles. Therefore, U.S.
Holders should expect that the entire amount of any distribution generally will be reported as dividend income. The amount of the dividend
will generally be treated as foreign-source dividend income to U.S. Holders. A non-corporate U.S. Holder that meets certain eligibility
requirements may qualify for a lower rate of U.S. federal income taxation on dividends paid if we are a “qualified foreign corporation”
for U.S. federal income tax purposes. We generally will be treated as a qualified foreign corporation if we are not a passive foreign
investment company, or PFIC, in the taxable year in which such dividends are paid or in the preceding taxable year (see discussion below),
and (i) we are eligible for benefits under a comprehensive U.S. income tax treaty that includes an exchange of information program and
which the U.S. Treasury Department has determined is satisfactory for these purposes, or (ii) our ordinary shares are listed on an established
securities market in the United States (which includes the Nasdaq Capital Market). As discussed below under the heading “Passive
Foreign Investment Company Consequences,” we believe that we were not a PFIC for U.S. federal income tax purposes for our 2025 taxable
year. Because the PFIC determination is highly fact intensive, there can be no assurance that we will be or not be a PFIC in 2026 or any
other year. In addition, a non-corporate U.S. Holder will not be eligible for a reduced U.S. federal income tax rate with respect to dividend
distributions on ordinary shares if certain holding period and other requirements are not met. Non-corporate U.S. Holders should consult
their own tax advisors concerning whether dividends received by them qualify for the reduced rate of tax.
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Corporate U.S. Holders generally will not be allowed a “dividends-received deduction”
generally allowed to corporate U.S. Holders with respect to dividends received from U.S. corporations for dividends received from us.
The amount of a distribution with respect to our ordinary shares will be equal to the
amount of cash and the fair market value of any property distributed plus the amount of any Israeli taxes withheld therefrom. The amount
of any cash distributions paid in NIS will equal the U.S. dollar value of the NIS on the date of distribution based upon the exchange
rate in effect on such date, regardless of whether the NIS are converted into U.S. dollars at that time, and U.S. Holders who include
such distribution in income on such date will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar
value. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. Holder generally will not recognize a foreign currency
gain or loss. However, if the U.S. Holder converts the NIS into U.S. dollars on a later date, the U.S. Holder must include, in computing
its income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i)
the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of
the NIS into U.S. dollars. Such gain or loss will generally be ordinary income or loss and United States source income for U.S. foreign
tax credit purposes. U.S. Holders should consult their own tax advisors regarding the tax consequences to them if we pay dividends in
NIS or any other non-U.S. currency.
Subject to certain significant conditions and limitations, including potential limitations
under the U.S.-Israel Tax Treaty, U.S. Holders may be entitled to a credit against their U.S. federal income tax liability or a deduction
against U.S. federal taxable income in an amount equal to the non-refundable Israeli tax withheld on distributions on our ordinary shares.
The election to deduct, rather than credit, foreign taxes, is made on a year-by-year basis and applies to all foreign taxes paid by a
U.S. Holder or withheld from a U.S. Holder that year. Distributions paid on our ordinary shares will generally be treated as passive income
that is foreign source for U.S. foreign tax credit purposes. As a result of recent changes to the U.S. foreign tax credit rules, a withholding
tax may need to satisfy certain additional requirements in order to be considered a creditable tax for a U.S. Holder. We have not determined
whether these requirements have been met and, accordingly, no assurance can be given that any withholding tax on dividends paid by us
will be creditable. U.S. Holders should consult their own tax advisors to determine whether and to what extent they would be entitled
to such credit.
The additional 3.8% Medicare tax (described below) may apply to dividends received by
certain U.S. Holders who meet certain modified adjusted gross income thresholds.
Disposition of ordinary shares
Subject to the discussion under the heading “Passive Foreign Investment Company
Consequences,” upon the sale, exchange or other taxable disposition of ordinary shares, a U.S. Holder generally will recognize capital
gain or loss in an amount equal to the difference between the amount realized on the disposition and such U.S. Holder’s adjusted
tax basis in the ordinary shares. The adjusted tax basis in an ordinary share generally will be equal to the cost of such ordinary share.
The capital gain or loss realized on the sale, exchange, or other disposition of ordinary shares will be long-term capital gain or loss
if the U.S. Holder held the ordinary shares for more than one year as of the time of disposition. Preferential tax rates for long-term
capital gain will generally apply to non-corporate U.S. Holders. Any gain or loss realized by a U.S. Holder on the sale, exchange, or
other disposition of ordinary shares generally will be treated as from sources within the United States for U.S. foreign tax credit purposes.
The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations.
The additional 3.8% Medicare tax (described below) may apply to gains recognized upon
the sale, exchange, or other taxable disposition of our ordinary shares by certain U.S. Holders who meet certain modified adjusted gross
income thresholds.
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Passive Foreign Investment Company Consequences
Generally, a non-U.S. corporation will be a PFIC for U.S. federal income tax purposes
in any taxable year in which either (i) 75% or more of its gross income for such year consists of certain types of “passive”
income or (ii) 50% or more of the average fair market value of its assets during such year (based on quarterly valuations) produce or
are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties,
annuities, income from certain commodities transactions and from notional principal contracts, and the excess of gains over losses from
the disposition of assets that produce passive income. Passive income also includes amounts derived by reason of the temporary investment
of funds, including those raised in a public offering. Assets that produce or are held for the production of passive income may include
cash, even if held as working capital or raised in a public offering, as well as marketable securities, and other assets that may produce
passive income. 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.
A foreign corporation’s PFIC status is an annual determination that is based on
tests that are factual in nature, and our PFIC status for any year will depend on the composition of our income, fair market value of
our assets, and our activities for such year. We believe that we were not a PFIC for U.S. federal income tax purposes for our 2025 taxable
year. Because the PFIC determination is highly fact intensive, there can be no assurance that we will be or not be a PFIC in the 2026
taxable year or any other year. Even if we determine that we are not a PFIC after the close of a taxable year, there can be no assurance
that the IRS or a court will agree with our conclusion.
If we were a PFIC for any taxable year during which a U.S. Holder held ordinary shares,
then unless an election has been made by a U.S. Holder to be taxed under one of the alternative regimes discussed below, gain recognized
by a U.S. Holder on a sale or other disposition (including certain pledges) of the ordinary shares would be allocated ratably over the
U.S. Holder’s holding period for the ordinary shares. The amounts allocated to the taxable year of the sale or other disposition
and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject
to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would
be imposed on the amount allocated to that taxable year. Similar rules would apply to any distribution with respect to the ordinary shares
in excess of 125% of the average of the annual distributions received by a U.S. Holder during the preceding three years or such U.S. Holder’s
holding period, whichever is shorter. In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any
dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
If we are classified as a PFIC, under attribution rules, U.S. Holders will be subject
to the PFIC rules with respect to their indirect ownership interests in such lower-tier PFICs, such that a disposition by us of the shares
of the lower-tier PFIC or receipt by us of a distribution from the lower-tier PFIC generally will be treated as a deemed disposition of
such shares or the deemed receipt of such distribution by the U.S. Holder, subject to taxation under the PFIC rules even though the U.S.
Holder does not receive any proceeds from those dispositions or distributions. There can be no assurance that a U.S. Holder will be able
to make a QEF election with respect to any lower-tier PFICs in which we invest. U.S. Holders are urged to consult their tax advisors about
the application of the PFIC rules to an investment by us in a lower-tier PFIC.
If we are treated as a PFIC for any taxable year during the holding period of a non-electing
U.S. Holder (i.e., a U.S. Holder that does not elect to be taxed under one of the alternative regimes discussed below), we will continue
to be treated as a PFIC for all succeeding years during which such non-electing U.S. Holder is treated as a direct or indirect holder
even if we are not a PFIC for such years. A U.S. Holder is encouraged to consult its tax advisor with respect to any available elections
that may be applicable in such a situation, including the “deemed sale” election of Section 1298(b)(1) of the Code.
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Notwithstanding the default PFIC rules described in the preceding paragraphs, certain
elections may be available that would result in alternative tax consequences; i.e., the “qualified electing fund” or “QEF”
election and the “mark to market” election. If a U.S. Holder makes a timely and valid mark-to-market election, the U.S. Holder
generally will recognize as ordinary income any excess of the fair market value of the ordinary shares at the end of each taxable year
over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary
shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included
as a result of the mark-to-market election). The U.S. Holder’s tax basis in the ordinary shares will be adjusted to reflect the
income or loss resulting from the mark-to-market election. Any gain recognized on the sale or other disposition of ordinary shares in
a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent
of the net amount of income previously included as a result of the mark-to-market election and any loss in excess of such amount will
be treated as capital loss). The mark-to-market election is available only if we are a PFIC and the ordinary shares are “regularly
traded” on a “qualified exchange” within the meaning of applicable U.S. Treasury regulations. The ordinary shares will
be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the ordinary shares are
traded on a qualified exchange on at least 15 days during each calendar quarter. Although the IRS has not published any authority identifying
specific exchanges that may constitute “qualified exchanges,” Treasury Regulations provide that a qualified exchange is (i)
a U.S. securities exchange that is registered with the Securities and Exchange Commission, (ii) the U.S. market system established pursuant
to section 11A of the Securities and Exchange Act of 1934, or (iii) a non-U.S. securities exchange that is regulated or supervised by
a governmental authority of the country in which the market is located and meets certain trading, listing, financial disclosure and other
requirements. No assurance can be given that the ordinary shares will meet the requirements to be treated as “regularly traded”
for purposes of the mark-to-market election. The Nasdaq Capital Market is a qualified exchange for this purpose and, consequently, if
the ordinary shares are regularly traded, the mark-to-market election is expected to be available to a U.S. Holder. A mark-to-market election
will not apply to ordinary shares held by a U.S. Holder for any taxable year during which we are not a PFIC, but will remain in effect
with respect to any subsequent taxable year in which we become a PFIC unless the ordinary shares are no longer regularly traded on a qualified
exchange or the IRS consents to the revocation of the election. Such election will not apply to any lower-tier PFIC that we own. Each
U.S. Holder is encouraged to consult its own tax advisor with respect to the availability and tax consequences of a mark-to-market election
with respect to the ordinary shares.
Another way in which certain of the adverse consequences of PFIC status can be mitigated
is for a U.S. Holder to make a QEF election. Generally, a shareholder making the QEF election is required for each taxable year to include
in income a pro rata share of the ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of
taxes, which deferral is subject to an interest charge. An election to treat us as a QEF will not be available if we do not provide the
information necessary to make such an election. We are not obligated and do not currently intend to provide the information necessary
to make a QEF election and thus it is not expected that a QEF election will be available for U.S. Holders of the ordinary shares if we
were a PFIC in any prior year, the current year or any future year.
U.S. Holders should consult their tax advisors to determine under what circumstances
these elections would be available and, if available, what the consequences of the alternative treatments would be in their particular
circumstances.
If a U.S. Holder holds ordinary shares in any year in which we are treated as a PFIC,
the U.S. Holder will be required to file IRS Form 8621 and may be subject to certain other information reporting requirements. Failure
to file IRS Form 8621 for each applicable taxable year may result in substantial penalties and the statute of limitations on the assessment
and collection of U.S. federal income taxes of such U.S. Holder for the related taxable year may not close until three years after the
date on which the required information is filed.
The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. Holders
are urged to consult their own tax advisors with respect to the consequences to them of an investment in a PFIC, any elections available
with respect to the ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership, and disposition
of the ordinary shares in the event we are determined to be a PFIC.
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Medicare Tax on Investment Income
In addition to the income taxes described above, U.S. Holders that are individuals,
estates, or trusts and whose income exceeds certain thresholds will be subject to a 3.8% tax on all or a portion of their “net investment
income,” which generally would include dividends on, and dispositions of, the ordinary shares. U.S. Holders should consult their
tax advisors with respect to the applicability of the 3.8% Medicare tax to their income and gains, if any, resulting from their investment
in the ordinary shares.
Information Reporting and Backup Withholding
A U.S. Holder may be subject to backup withholding and information reporting requirements
with respect to cash distributions and proceeds from a disposition of ordinary shares. In general, backup withholding will apply only
if a U.S. Holder fails to comply with certain identification procedures. Information reporting and backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an
additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required
information is furnished to the IRS.
Tax Reporting
Certain U.S. Holders will be required to file an IRS Form 926 (Return by a U.S. Transferor
of Property to a Foreign Corporation) to report a transfer of cash or other property to us and information relating to the U.S. Holder
and us. Substantial penalties may be imposed on a U.S. Holder that fails to comply with these reporting requirements. Each U.S. Holder
is urged to consult with its own tax advisor regarding these reporting obligations.
Foreign Asset Reporting
Foreign Asset Reporting
Certain U.S. Holders may be required to report information relating to an interest in
the ordinary shares, subject to certain exceptions. For example, certain U.S. Holders that own “specified foreign financial assets”
with an aggregate value in excess of $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (and in
some circumstances, a higher threshold) are generally required to file IRS Form 8938 with respect to such assets with their tax returns.
“Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well
as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued
by non-U.S. persons; (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties; and (iii)
interests in foreign entities. U.S. Holders are urged to consult their tax advisors regarding the application of these and other reporting
requirements that may apply to their ownership of ordinary shares.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY AND IS NOT
INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ORDINARY
SHARES. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT RELATING TO THE PURCHASE, OWNERSHIP, AND DISPOSITION OF ORDINARY SHARES IN LIGHT
OF THE INVESTOR’S OWN CIRCUMSTANCES.
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Dividends and Paying Agents
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Documents on Display |
We are subject to certain information reporting requirements of the Exchange Act, applicable
to foreign private issuers and under those requirements will file reports with the SEC. The SEC maintains an internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Our filings with the SEC will also be available to the public through the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the Exchange Act related
to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be 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 consolidated financial statements with the SEC as frequently or as promptly as U.S.
domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the
end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing consolidated financial
statements audited by an independent registered public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited quarterly
financial information.
|
I. |
Subsidiary Information.
Not applicable. |
|
J. |
Annual Report to Security Holders.
Not applicable. |
|
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Exchange Risk
Our reporting and functional currency is the U.S. dollar, but some portion of our operational
expenses are in the New Israeli Shekel and Euro. As a result, we are exposed to some currency fluctuation risks. We may, in the future,
decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of
the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us and our operations could
be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.
Liquidity risk
We have incurred and expect to continue incurring losses, and negative cash flows from
operations until our product candidates and our solar operation activities reaches commercial profitability. As a result of these expected
losses and negative cash flows from operations, based on our current cash position and projected operating requirements, there is uncertainty
regarding our ability to meet our financial obligations for at least the next 12 months. While our management is actively exploring various
financing and strategic alternatives, there can be no assurance that such measures will be successful in alleviating this uncertainty.
As a result, we will be required to raise additional capital in the future to complete our clinical trial. Therefore, there is substantial
doubt about our ability to continue as a going concern.
120
|
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
|
A. |
Debt Securities.
Not applicable. |
|
B. |
Warrants and rights.
Not applicable. |
|
C. |
Other Securities.
Not applicable. |
|
D. |
American Depositary Shares
Not applicable. |
PART II
|
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
|
None. |
|
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
|
There are no material modifications to the rights of security holders. |
|
ITEM 15. CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of December 31, 2025, or the Evaluation Date. Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025.
Based on such evaluation, those officers have concluded that, as of December 31, 2025, our disclosure controls and procedures were ineffective
due to the material weakness described below.
121
(b) Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based principally on the framework and criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of the end of the period covered by
this report.
Based on that evaluation, our management has concluded that due to the small-scale nature
of our company, we currently do not have sufficient finance staff to provide for effective control over our period-end financial reporting
process. As of the date of this annual report on Form 20-F, we have not remediated this material weakness. Therefore, our management has
concluded that our disclosure controls and procedures were ineffective due to the material weakness as of December 31, 2025 at providing
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external
purposes in accordance with generally accepted accounting principles. Based on that assessment, our management concluded that our internal
control over financial reporting was not effective as of December 31, 2025 due to a material weakness in internal control over financial
reporting.
As defined in Regulation 12b-2 under the Exchange Act, a “material weakness”
is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim consolidated financial statements will not be prevented, or detected on a timely
basis.
Material weakness in internal control over financial
reporting
We identified a material weakness in our internal control over financial reporting in
the financial year ended December 31, 2025. Specifically, we determined that due to the small-scale nature of our company, we currently
do not have sufficient finance staff to provide for effective oversight over our period-end financial reporting process and we have an
incomplete segregation of duties. We concluded that the material weakness in our internal control over financial reporting occurs because
we do not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting
and financial reporting requirements of a public company.
In order to remediate the material weakness, we plan to hire additional accounting and
finance personnel with public company experience or to provide the necessary training for such new hires without public company experience.
We cannot assure you the measures we are taking to remediate the material weakness will be sufficient or that they will prevent future
material weakness. Additional material weaknesses or failure to maintain effective internal control over financial reporting could cause
us to fail to meet our reporting obligations as a public company and may result in a restatement of our consolidated financial statements
for prior periods. In addition, these deficiencies could cause investors to lose confidence in our reported financial information, limiting
our access to capital markets, adversely affecting our operating results and leading to declines in the trading price of our ordinary
shares and warrants.
For more information, see “Item 1A. Risk Factors - Risks Related to Ownership
of Our Ordinary Shares - We have identified a material weakness in our internal control over financial reporting. If our remediation of
the material weakness is not effective, or we fail to develop and maintain effective internal controls over financial reporting, our ability
to produce timely and accurate consolidated financial statements or comply with applicable laws and regulations could be impaired.”
122
(c) Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 20-F does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial reporting due to an exemption for non-accelerated filers provided
in the JOBS Act.
(d) Changes in Internal Control over Financial Reporting
During the year ended December 31, 2025, there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
|
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined that one member of our audit committee, Augustine
Lawlor, is an audit committee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with
applicable Exchange Act rules and the Nasdaq Listing Rules.
|
ITEM 16B. CODE OF ETHICS |
Our board of directors has adopted a Code of Ethics applicable to all of our directors
and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons
performing similar functions, which is a “code of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC. The
full text of the Code of Ethics is posted on our website at www.prf-tech.com. Information contained
on, or that can be accessed through, our website does not constitute a part of this a part of this Annual Report on Form 20-F and is not
incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver,
from a provision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required
by the rules and regulations of the SEC. We have not granted any waivers under our Code of Business Conduct and Ethics.
|
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
On December 9, 2021, Kesselman & Kesselman, was appointed as our principal independent
registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, or Kesselman & Kesselman.
The following table provides information regarding fees paid or to be paid by us to
Kesselman & Kesselman, for all services, including audit services, for the years ended December 31, 2025 and 2024:
|
|
|
Year Ended December 31, |
| |||||
|
|
|
2025 |
|
|
2024 |
| ||
|
(USD in thousands) |
|
|
|
|
| |||
|
Audit fees (1) |
|
|
125 |
|
|
|
120 |
|
|
Audit-related fees(2) |
|
|
34 |
|
|
|
83 |
|
|
Tax fees |
|
|
- |
|
|
|
- |
|
|
All other fees |
|
|
- |
|
|
|
- |
|
|
Total |
|
|
159 |
|
|
|
203 |
|
|
(1)
|
The audit fees for the years ended December 31, 2025 and 2024 include professional services rendered in
connection with the audit of our annual consolidated financial statements and the review of our interim consolidated financial statements,
statutory audits of the Company.
|
|
(2) |
Issuance of consents and assistance with review of documents filed with the SEC. |
123
Pre-Approval of Auditors’ Compensation
Our audit committee has a pre-approval policy for the engagement of our independent
registered public accounting firm to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure
that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific
audit and non-audit services in the categories of audit services, audit-related services and tax services that may be performed by our
independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general
pre-approval, it will require specific pre-approval by our audit committee. The policy prohibits retention of the independent registered
public accounting firm to perform the prohibited non-audit functions defined in applicable SEC rules.
|
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
|
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Not applicable.
|
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
|
ITEM 16G.
CORPORATE GOVERNANCE |
Under the Companies Law, companies incorporated under the laws of the State of Israel,
whose shares are publicly traded, including companies whose shares are listed on the Nasdaq Capital Market are considered public companies
under Israeli law and are required to comply with various corporate governance requirements under Israeli law relating to such matters
as external directors, the audit committee, compensation, policy, company’s auditors, and an internal auditor. This is the case
even if our shares are not listed on the Tel Aviv Stock Exchange. These requirements are in addition to the corporate governance requirements
imposed by the Nasdaq Listing Rules, and other applicable provisions of U.S. securities laws to which we are subject as a foreign private
issuer due to the listing of the ordinary shares on the Nasdaq Capital Market. Under the Nasdaq Listing Rules, a foreign private issuer,
such as us, may generally follow its home country rules of corporate governance in lieu of the comparable requirements of the Nasdaq Capital
Market, except for certain matters including (among others) the composition and responsibilities of the audit committee and the independence
of its members within the meaning of the rules and regulations of the SEC.
124
We intend to rely on this “home country practice exemption” with respect
to the following Nasdaq Listing Rules:
|
|
●
|
Shareholder approval. We
will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than
seeking approval for corporate actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Listing Rule, shareholder
approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more
of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target
company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of
equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into,
or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such
equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder
approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning the terms
of their service (including indemnification, exemption, and insurance for their service or for any other position that they may hold at
a company), for which approvals of the compensation committee, board of directors, and shareholders are all required; (b) extraordinary
transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (c) terms of office and employment or other
engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval
described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;”
(d) approval of transactions with Company’s Chief Executive Officer with respect to his or hers compensation, whether in accordance
with the approved compensation policy of the Company or not in accordance with the approved compensation policy of the Company, or transactions
with officers of the Company not in accordance with the approved compensation policy; and (e) approval of the compensation policy of the
Company for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging
companies. |
|
|
●
|
Nomination of our directors.
Israeli law and our amended articles of association do not require director nominations to be made by a nominating committee of our board
of directors consisting solely of independent directors, as required under the Listing Rules of the Nasdaq Stock Market. We rely on the
exemption available to foreign private issuers under the Nasdaq Listing Rules and follow Israeli law and practice with regard to the process
of nominating directors, in accordance with which directors are recommended by our board of directors for election by our shareholders
(other than directors elected by our board of directors to fill a vacancy). |
|
|
●
|
Quorum requirement. Under
our amended and restated articles of association and as permitted under the Companies Law, a quorum for any meeting of shareholders shall
be the presence of at least two shareholders present in person, by proxy or by a written ballot, who hold at least 25% of the voting power
of our shares (or if a higher percentage is required by law, such higher percentage) instead of 33 1/3% of the issued share capital required
under the Nasdaq Listing Rules. If within half an hour from the time designated for the meeting a quorum is not present, them will stand
adjourned to the same day in the following week, at the same time and place. If a quorum is not present at the adjourned meeting within
half hour from the time designated for its start, the meeting shall take place with any number of participants. |
|
|
●
|
Periodic reports. As opposed
to making periodic reports to shareholders and proxy solicitation materials available to shareholders in the manner specified by the Nasdaq
Marketplace Rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted
business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website.
We will only mail such reports to shareholders upon request; and |
|
|
●
|
Compensation of officers.
We follow Israeli law and practice with respect to the approval of officer compensation. While our compensation committee currently complies
with the provisions of the Nasdaq Listing Rules relating to composition requirements and Israeli law generally requires that the compensation
of the chief executive officer and all other executive officers be approved, or recommended to the board for approval, by the compensation
committee (and in certain instances, shareholder approval is required), Israeli law includes relief from compensation committee approval
in certain instances. For details regarding the approvals required under the Israeli Companies Law and regulation promulgated thereunder
for the approval of compensation of the chief executive officer, all other executive officers and directors, see
Item 6C “Directors, Senior Management and Employees- Board Practices - Approval of Related Party Transactions under Israeli Law
- Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions”. |
125
Except as stated above, we intend to comply with the rules generally applicable to U.S.
domestic companies listed on the Nasdaq Capital Market. We may in the future decide to use other foreign private issuer exemptions with
respect to some or all of the other Nasdaq Listing Rules. Following our home country governance practices, as opposed to the requirements
that would otherwise apply to a company listed on the Nasdaq Capital Market, may provide less protection than is accorded to investors
under the Nasdaq Listing Rules applicable to domestic issuers.
|
ITEM 16H.
MINE SAFETY DISCLOSURE |
|
Not applicable. |
|
Not applicable. |
126
ITEM 16J. INSIDER TRADING POLICIES
We have adopted a statement of trading policies that governs the trading in our securities by our directors, officers, employees and consultants, and which is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of the Insider Trading Policy is included as Exhibit 11.1 to this annual report. In addition, with regard to any trading in our own securities, it is our policy to comply with the federal securities laws and the applicable exchange listing requirements.
ITEM 16K. CYBERSECURITY
The level of each identified risk is determined by considering the impact of the risk itself and the likelihood of the risk materializing and high scoring risks are actioned upon. Risks are analyzed to determine whether the risk meets company risk acceptance criteria to be accepted or whether a mitigation plan will be applied. Mitigation plans include both the individual or department responsible for the plan and may include budget considerations.
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements and related information pursuant to Item 18.
|
ITEM 18. FINANCIAL STATEMENTS
|
The financial statements and the related notes required by this Item are included in this Annual Report on Form 20-F beginning on page F-1.
127
|
ITEM 19. EXHIBITS.
|
|
Exhibit No.
|
|
Exhibit Description
|
|
|
|
|
|
1.1*
|
Amended and Restated Articles of Association of the Company, as currently in effect
|
|
|
2.1*
|
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
|
|
|
|
|
|
|
2.2
|
Specimen Share Certificate (included as Exhibit 4.1 to the Registration Statement on Form F-1 as filed with the Securities and Exchange Commission on August 5, 2020, as amended, and incorporated herein by reference).
|
|
|
|
|
|
|
4.1#
|
2019 Option Plan (included as Exhibit 10.1 to our Registration Statement on Form F-1 as filed with the Securities and Exchange Commission on June 30, 2020, and incorporated herein by reference)
|
|
|
|
|
|
|
4.2#
|
Compensation Policy (included as Exhibit 4.2 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 16, 2022, and incorporated herein by reference)
|
|
|
|
|
|
|
4.3
|
Form of Indemnification Agreement (included as Exhibit 10.2 to our Registration Statement on Form F-1 as filed with the Securities and Exchange Commission on August 24, 2020, and incorporated herein by reference)
|
|
|
|
|
|
|
4.4#
|
Form of Option Award (included as Exhibit 10.7 to our Registration Statement on Form F-1 as filed with the Securities and Exchange Commission on June 30, 2020, and incorporated herein by reference)
|
|
| 4.5 |
Form of Warrant issued to certain institutional investors on March 10, 2021 (included as Exhibit 10.2 to our Form 6-K filed with the Securities and Exchange Commission on March 9, 2021, and incorporated herein by reference)
|
128
|
4.6
|
Form of Securities Purchase Agreement, dated as of July 12, 2023, between the Company and the purchasers identified on the signature pages thereto (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on July 14, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.7
|
Form of Placement Agency Agreement, dated as of July 12, 2023, by and between the Company and Maxim Group LLC (included as Exhibit 10.2 to our Form 6-K filed with the Securities and Exchange Commission on July 14, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.8
|
Form of Pre-Funded Ordinary Share Purchase Warrant (included as Exhibit 10.3 to our Form 6-K filed with the Securities and Exchange Commission on July 14, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.9
|
Form of Ordinary Share Purchase Warrant (included as Exhibit 10.4 to our Form 6-K filed with the Securities and Exchange Commission on July 14, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.10
|
Form of Securities Purchase Agreement, dated as of July 14, 2023, between the Company and the purchasers identified on the signature pages thereto (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on July 18, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.11
|
Form of Placement Agency Agreement, dated as of July 14, 2023, by and between the Company and Maxim Group LLC (included as Exhibit 10.2 to our Form 6-K filed with the Securities and Exchange Commission on July 18, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.12
|
Form of Pre-Funded Ordinary Share Purchase Warrant (included as Exhibit 10.3 to our Form 6-K filed with the Securities and Exchange Commission on July 18, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.13
|
Form of Ordinary Share Purchase Warrant (included as Exhibit 10.4 to our Form 6-K filed with the Securities and Exchange Commission on July 18, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.14
|
Form of Inducement Letter (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on December 27, 2023, and incorporated herein by reference).
|
|
|
|
|
|
|
4.15
|
Form of New Warrant (included as Exhibit 10.2 to our Form 6-K filed with the Securities and Exchange Commission on December 27, 2023, and incorporated herein by reference).
|
|
4.16
|
Form of Placement Agent Warrant (included as Exhibit 10.3 to our Form 6-K filed with the Securities and Exchange Commission on December 27, 2023, and incorporated herein by reference).
|
|
|
4.17
|
Form of Securities Purchase Agreement (included as Exhibit 10.23 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission on April 15, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.18
|
Form of Pre-Funded Ordinary Share Purchase Warrant (included as Exhibit 4.2 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission on April 15, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.19
|
Form of Ordinary Share Purchase Warrant (included as Exhibit 4.3 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission on April 15, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.20
|
Form of Placement Agent Ordinary Share Purchase Warrant (included as Exhibit 4.4 to our Registration Statement on Form F-1 filed with the Securities and Exchange Commission on April 15, 2024, and incorporated herein by reference).
|
129
|
4.21
|
Amendment to Existing Warrants (included as Exhibit 10.5 to our Form 6-K filed with the Securities and Exchange Commission on April 17, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.22
|
Form of Inducement Letter (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on September 11, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.23
|
Form of Ordinary Share Purchase Warrant (included as Exhibit 10.2 to our Form 6-K filed with the Securities and Exchange Commission on September 11, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.24
|
Form of Placement Agent Ordinary Share Purchase Warrant (included as Exhibit 10.3 to our Form 6-K filed with the Securities and Exchange Commission on September 11, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.25
|
At the Market Offering Agreement dated October 16, 2024 between the Company and H.C. Wainwright & Co. LLC (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on October 16, 2024, and incorporated herein by reference).
|
|
|
|
|
|
|
4.26†^
|
Business Acquisition Agreement dated as of February 17, 2025 between the Company and Bladeranger Ltd. (included as Exhibit 4.31 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
|
|
|
|
|
4.27
|
Form of Pre-Funded Ordinary Share Purchase Warrant (included as Exhibit 4.32 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
|
|
|
|
|
4.28
|
Form of Milestone Based Pre-Funded Ordinary Share Purchase Warrant (included as Exhibit 4.33 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
|
|
|
|
|
4.29
|
Form of Milestone Based Ordinary Share Purchase Warrant A (included as Exhibit 4.34 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
|
|
|
|
|
4.30
|
Form of Milestone Based Ordinary Share Purchase Warrant B (included as Exhibit 4.35 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
|
4.31^
|
Preferred Stock Purchase Agreement dated as of July 8, 2025 between Painreform Ltd. and LayerBio Inc. (included as Exhibit 10.1 to our Form 6-K filed with the Securities and Exchange Commission on July 10, 2025, and incorporated herein by reference).
|
130
| 8.1* |
List of Subsidiaries
|
|
|
11.1
|
Insider Trading Policy (included as Exhibit 11.1 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 7, 2025, and incorporated herein by reference).
|
|
12.1*
|
Certification of the Chief Executive Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934
|
|
|
|
|
|
|
12.2*
|
Certification of the Chief Financial Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934
|
|
|
|
|
|
|
13.1*
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350
|
|
|
|
|
|
|
13.2*
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350
|
|
|
|
|
|
|
15.1*
|
Consent of Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited, Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
97.1#
|
Clawback Policy (included as Exhibit 97.1 to our Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 29, 2024, and incorporated herein by reference).
|
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
*
|
Filed herewith.
|
|
^
|
Portions of this exhibit (indicated by asterisks) have been omitted under rules of the U.S. Securities and Exchange Commission permitting the confidential treatment of select information.
|
|
#
|
Management contract or compensatory plan.
|
|
|
|
|
†
|
Portions of this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish a copy of all omitted schedules and exhibits to the SEC upon its request.
|
131
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F filed on its behalf.
|
|
PRF TECHNOLOGIES LTD.
|
|
|
|
|
|
|
Date: March 26, 2026
|
By:
|
/s/ Efraim Cohen-Arazi
|
|
|
|
Efraim Cohen-Arazi
|
|
|
|
Interim Chief Executive Officer and Director
|
132
PRF TECHNOLOGIES LTD.
(Formerly PainReform Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2025
U.S. DOLLARS IN THOUSANDS
INDEX
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
(Firm Name: Kesselman & Kesselman / PCAOB ID No.
|
|
|
|
|
|
Consolidated Balance Sheets
|
F-4
|
|
|
|
|
Consolidated Statements of Comprehensive Loss
|
F-5
|
|
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity
|
F-6
|
|
|
|
|
Consolidated Statements of Cash Flows
|
F-7 - F-8
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F-9 - F-31
|
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of PRF Technologies Ltd. (formerly PainReform Ltd.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PRF Technologies Ltd. (formerly PainReform Ltd.) and its subsidiary (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, the Company has incurred recurring losses and negative cash flows from operations and has an accumulated deficit as of December 31, 2025. These circumstances raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1(b). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Asset Acquisition of DeepSolar
As described in Note 3 to the consolidated financial statements, on March 5, 2025, the Company completed the asset acquisition of DeepSolar for total consideration measured at $7,292 thousand. The fair value of the intangible asset being recorded was determined based on the fair value of the consideration transferred together with the purchase price allocation analysis. The consideration included ordinary shares and several classes of equity‑classified warrants, including milestone‑based warrants exercisable upon the achievement of defined business milestones. The fair value of these instruments was estimated using option‑pricing models, including Black‑Scholes and Monte Carlo simulations. Management applied significant judgment in estimating the fair value of intangible asset acquired, which involved the use of significant estimates and assumptions with respect to the probability of achieving defined milestones.
The principal considerations for our determination that performing procedures relating to the Asset Acquisition of DeepSolar is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of intangible asset acquired due to the significant amount of judgment by management when developing the estimate; and (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimate, such as the probability of achieving defined milestones; (iii) audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) reading the asset acquisition agreement (ii) testing management’s process for estimating the fair value of the intangible asset; (iii) evaluating the appropriateness of models used; (iv) testing the completeness, accuracy, and relevance of underlying data used in the models, and evaluating the significant assumptions used by management, including the probability of achieving defined milestones; (iv) evaluating the reasonableness of significant assumptions used by management (v) using professionals with specialized skill and knowledge to assist in evaluating the valuation methodologies.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
March 26, 2026
We have served as the Company's auditor since 2021.
F - 3
PRF TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
As of December 31,
|
||||||||||
|
|
Note
|
2025
|
2024
|
||||||||
|
Assets
|
|||||||||||
|
Current assets:
|
|||||||||||
|
Cash and cash equivalents
|
|
|
|||||||||
|
Restricted cash
|
2f
|
|
|
||||||||
|
Short-term deposits
|
2e
|
|
|
||||||||
|
Prepaid expenses and other current assets
|
5
|
|
|
||||||||
|
Total current assets
|
$
|
|
$
|
|
|||||||
|
Non-current assets
|
|||||||||||
|
Intangible assets, net
|
4
|
|
|
||||||||
|
Goodwill
|
4
|
|
|
||||||||
|
Operating lease right of use asset
|
8a
|
|
|
|
|||||||
|
Property and equipment, net
|
|
|
|||||||||
|
Total non-current assets
|
$
|
|
$
|
|
|||||||
|
Total assets
|
$
|
|
$
|
|
|||||||
|
Liabilities and shareholders’ equity
|
|||||||||||
|
Current liabilities:
|
|||||||||||
|
Trade payables
|
|
|
|||||||||
|
Employees and related liabilities
|
|
|
|||||||||
|
Operating lease liability
|
8a |
|
|
||||||||
|
Accrued expenses
|
6
|
|
|
||||||||
|
Total current liabilities
|
$
|
|
$
|
|
|||||||
|
Non-current liabilities:
|
|||||||||||
|
Provision for unrecognized tax positions
|
7f
|
|
|
|
|||||||
|
Total non-current liabilities
|
|
|
|||||||||
|
|
|||||||||||
|
Total liabilities
|
$
|
|
$
|
|
|||||||
|
Commitments
|
8
|
||||||||||
|
Shareholders’ Equity:
|
9
|
||||||||||
|
Ordinary shares,
and 2024, respectively; Issued and outstanding:
December 31, 2025, and 2024, respectively (*)
|
|
||||||||||
|
Additional paid-in capital (*)
|
|
|
|||||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
|||||||
|
|
|||||||||||
|
Total equity attributable to shareholders of the Company
|
$
|
|
$
|
|
|||||||
|
Non-controlling interests
|
$
|
|
$
|
|
|||||||
|
Total Equity
|
$
|
|
$
|
|
|||||||
|
Total liabilities and equity
|
$
|
|
$
|
|
|||||||
The accompanying notes are an integral part of the financial statements.
(*) All share amounts in these consolidated financial statements have been retroactively adjusted to reflect the reverse share split (Note 1d)
F - 4
PRF TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share and per share amount)
|
|
For the Year Ended
December 31, |
||||||||||||||
|
|
Note
|
2025
|
2024
|
2023
|
|||||||||||
|
|
|||||||||||||||
|
Revenues
|
2k
|
|
|
|
|
||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
2l
|
|
(
|
)
|
|
|
|||||||||
|
Selling and marketing expenses
|
(
|
)
|
|
|
|||||||||||
|
Amortization of intangible assets
|
4
|
(
|
)
|
||||||||||||
|
Research and development expenses
|
10a
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
General and administrative expenses
|
10b
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
|
|||||||||||||||
|
Operating loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
|
|||||||||||||||
|
Financial income, net
|
10c
|
|
|
|
|
||||||||||
|
|
|||||||||||||||
|
Loss before taxes
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
|
|||||||||||||||
|
Income tax expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
|
|||||||||||||||
|
Comprehensive loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
|
|||||||||||||||
|
Comprehensive loss attributable to non-controlling interests
|
(
|
)
|
|||||||||||||
|
Comprehensive loss attributable to shareholders of the Company
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
|
|||||||||||||||
|
Basic and diluted net loss per share
|
2r
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
|
|||||||||||||||
|
Weighted average number of Ordinary Shares used in computing basic and diluted net loss per share (*)
|
|
|
|
||||||||||||
The accompanying notes are an integral part of the financial statements.
(*) All share amounts in these consolidated financial statements have been retroactively adjusted to reflect the reverse share split (Note 1d)
F - 5
PRF TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share data)
|
|
Ordinary shares
Number
|
Additional
paid-in Capital
|
Accumulated
Deficit
|
The Company’s shareholders’
Equity
|
Noncontrolling
Interest
|
Total
Equity
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance as of January 1, 2023
|
$
|
|
$
|
|
$
|
(
|
)
|
|
|
$
|
|
|||||||||||||
|
Share-based compensation to employees and directors
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Share issuance to service providers
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance of common stock and pre-funded warrants upon private placement, net of underwriting commissions and other offering costs.
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance and exercise of common stock warrants upon private placement, net of underwriting commissions and other offering costs.
|
|
|
|
|
|
|
||||||||||||||||||
|
Net comprehensive loss
|
-
|
|
(
|
)
|
(
|
) |
|
(
|
)
|
|||||||||||||||
|
Balance as of December 31, 2023
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||
|
|
||||||||||||||||||||||||
|
Share-based compensation to employees and directors
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of prefunded warrants (Note 9b)
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance of common stock, warrants and prefunded warrants upon private placement, net of underwriting commissions and other offering costs. (Note 9b)
|
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of warrants and issuance of warrants upon private placement, net of underwriting commissions and other offering costs. (Note 9b)
|
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of warrants (Note 9b)
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance of Ordinary shares, net of offering costs – At-the-market (Note 9b)
|
|
|
|
|
|
|
||||||||||||||||||
|
Net loss and comprehensive loss
|
-
|
|
(
|
)
|
(
|
) |
|
(
|
)
|
|||||||||||||||
|
Balance as of December 31, 2024
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
|
|||||||||||||
|
|
||||||||||||||||||||||||
|
Share-based compensation to employees and directors
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Share and prefunded warrants issuance to Bladeranger Ltd - DeepSolar asset acquisition (Note 3)
|
|
|
|
|
|
|
||||||||||||||||||
|
Acquisition of LayerBio Inc. (Note 3)
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Shares issuance from pre-funded warrants exercise (Note 9)
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance of Ordinary shares, net of offering costs
At-the-market (Note 9)
|
|
|
|
|
|
|
||||||||||||||||||
|
Net comprehensive loss
|
(
|
)
|
(
|
) |
(
|
)
|
(
|
)
|
||||||||||||||||
|
Balance as of December 31, 2025
|
|
|
(
|
)
|
|
|
$
|
|
||||||||||||||||
(*) Represents amount less than $1.
(**) All share amounts in these financial statements have been retroactively adjusted to reflect the reverse share split (Note 1d)
F - 6
PRF TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
For the Year Ended
December 31, |
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Consolidated Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation
|
|
|
|
|||||||||
|
Amortization of intangible assets
|
|
|||||||||||
|
Exchange rate differences on cash, cash equivalents and restricted cash
|
|
(
|
)
|
(
|
)
|
|||||||
|
Share-based compensation to employees and directors
|
|
|
|
|||||||||
|
Net change in operating lease asset and liability
|
|
(
|
)
|
(
|
)
|
|||||||
|
Warrant issuance costs
|
|
|
|
|||||||||
|
Interest income (expenses)
|
(
|
)
|
|
|
||||||||
|
Change in warrant liability valuation
|
|
|
(
|
)
|
||||||||
|
Loss from inducement offer letter agreement (Note 7c)
|
|
|
|
|||||||||
|
Changes in operating assets and liabilities, net of effects of businesses acquired:
|
||||||||||||
|
Prepaid expenses and other current assets
|
(
|
)
|
|
|
||||||||
|
Trade payables
|
(
|
)
|
|
|
||||||||
|
Employees, related liabilities and accrued expenses
|
|
(
|
)
|
|
||||||||
|
Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
|
||||||||||||
|
Cash flows from investing activities
|
||||||||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash acquired through business combination (Note 3)
|
|
|||||||||||
|
Proceeds from short term deposits
|
|
|
||||||||||
|
Purchase of short-term deposit
|
(
|
)
|
|
(
|
)
|
|||||||
|
Net cash provided by (used in) investing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||
|
|
||||||||||||
|
Cash flows from financing activities
|
||||||||||||
|
Proceeds from issuance of shares, warrants and prefunded warrants (Note 7b)
|
|
|
|
|||||||||
|
Proceeds from exercise of warrants (Note 7b)
|
|
|
|
|||||||||
|
Proceeds from exercise and issuance of warrants (Note 7b)
|
|
|
|
|||||||||
|
Proceeds from issuance of Ordinary shares At-the market offering (Note 9b)
|
|
|
|
|||||||||
|
Issuance costs
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash provided by financing activities
|
$
|
|
$
|
|
$
|
|
||||||
|
Effect of Exchange rate changes on cash, cash equivalents and restricted cash
|
(
|
)
|
|
|
||||||||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
|
|||||||
|
Cash, cash equivalents and restricted cash at the beginning of the year
|
|
|
|
|||||||||
|
Cash, cash equivalents and restricted cash at the end of the year
|
$
|
|
$
|
|
$
|
|
||||||
F - 7
PRF TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
U.S. dollars in thousands
Supplemental cash flow information:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported on the balance sheets that sum to the total of the same amounts shown on the statement of cash flows:
|
|
December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Restricted cash
|
|
|
|
|||||||||
|
Total cash, cash equivalents, and restricted cash
|
$
|
|
$
|
|
$
|
|
||||||
|
|
||||||||||||
|
Investing and Financial activities not involving cash flow:
|
||||||||||||
|
Acquisition of right-of-use assets by means of lease liabilities
|
$
|
|
$
|
|
$
|
|
||||||
|
Acquisition of technology in exchange for equity instruments (Note 10)
|
$
|
|
|
|
||||||||
The accompanying notes are an integral part of the financial statements.
F - 8
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 1:- |
GENERAL
|
| a. |
PRF Technologies Ltd. (formerly PainReform Ltd.) (“the Company”) was incorporated and started business operations in November 2007. On January 6, 2026, the shareholders of the Company, at the Adjourned Annual General Meeting of Shareholders, approved the change of the Company’s name from PainReform Ltd. to PRF Technologies Ltd. The ticker symbol of the Company’s ordinary shares remained unchanged as PRFX, and the Company’s registration number in Israel remained unchanged. The Company is a diversified technology innovation company advancing specialty pharmaceutical therapies and AI-driven energy analytics. The Company’s pharmaceutical programs focus on reformulation and controlled-release drug-delivery technologies designed to improve patient outcomes while reducing reliance on opioids and complex dosing regimens. The company’s strategy is to incorporate generic drugs which have been proven safe and effective with our proprietary extensive drug-delivery system knowledge to solve therapeutic shortfalls and create a significant improvement in therapy via controlled-release new drug products taking advantage of the shorter 505(b)(2) regulatory pathway created by the U.S. Food and Drug Administration (“FDA”). The company continues its assessment and analysis of PRF-110 in order to further investigate its post surgical pain PRF-110.
On
|
| b. |
The company’s Solar Energy division focuses on an AI-driven SaaS platform of DeepSolar is aimed at large-scale renewable energy (solar power) plants, helping asset management maximize revenue and profitability. In March 2025, the Company completed an asset acquisition, related to an AI-driven solar analytics technology, DeepSolar, that enables both consumers and enterprises to monitor, forecast, and optimize energy consumption—particularly in solar-integrated environments.(Note 10)
|
| c. |
Liquidity
Since its inception, the Company has devoted substantially all its efforts to research and development, clinical trials, solar activities and capital raising activities. The Company is still in its development and clinical stage and has not yet generated significant revenues in both segments Solar and Clinical development.
The Company has incurred significant losses and negative cash flows from operations and incurred consolidated losses attributed to shareholders of $ The Company expects to continue incurring losses and negative cash flows from operations until PRF-110, OcuRing™-K (Layer Bio product) and the DeepSolar products reach commercial profitability, if at all. As a result, along with its current cash position, the Company does not have sufficient resources to fund operations nor to continue as a going concern for at least one year from the issuance date of these consolidated financial statements.
Management’s plans include continued capital raising through the sale of additional equity securities, debt, or capital inflows from strategic partnerships. There are no assurances, however, that the Company will successfully obtain the level of financing needed for its operations. If the Company is unsuccessful in raising capital, it may need to reduce activities or curtail or abandon some or all of its operations, which could materially harm the Company’s business, financial condition and results of operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business and does not include any adjustments that might result from the outcome of this uncertainty.
On April 15, 2024 the Company sold (i)
On September 10, 2024, the Company entered into an inducement agreement with certain holders, under which the holders agreed to exercise
On December 18, 2024, all
Between October 24 and December 31, 2024, the Company issued
In March 2025, the Company entered into an Asset Acquisition Agreement with BladeRanger Ltd. to acquire
During 2025 the Company issued
|
F - 9
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 1:- |
GENERAL (Cont.)
|
| d. |
On February 6, 2026, the Company effected a
|
| e. |
The Company continues to monitor the impact of geopolitical and security developments, including the ongoing military conflict in Israel, regional tensions involving Iran, and the continued conflict between Russia and Ukraine, on its operations, business and financial condition. As of the date of issuance of these financial statements, management has not identified any material adverse effect of these developments on the Company’s consolidated financial statements, results of operations or business activities.
|
| f. |
The Company reports its financial results in U.S. dollars. A portion of research and development and general and administrative expenses of our Israeli operations are incurred in New Israeli Shekel ("NIS"). As a result, the Company is exposed to exchange rate risks that may materially and adversely affect our financial results. If the NIS appreciates against the U.S. dollar, or if the value of the NIS decline against the U.S. dollar, at a time when the rate of inflation in the cost of Israeli goods and services exceed the rate of decline in the relative value of the NIS, then the U.S. dollar-denominated cost of our operations in Israel would increase and our results of operations could be materially and adversely affected. Inflation in Israel compounds the adverse impact of a devaluation of the NIS against the U.S. dollar by further increasing the amount of our Israeli expenses. Israeli inflation may also (in the future) outweigh the positive effect of any appreciation of the U.S. dollar relative to the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. The Israeli rate of inflation did not have a material adverse effect on the Company’s financial condition during 2025 ,2024 and 2023. Given our general lack of currency hedging arrangements to protect us from fluctuations in the exchange rates of the NIS in relation to the U.S. dollar (and/or from inflation of such non-U.S. currencies), the Company may be exposed to material adverse effects from such movements. the Company cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the U.S. dollar against the NIS.
|
F - 10
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES
|
| a. |
Basis of presentation:
|
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and of its majority-owned subsidiary in which the Company exercises control over operating and financial policies. Intercompany accounts and transactions have been eliminated in consolidation.
The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated.
| b. |
Use of estimate in preparation of financial statements:
|
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. Estimates are used in a variety of areas, including, but not limited to the accounting for business combination and intangible assets acquired. In connection with business combinations and intangible assets acquired, significant estimates and assumptions may be used in determining the fair value of identifiable non-controlling interests, and intangible assets as of the acquisition date. The Company performed a Purchase Price Allocation (PPA) and utilized the resulting fair value measurements and related assumptions as part of the significant estimates applied in the preparation of its financial statements. Management believes that the estimates, judgments and assumptions used are reasonable based on information available at the time they are made. Actual results may differ from those estimates to the financial statements.
| c. |
Financial statements in United States dollars:
|
The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non-U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation) - historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate.
| d. |
Cash and cash equivalents:
|
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
| e. |
Short term deposit:
|
Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates.
| f. |
Restricted cash:
|
As of December 31, 2025, and 2024, the Company’s restricted cash consisted of immaterial bank deposits that are denominated in NIS. Restricted deposits are presented at cost including accrued interest. These bank deposits are used as securities for the Company's credit cards.
F - 11
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| g. |
Fair Value Measurements:
|
The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, other current assets, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the consolidated financial statements are categorized as follows:
Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active;
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2025, and 2024 no assets or liabilities are measured at their fair value.
| h. |
Property and equipment, net:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:
|
|
%
|
||
|
|
|||
|
Computers, software and electronic equipment
|
|
||
|
Furniture and office equipment
|
|
| i. |
Research and development expenses:
|
Research and development costs include costs of payroll and related expenses of employees, subcontractors and consultants and other costs related to the Company's operation of its planned clinical trials. Research and development expenses are charged to the statements of comprehensive loss as incurred.
| j. |
Business Combinations
|
Business combinations are accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method, the Company measures the identifiable assets acquired, liabilities assumed, and any non-controlling interests, if applicable, at their acquisition date fair values. Acquisition related costs are not considered part of the consideration transferred and are expensed as incurred. The excess of the fair value of the consideration transferred, together with the fair value of any non-controlling interests, if applicable, over the fair value of the identifiable net assets acquired is recorded as goodwill. During the measurement period, which may extend up to one year from the acquisition date, the Company may record adjustments to the preliminary allocation of the purchase consideration based on additional information about facts and circumstances that existed as of the acquisition date. The results of operations of an acquired business are included in the Company’s consolidated financial statements from the acquisition date.
F - 12
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| k. |
Revenues recognition
|
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s revenues are primarily derived from providing solar analytics platform services to operators of solar fields. Revenue is recognized over the contractual service period as the related performance obligations are satisfied, based on the terms of the underlying agreements. The transaction price is generally determined based on the size or production capacity of the customer’s solar field. Revenue is recognized only when collection of substantially all of the consideration is probable.
| l. |
Cost of revenues
|
Cost of revenues consists primarily of direct costs associated with providing the Company’s solar platform services to customers, including the allocated portion of direct payroll and related personnel costs, direct consultant costs, cloud related costs, and other direct costs attributable to the delivery of such services. Cost of revenues is recognized in the period in which the related services are rendered.
| m. |
Employee severance benefits:
|
The Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of an Israeli employment in certain circumstances.
In accordance with the current employment terms with all of its Israeli employees (Section 14 of the Israeli Severance Pay Law, 1963) located in Israel, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s full retirement benefit and severance obligation. The Company is relieved from any severance pay liability with respect to each such Israeli employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies. The amounts of severance payment expenses were $166 , $73 and $73 for the years ended December 31, 2025, 2024 and 2023, respectively.
| n. |
Legal and other contingencies:
|
Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, if any, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonable estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| o. |
Income taxes:
|
The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all the deferred tax assets will not be realized, based on the weight of available positive and negative evidence. As of December 31, 2025, and 2024, the Company had a full valuation allowance on its deferred tax assets.
The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax positions as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. As of December 31, 2025 and 2024, the total gross amount of provision for unrecognized tax positions was $267 and $259 , respectively (Note 5f). The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses.
F - 13
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| p. |
Concentrations of credit risk:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. Cash and cash equivalents and restricted cash are invested in a major bank in Israel and the United States.
Management believes that the banks that hold the Company’s cash, cash equivalent and restricted cash are financially sound and, accordingly, minimal credit risk exists with respect to this cash, cash equivalent and restricted cash.
| q. |
Warrants
|
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock. Warrants that determined to be classified as equity, are recorded as a component of additional paid-in capital. Warrants that determined to be classified as liabilities are recorded at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter.
| r. |
Basic and diluted loss per share:
|
Basic loss per share is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary Shares, outstanding during the year, including unconditional prefunded warrants exercisable for little consideration (“penny” warrants). Diluted loss per share is based upon the weighted average number of ordinary shares and of potential Ordinary Shares outstanding when dilutive. Potential Ordinary Shares include outstanding stock options, contingent pre-funded warrants and warrants, which are included under the treasury stock method when dilutive.
For the years ended December 31, 2025, 2024 and 2023, all outstanding share options, contingent pre-funded warrants, and warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented.
The loss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows:
|
|
Year ended
December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Net loss applicable to shareholders of ordinary shares
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
|
||||||||||||
|
Denominator:
|
||||||||||||
|
Ordinary Share and prefunded warrants used in computing basic and diluted net loss per share (*)
|
|
|
|
|||||||||
|
Net loss per share of ordinary share, basic and diluted
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
(*) All share amounts have been retroactively adjusted to reflect a 1-for-5 reverse share split (Note 1d).
F - 14
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
| s. |
Share-based compensation:
|
Share-based compensation to employees, officers, directors, and non-employees is accounted for in accordance with ASC 718, “Compensation - Share Compensation” (“ASC 718”), which requires estimation of the fair value of share-based payment awards on the grant date. The Company accounts for share-based compensation awards classified as equity awards using the grant-date fair value method. The value of the portion of the award that is ultimately expected to vest is recognized as an expense on a straight-line basis over the requisite service period. The Company has elected to recognize forfeitures as they occur.
The fair value of each share option granted is estimated using the Black-Scholes option pricing model, which incorporates a number of assumptions, including the expected share price volatility, the expected option term, and the risk-free interest rate. Expected volatility is calculated based on comparable public companies in the same industry. The expected share option term is calculated using the “simplified” method when the required conditions are met. The risk-free interest rate is derived from the yield of U.S. Treasury bonds with an equivalent term. The Company grants share-equivalents (“Share-Based Compensation”) in consideration for services rendered (Note 7).
The expected dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend pay outs. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.
The Company elected to recognize Share-Based Compensation cost for awards with only service conditions that have a graded vesting schedule using the straight-line method based on the multiple-option award approach.
| t. |
Segment Reporting
|
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Company’s Chief Executive Officer (the “CODM”), who makes resource allocation decisions and assesses performance based on financial information prepared on a consolidated basis, accompanied by disaggregated information about operating loss for the two identified reportable segments.
The Company’s business includes two operating segments based on the services and activities that the Company provides. The two segments are composed of the Clinical Development segment, which facilitates the development of potential new drug compounds, and the Solar segment, which comprises the design and development of the Company’s intellectual property and the sale related service offerings.
| u. |
Leases
|
In accordance with Accounting Standards Codification (“ASC”) 842, Leases, the Company determines whether an arrangement is or contains a lease at the inception of the arrangement and whether such a lease is classified as a financing lease or operating lease at the commencement date of the lease.
F - 15
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- |
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Leases consist real estate property that are classified as operating leases with rental payment linked to the index. The Company recorded right of use (“ROU”) asset and a lease liability of the Company obligation to make the lease payments. The ROU asset and the liability are included in non-current assets, current liabilities and non-current liabilities on the balance sheet. Operating lease ROU and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, which may include options to extend or terminate the lease, when it is reasonably certain at the commencement date whether the Company will or will not exercise the option to renew or terminate the lease. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months period. This means that for those leases, the Company did not recognize ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis (Note 6a).
| w. |
Intangible assets, net.
|
Goodwill
Goodwill represents the excess of the consideration transferred, plus the fair value of any non-controlling interest, over the fair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized and is evaluated for impairment at least annually and in each reporting period upon the occurrence of indicators of impairment. The Company performs an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year, or more frequently if indicators of potential impairment exist. The analysis may include both qualitative and quantitative factors to assess the likelihood of impairment. Additionally, in accordance with ASC 350, the Company first assess qualitative factors to determine the existence of events or circumstances which indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative impairment test is only required if we determine, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.
Other Intangible Assets, net
Intangible assets acquired in a business combination or asset acquisition are recognized at fair value and, if they have finite useful lives, are amortized on a straight-line basis over their estimated useful lives. The Company evaluates such intangible assets for impairment in each reporting period upon the occurrence of indicators of impairment. Amortization of acquired technology is recorded as a separate line item in the statement of operations. Acquired IPR&D intangible asset is considered indefinite-lived until the abandonment or completion of the associated research and development efforts and is not amortized; instead, it is subject to an impairment assessment, at least annually and in each reporting period upon the occurrence of indicators of impairment.
The Company did not record any impairment of intangible assets for any of the periods presented.
Impairment of long-lived assets
The Company tests long-lived assets for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized. The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash flows (discounted cash flows), or some other fair value measure.
| x. |
Accounting pronouncements adopted in the period
|
In December 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024. The Company implemented the new income tax disclosures prospectively. The implementation of ASU 2023-09 affected disclosures only and had no impact on the Company’s financial condition or results of operations (See Note 7 Income Taxes.
| y. |
Accounting Pronouncements effective in future periods
|
In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expense (“ASU 2024-03”) and ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 and ASU 2025-01 improves the disclosures about a public business entity’s expenses and provides more detailed information about the types of expenses in commonly presented expense captions. The amendments require that at each interim and annual reporting period an entity will, inter alia, disclose amounts of purchases of inventory, employee compensation, depreciation and amortization included in each relevant expense caption (such as cost of revenue, general and administrative, and research and development). ASU 2024-03 and ASU 2025-01 are both effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the potential impact of ASU 2024-03 and ASU 2025-01 on its consolidated financial statement disclosures.
In September 2025, the FASB issued Accounting Standards Update 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 provides targeted improvements to the accounting for internal-use software costs by replacing the existing project-stage model with a principles-based approach to determine when capitalization of costs should begin. ASU 2025-06 is effective for all entities for annual reporting periods beginning after December 15, 2027 on a prospective basis, with early adoption permitted. The Company is currently evaluating the potential impact that ASU 2025-06 will have on its consolidated financial statements.
F - 16
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 3:- |
BUSINESS COMBINATION AND OTHER TRANSACTION
|
| a. |
The acquisition of LayerBio Inc.
|
On August 13, 2025 (The “Closing date”), the Company completed a strategic investment in LayerBio Inc., a privately held Boston-based biotechnology company, and acquired a controlling equity interest in this specialty pharmaceutical company focused on the ophthalmology market. Pursuant to the agreement LayerBio issued 7,331,378 Preferred Stock A shares of LayerBio, representing 51.0 % of LayerBio’s issued and outstanding share capital on a fully diluted basis. The primary reason for the business combination was to expand the Company’s pipeline through the acquisition of new technologies, while creating potential synergies with the Company’s existing activities in its Clinical Development segment.
The Company obtained control of LayerBio through its majority ownership of the equity interests of LayerBio and through its contractual right, pursuant to the transaction agreement, to appoint a majority of the members of LayerBio’s board of directors. The Company paid $600 at the closing of the Acquisition (net of a $50 bridge loan that the Company previously made to LayerBio in June 2025 ). The Purchase Agreement further provides for up to $2.4 million of additional potential investment in four tranches, which are contingent only and if upon the successful achievement of specific milestones related to a planned Phase II clinical trial that LayerBio plans on conducting.
The Company accounted for the transaction in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations, and following the transaction, the Company consolidates all assets and liabilities included in the transaction in accordance with ASC 810, Consolidation.
The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of goodwill of $186 thousand, which is primarily attributed to the expected operational and strategic synergies from integrating LayerBio’s sustained‑release ophthalmic technology with the Company’s drug‑delivery capabilities. The goodwill also reflects the value of the assembled workforce and other future economic benefits that do not meet the criteria for separate recognition as identifiable intangible assets under ASC 805. Accordingly, this goodwill was assigned to the Company’s Clinical Development reportable segment. The goodwill amount is not deductible for tax purposes. The amount of acquisition‑related costs was approximately $135 , which was recognized as an expense within general and administrative expenses
The following table summarizes the consideration transferred to LayerBio Inc. and the purchase price allocation to the fair value of the assets acquired and liabilities assumed As of the Closing date:
|
|
Carrying Value
(In USD thousands)
|
|||
|
Consideration:
|
||||
|
Closing Cash consideration paid
|
|
|||
|
Bridge loan
|
|
|||
|
Fair value of the noncontrolling interest
|
|
|||
|
|
||||
|
Total Consideration
|
|
|||
|
Acquired net Assets:
|
||||
|
Cash including bridge loan
|
|
|||
|
Other assets
|
|
|||
|
Intangible asset - IPR&D *
|
|
|||
|
Trade and other payables
|
(
|
)
|
||
|
Total net Assets
|
|
|||
|
Goodwill
|
|
|||
* The fair value of the IPR&D was estimated by applying the income approach, specifically the Multi Period Excess Earnings method. Acquired IPR&D intangible asset is not amortized; instead, it is subject to an impairment assessment, at least annually and in each reporting period upon the occurrence of indicators of impairment. The valuation incorporated management’s projections regarding development timelines, expected commercialization probability, and estimated future cash flows associated with Layer Bio product candidate. Significant inputs used in the measurement included the projected development costs and operating expenses for the clinical program, probability‑adjusted cash flow assumptions based on the stage of development as of the acquisition date, and a discount rate of 30.5 % reflecting the asset‑specific risk profile.Based on these inputs, the fair value of the IPR&D asset recognized in the purchase price allocation was $872 .
The Company recognizes deferred tax liabilities in connection with the fair value adjustments and other items arising from the Acquisition in the amount of $253 . The Company recognizes deferred tax assets in respect of tax losses carried forward and other temporary differences of the acquired subsidiary in the same amount. This is reflected on a net basis.
The fair value of the noncontrolling interest was measured using the Option‑Pricing Method (OPM), which treats each class of equity as a series of call options on the enterprise value. The OPM incorporated the rights and preferences of the preferred and common equity of Layer Bio. Significant inputs used in the valuation included the enterprise value implied by the transaction consideration, an expected equity volatility of 76.4 %, a risk‑free interest rate of 3.8 %, an expected term of 5 years, and the liquidation preference and participation features applicable to the preferred shares. The resulting fair value of the noncontrolling interest was $931 .
Since the acquisition date, LayerBio did not generate revenues and contributed a net loss of approximately $404 to the Company’s consolidated results for the year ended December 31, 2025.
The following unaudited pro forma information presents the combined results of operations of the company and LayerBio as if the acquisition of LayerBio had been completed on January 1, 2024. The unaudited pro forma results include adjustments primarily related to amortization of the acquired intangible assets as of January 1, 2024. The unaudited pre forma results do not reflect any cost saving synergies from operation efficiencies, or the effect of the incremental costs incurred from investing in LayerBio. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations of the combined company would have been if the acquisition of LayerBio had occurred at January 1, 2024. The pro forma net loss for the combined operation for December 2025 and 2024 were $4.9 million and $14.8 million, respectively.
F - 17
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 3:- |
BUSINESS COMBINATION AND OTHER TRANSACTION (Cont.)
|
| b. |
The Assets acquisition of DeepSolar
On February 17, 2025, the Company entered into an Asset Acquisition Agreement (the “Agreement”) with Bladeranger Ltd. (“Bladeranger”), a public Israeli company, to acquire
As consideration, the Company agreed to issue to BLRN the following securities:
|
| 1. |
|
| 2. |
|
| 3. |
|
| 4. |
|
| 5. |
|
|
At the initial closing, which took place on May 19, 2025, the Company issued milestone pre-funded warrants exercisable to
Warrants A to purchase
Warrants B to purchase
The Company also entered into employment agreements with certain BLRN employees. Under the terms of the Agreement, Bladeranger and its assignees may not exercise any of the warrants if, following such exercise, their holdings would exceed
Accounting treatment
The Company evaluated the transaction under ASC 805, Business Combinations, and concluded that the acquired set of assets and activities does not meet the definition of a business. Accordingly, the transaction was accounted for as an asset acquisition under ASC 805-50.
Fair value measurement
In connection with the acquisition, the Company performed a valuation analysis of the equity instruments issued as consideration and of the fair value measurement of the consideration transferred. for the acquired asset. The fair value of the consideration transferred, determined based on the fair value of the issued shares and warrants, together with the fair value measurement analysis, was established at $
Useful life and amortization
The Company amortizes the intangible asset on a straight-line basis over its estimated useful life of eight years. As of the December 31, 2025, accumulated amortization amounted to $
|
| NOTE 4:- |
INTANGIBLE ASSET, NET:
Identifiable intangible assets consisted of the following:
|
|
Acquired intangible assets
|
Year ended December 31, 2025
|
|||||||
|
Gross
carrying
amount
|
Accumulated
amortization
|
|||||||
|
Amortized intangible assets
|
||||||||
|
Acquired technology
|
|
(
|
) | |||||
|
Unamortized intangible assets
|
||||||||
|
Acquired IPR&D
|
|
|||||||
|
Goodwill
|
|
|||||||
|
|
||||||||
|
Aggregate amortization expenses:
|
||||||||
|
For the year ended 31.12.2025
|
|
|||||||
|
Estimated amortization expenses:
|
||||||||
|
For the year Ending 31.12.2026
|
|
|||||||
|
For the year Ending 31.12.2027
|
|
|||||||
|
For the year Ending 31.12.2028
|
|
|||||||
|
For the year Ending 31.12.2029
|
|
|||||||
|
For the year Ending 31.12.2030
|
|
|||||||
F - 18
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 5:- |
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
|
|
December 31,
|
|||||||
|
|
2025
|
2024
|
||||||
|
|
||||||||
|
Receivables from governmental authorities
|
$
|
|
$
|
|
||||
|
Prepaid expenses
|
|
|
||||||
|
Others
|
|
|
||||||
|
|
$
|
|
$
|
|
||||
| NOTE 6:- |
ACCRUED EXPENSES
|
|
|
December 31,
|
|||||||
|
|
2025
|
2024
|
||||||
|
|
||||||||
|
Directors’ fees
|
$
|
|
$
|
|
||||
|
Manufacturing and trials expenses
|
|
|
||||||
|
Advisors and legal expenses
|
|
|
||||||
|
|
||||||||
|
|
$
|
|
$
|
|
||||
F - 19
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- TAXES ON INCOME
| a. |
Tax rates applicable to the Company:
|
The Company and its US subsidiary are subject to income taxes in the jurisdictions in which they operate. Taxable income of the Israeli company is subject to the Israeli Corporate tax rate which was 23 21
| b. |
Net operating loss carry forward:
|
As of December 31, 2025, and 2024, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $50.7 million and $34.6 million respectively. Net operating loss carry forwards in Israel may be carried forward indefinitely and offset against future taxable income. In addition, as of December 31, 2025, the Company’s U.S. subsidiary had net operating loss carry forwards for U.S. federal and state income tax purposes of approximately $1.7 million The utilization of such loss carry forwards is subject to applicable U.S. tax laws and may be limited. Under the U.S. tax laws, for net operating losses (NOLs) arising after December 31, 2017, the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Act”) limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income.
| c. |
As of December 31, 2025, the Company and its US subsidiary had final tax assessments for tax years prior to and including the tax year ended December 31, 2020.
|
| d. |
Deferred income taxes:
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
|
|
December 31,
|
|||||||
|
|
2025
|
2024
|
||||||
|
|
||||||||
|
Net operating loss carry forward
|
$
|
|
$
|
|
||||
|
Research and development expenses
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total deferred tax assets
|
|
|
||||||
|
Less deferred tax liabilities associated with IPR&D
|
(
|
) | ||||||
|
Deferred tax assets, net
|
|
|
||||||
|
Less: Valuation allowance
|
(
|
)
|
(
|
)
|
||||
|
Net deferred tax asset
|
$
|
|
$
|
|
||||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance as of December 31, 2025, and 2024.
Changes in valuation allowance for deferred tax assets were as follows:
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Valuation allowance at beginning of year
|
|
|
|
|||||||||
|
Change in the valuation allowance resulting from the acquisition of LayerBio Inc.
|
|
|
|
|||||||||
|
Change in valuation allowance
|
|
|
|
|||||||||
|
Valuation allowance at end of year
|
$
|
|
|
$
|
|
|||||||
| e. |
Income (loss) before income taxes:
|
Income (loss) before income taxes consisted of the following for the periods indicated:
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Domestic (Israel)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Foreign
|
(
|
)
|
|
|
||||||||
|
Loss before taxes on income
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
||||
F - 20
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
|
NOTE 7:- |
TAXES ON INCOME (Cont.)
|
| f. |
Reconciliation of theoretical tax expenses to actual expenses
|
A reconciliation of the Company’s theoretical income tax expense to actual income tax expense is as follows:
|
|
Year ended December 31,
|
|||||||
|
|
2025
|
Percent
|
||||||
|
|
||||||||
|
IL Statutory Tax Rate
|
$
|
(
|
)
|
|
%
|
|||
|
United States
|
||||||||
|
Changes in Valuation Allowance
|
|
(
|
%
|
|||||
|
others
|
(
|
)
|
|
%
|
||||
|
Changes in Valuation Allowance
|
|
(
|
%
|
|||||
|
Difference resulting from using NIS as the measurement basis for tax purposes
|
(
|
)
|
(
|
%
|
||||
|
Nontaxable or Nondeductible Items
|
||||||||
|
Share-based payment awards
|
|
(
|
%
|
|||||
|
others
|
(
|
)
|
|
%
|
||||
|
Other adjustments
|
|
% | ||||||
|
Effective tax rate
|
$
|
|
|
%
|
||||
The primary difference between the statutory tax rate of the Company and the effective rate for the years ended December 2024 and 2023, results virtually from the changes in valuation allowance in respect of carry forward tax losses, share based compensation expenses and research and development expenses due to the uncertainty of the realization of such tax benefits.
| g. |
Uncertain tax positions:
|
A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows:
|
|
December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
|
||||||||||||
|
Opening balance
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax positions taken in the current year
|
|
|
|
|||||||||
|
Interest and Exchange rate differences
|
|
|
|
|||||||||
|
|
||||||||||||
|
Closing balance
|
$
|
|
$
|
|
$
|
|
||||||
The balance of total unrecognized tax position, which, if recognized, would affect the effective tax rate in the Company’s consolidated statements of comprehensive loss.
The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in income tax expense. The accrued interest and exchange difference related to uncertain tax positions and the expenses recognized during the years ended December 31, 2025, 2024 and 2023 was $ 8
NOTE 8:- COMMITMENTS:
| a. |
The Company leases its principal offices in Tel Aviv, Israel, under a lease agreement expiring on July 31, 2026. Monthly rent is $
In 2024, lease expenses totaled $
|
| b. |
The Company entered into agreements with Lotus Clinical Research to conduct its Phase 3 clinical trials of PRF‑110. The total contractual consideration amounts to $
|
F - 21
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY |
| a. |
Ordinary shares:
|
|
The ordinary shares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and to share in the distribution of dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation. On January 6, 2026 an Extraordinary Meeting of the General Shareholders of the Company was held and decided to increase the Company’s authorized share capital to 12,000,000 shares, with no Par value and to amend the Company’s articles of association.
| b. |
Share activity:
|
|
On July 14, 2023, the Company sold to a certain institutional investor (“the investor”) an aggregate of 983 ordinary shares in a registered direct offering at a purchase price of $1,080.00 per share, and pre-funded warrants to purchase up to 1,527 ordinary shares at a purchase price of $1,079.95 resulting in gross proceeds of approximately $2.7 million. In addition, the Company issued to the investor unregistered warrants to purchase up to an aggregate of 2,510 ordinary shares in a concurrent private placement.
On July 18, 2023, the Company sold to the investor an aggregate of 1,208 ordinary shares in a registered direct offering at a purchase price of $1,080.0 per share, and pre-funded warrants to purchase up to 180 ordinary shares at a purchase price of $1,079.95 , resulting in gross proceeds of approximately $1.5 million. In addition, the Company issued to the investor unregistered warrants to purchase up to an aggregate of 1,389 ordinary shares in a concurrent private placement.
The Company determined that the ordinary share warrants issued in July 2023 (the “Common Warrants”) were not indexed to the Company’s own ordinary shares and also, the investor possessed a right to receive any additional consideration that investors of common shares may be entitled to upon a fundamental transaction (as defined in the agreement), therefore were precluded from equity classification. The Common Warrants were measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized as financial income or expense as change in fair value of warrant liabilities in the period of change in the statements of comprehensive loss. The Company had recorded the value of the warrants that were issued in the July 2023 transactions as a long-term liability. The Company used the Black-Scholes option pricing model to calculate the valuation with standard deviation of 85.45 %, which was based on a share price of $1,080.00 and a risk-free rate of 4.0 %. The valuation of the warrants was $131.52 on July 14, 2023, and $124.08 on July 18, 2023, which resulted in a total valuation of the warrants of $2.5 million as of July 2023. The Company revalued these warrants as of December 28, 2023, prior to the exercise, with standard deviation of 93.49 %, which was based on a share price of $74.64 and a risk-free rate of 3.87 %. Each warrant valuation was $40.32 , which resulted in a total valuation of the warrants of $0.8 million. The change of $1.7 million was recorded as finance income.
On December 28, 2023, the Company entered into an inducement offer letter agreement, or the Inducement Letter, with the investor, of certain of the Company’s existing warrants to purchase up to (i) 2,510 ordinary shares issued on July 14, 2023 at an exercise price of $1,080.00 per ordinary share, or the July 14 Warrants, and (ii) 1,389 ordinary shares issued on July 18, 2023 at an exercise price of $1,080.00 per ordinary share, or the July 18 Warrants and together with the July 14, Warrants, the Existing Warrants.
F - 22
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY (Cont.) |
Pursuant to the Inducement Letter, the investor agreed to exercise for cash its Existing Warrants to purchase an aggregate of 3,899 ordinary shares at a reduced exercise price of $342.0 per ordinary share, resulting in gross proceeds to the Company of approximately $1.3 million, and net proceeds of approximately $1 million, in consideration of the Company’s agreement to issue new warrants to purchase American Depositary Shares (“ADS”), or the New Warrants to purchase up to an aggregate of 7,798 ordinary shares at an exercise price of $342.0 per ordinary shares. The valuation of the New Warrants on the grant date was $2.2 million. According to the agreement, the Company recorded a loss of $1.5 million which is included in the financial expenses in the statement of comprehensive loss. As of December 31, 2023 the Company issued 1,417 shares out of the 3,899 shares that the investor paid for, leaving the investor with the right to receive an additional 2,482 shares. On March 12, 2024 the Company issued 1,016 ordinary shares and On April 9, 2024, the Company issued the remaining 1,467 ordinary shares. As of December 31, 2024 all the prefunded shares that were registered on December 31, 2023 were issued to the investor. In addition, the Company issued 273 warrants to the broker with an exercise price of $427.2 per ordinary share. The valuation of the warrants on the grant date was $73 .
On April 15, 2024, the Company amended the terms of certain existing warrants to purchase up to an aggregate of
On February 20, 2025, the Company's Board of Directors approved an increase in the Company's authorized share capital by an additional
On September 10, 2024, Company entered into an inducement offer letter agreement with certain holders of the Company’s existing warrants to purchase up to (i) 7,798 of the December 2023 Warrants, and (ii) 41,667 of the April 2024 Warrants. The exercise price of the 49,465 warrants was reduced from $96.0 to $32.0 . Pursuant to the September inducement, each holder respectively agreed to exercise for cash its April 2024 Warrants and December 2023 Warrants to purchase an aggregate of 49,465 of the Company’s ordinary shares at a reduced exercise price of $32.0 per ordinary share in consideration of the Company’s agreement to issue to the holders new warrants, as described below, to purchase up to an aggregate of 98,930 ordinary shares, at an exercise price of $32.0 per ordinary share. As a result of the aforementioned events, the fair value of the warrants increased by $712 which the company recorded and offset in the same amount, in the additional paid in capital. Out of the $712 increase in fair value, 475 is due to the change of the exercise price of the warrants. The Company used black and Scholes model with these estimations: expected terms of 4.75 years, interest risk free of 4.68 %, yearly volatility of 97.24 %. The remaining $237 of the increase in the fair value of the warrants is due to the issuance of the new warrants at an exercise price of $32.0 . The Company used black and Scholes model with these estimations: expected terms of 4.75 years, interest risk free of 4.68 %, yearly volatility of 97.24 %. The Company received aggregate gross proceeds of approximately $1.58 million from the exercise of the April 2024 Warrants and December 2023 Warrants by the holders, before deducting placement agent fees and other offering expenses payable by the Company. On December 18, 2024, certain holders exercised 98,930 warrants with an exercise price of $32.0 per ordinary share and the Company issued 98,930 ordinary shares, resulting in gross proceeds of approximately $3.17 million.
F - 23
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY (Cont.) |
Between October 24, 2024, and December 31, 2024, the Company issued 68,640 ordinary shares through an At-the-Market (ATM) offering, generating gross proceeds of approximately $1.35 million.
On January 2, 2025, the Board of Directors of PainReform approved an increase in the Company’s At-the-Market, or ATM, program pursuant to a written board approval dated October 14, 2024, allowing aggregate sales of up to $4.0 million. During 2025, the Company sold 285,032 ordinary shares under the ATM program for aggregate gross proceeds of approximately $4.0 million. Net proceeds, after deducting transaction costs, were $3.8 million.
On March 5, 2025, in connection with the DeepSolar asset acquisition from Bladeranger Ltd. The Company issued 35,754 ordinary shares 223,792 prefunded warrants (all of the prefunded warrants were exercised to 44,758 ordinary shares during 2025 for an exercise price of $2.2 ), and 685,004 milestone pre-funded warrants (616, 208 of these warrants were exercised to 123,242 ordinary shares before December 31, 2025 for an exercise price of $6.2 ), 1,087,565 warrants- A and 1,087,565 warrants- B, as part of the purchase consideration. The total closing consideration amounted to $7.2 million and was recorded in equity, with a corresponding increase in intangible assets.(Note 3).
As December 31, 2025, all conditions related to the pre-funded warrants had been satisfied, and therefore the warrants were no longer contingent. As of that date, 68,796 pre-funded warrants remained outstanding and unexercised, and the contingency no longer applied to them.
| c. |
Warrants and warrants units:
|
The following table summarizes the warrants and warrants units outstanding as of December 31, 2025:
|
Type
|
Issuance Date
|
Number of
warrants
|
Exercise price(*)
|
Exercisable through
|
|
PIPE warrants
|
|
|
$
|
|
|
Warrants to PIPE placement agent
|
|
|
$
|
|
|
December 2023 warrants
|
|
|
$
|
|
|
Warrants issued to underwriters
|
|
|
$
|
|
|
Warrants issued to underwriters
|
|
|
$
|
|
|
Warrants issued to underwriters
|
|
|
$
|
|
|
Milestone pre-funded warrants
|
|
|
$
|
|
|
Warrant-A issued to Bladeranger
|
|
|
$
|
|
|
Warrant-B issued to Bladeranger
|
|
|
$
|
|
|
TOTAL
|
|
|
|
|
(*) Exercise prices amounts have been retroactively adjusted to reflect a 1-for-5 reverse share split (Note 1d).
| • |
Upon full dilution, the exercise of all outstanding warrants would result in the issuance of an additional
|
|
F - 24
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY (Cont.) |
|
| d. |
Share-based compensation:
|
| i. |
The 2008 Plan
|
On August 7, 2008, the Board of Directors approved the adoption of the 2008 Share Option Plan (the “2008 Plan”). During 2024, the 2008 Plan has expired, and no additional grants may be made.
| ii. |
The 2019 Plan
|
The Company maintains the 2019 Share Option Plan, which authorizes the grant of share options to employees, directors, officers, and consultants. Options generally expire ten years from the grant date and vest based on service conditions.
During 2024, the Company granted an aggregate of 3,696 options to directors and employees at an exercise price of $30.00 per share. Vesting terms included immediate vesting or quarterly vesting over the requisite service period. The total grant date fair value of these awards was approximately $30 , as measured using the Black Scholes option pricing model.
During 2025, the Company granted an aggregate of 42,554 options to employees and directors, with exercise prices ranging from $0.05 to $15.75 per share. The total grant-date fair value of these awards was approximately $606 . Vesting terms varied by grant and included, in certain cases, immediate vesting. Fair value was estimated using the Black-Scholes option pricing model with expected terms ranging from 5.0 to 5.81 years, risk-free interest rates ranging from 3.69 % to 4.38 %, and expected volatilities ranging from 112 % to 115 %.
As of December 31, 2025, the Company had 15,765 unvested options. The total unrecognized compensation cost of employee and directors’ options as of December 31, 2025, is $208 that will be recognize as expenses until November 24, 2028.
The intrinsic value of share options outstanding as of December 31, 2025 was $64 . The intrinsic value of share options exercisable as of December 31, 2024 was $0 .
F - 25
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY (Cont.) |
| iii. |
The following tables summarizes information about options granted to employees and directors:
|
The 2019 Plan
Share options outstanding and exercisable to employees and directors under the 2019 Plan are as follows:
|
|
Number of
options
|
Weighted
average
exercise
price
|
Weighted
average
remaining
contractual
life
|
|||||||||
|
|
USD
|
|||||||||||
|
Options outstanding at beginning of year
|
|
$
|
|
|
||||||||
|
Changes during the year:
|
||||||||||||
|
Options granted
|
|
|
|
|||||||||
|
Options expired
|
(
|
)
|
|
|
||||||||
|
Options exercised
|
|
|
-
|
|||||||||
|
Options forfeited
|
|
|
-
|
|||||||||
|
Options outstanding at end of year
|
|
|
|
|||||||||
|
Options exercisable at end of year
|
|
|
|
|||||||||
F - 26
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9:- |
SHAREHOLDERS’ EQUITY (Cont.) |
| iv. |
The following table sets forth the assumptions that were used in determining the fair value of options granted to employees in 2019 plan for the years ended on December 31, 2025, 2024 and 2023:
|
|
|
2025
|
2024
|
*
|
2023
|
*
|
|||||||
|
Expected term (years)
|
|
|
|
|||||||||
|
Risk-free interest rates
|
|
%
|
|
%
|
|
%
|
||||||
|
Volatility
|
|
%
|
|
%
|
|
%
|
||||||
|
Dividend yield
|
|
|
|
|||||||||
|
Exercise price
|
$
|
0.05-
|
$
|
|
$
|
|
||||||
* The assumptions presented above are the original assumptions used to determine the options fair value at the date of the grants. The assumptions used to determine the incremental value of the options at the grant date are as presented at the Company's options valuation.
The Company recognized $431 , $230 and $731 during the years ended December 31, 2025, 2024 and 2023, respectively, as share-based compensation expenses which was included in general and administrative expenses, and $16 , $80 and $73 during the years ended December 31, 2025, 2024 and 2023, respectively, as share-based compensation expense which was included in research and development expenses.
| NOTE 10:- |
SELECTED STATEMENTS OF OPERATIONS DATA
|
| a. |
Research and development expenses:
|
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Subcontractors and consultants
|
$
|
|
$
|
|
$
|
|
||||||
|
Payroll and related expenses
|
|
|
|
|||||||||
|
Share-based compensation expense
|
|
|
|
|||||||||
|
Clinical trials expenses
|
|
|
|
|||||||||
|
Other expenses
|
|
|
|
|||||||||
|
|
$
|
|
$
|
|
$
|
|
||||||
| b. |
General and administrative expenses:
|
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Professional services
|
$
|
|
$
|
|
$
|
|
||||||
|
Payroll and related expenses
|
|
|
|
|||||||||
|
D&O insurance
|
|
|
|
|||||||||
|
Rent and office maintenance
|
|
|
|
|||||||||
|
Share-based compensation expense
|
|
|
|
|||||||||
|
Other expenses
|
|
|
|
|||||||||
|
|
$
|
|
$
|
|
$
|
|
||||||
F - 27
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 10:- |
SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
|
| c. |
Other financial income (expenses), net:
|
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Interest income
|
|
|
|
|||||||||
|
Issuance expenses
|
|
(
|
)
|
|||||||||
|
Bank fees
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Loss from Inducement offer letter agreement (Note 7c)
|
|
|
(
|
)
|
||||||||
|
Change in fair value of derivative warrant liability (Note7c)
|
|
|
|
|||||||||
|
Exchange rate differences
|
$
|
(
|
)
|
|
$
|
|
||||||
|
Total other financial income, net
|
$
|
|
|
$
|
|
|||||||
F - 28
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:- SEGMENT REPORTING:
Since March 5, 2025, following the acquisition of the solar assets as described in Note 10, the Company identifies and reports two reportable segments: clinical development and solar. The clinical development segment facilitates the development of potential new drug compounds. The solar segment comprises the design and development of the Company’s intellectual property and the sale related service offerings. The Company’s Chief Operating Decision Maker, who is the Chief Executive Officer, manages both segments on an ongoing basis and evaluates performance and allocates resources using the Company’s internal reporting, which is consistent with the presentation in these financial statements. In assessing performance, the CODM considers quantitative and qualitative measures that include segment operating loss and quarterly cash burn together with competitive benchmarking and analyses of budget to actual results. Prior to the acquisition of the solar assets on March 5, 2025, the Company operated and reported a single reportable segment. Comparative prior period segment information has not been recast because the solar operations did not exist in those periods, and the change did not affect the Company’s internal reporting for prior periods. The Company manages its assets on a group basis rather than by segment because many assets are shared across activities. The CODM does not regularly review asset information by segment and accordingly the Company does not present segment of asset information.
The following tables presents information on reportable segments losses for the year 2025:
|
|
Solar
|
Clinical Development
|
Total
|
|||||||||
|
Revenues
|
(
|
)
|
|
(
|
)
|
|||||||
|
Cost of sales (exclusive of amortization of intangible asset)
|
|
|
|
|||||||||
|
Payroll and related Expenses
|
$
|
|
$
|
|
$
|
|
||||||
|
Consulting expenses (*)
|
|
|
|
|||||||||
|
Clinical Trial Expenses
|
|
|
|
|||||||||
|
Other segment items (**)
|
|
|
|
|||||||||
|
|
||||||||||||
|
Segments Operating Loss
|
$
|
|
$
|
|
$
|
|
||||||
|
|
||||||||||||
|
Reconciliation between the operating loss of the reporting segments and the total loss for the reporting periods before income tax expense is presented below:
|
||||||||||||
|
Financial income, net
|
$
|
(
|
)
|
|||||||||
|
Loss before income tax
|
$
|
|
||||||||||
|
|
||||||||||||
|
Other segment disclosures:
|
||||||||||||
|
Depreciation expenses
|
|
|
|
|||||||||
|
Amortization of intangible assets
|
|
|
|
|||||||||
|
Stock based compensation
|
|
|
|
|||||||||
(*) Consulting expenses items include accounting, legal, and other consulting expenses.
(**) Other Segment items included in operating loss include Amortization of intangible asset, Share-based compensation expenses, rent and office maintenance expenses, D&O insurance expenses, depreciation expenses and other expenses.
F - 29
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 12:- |
RELATED PARTIES BALANCES AND TRANSACTIONS |
| a. |
On June 8, 2023, the Company’s shareholders approved the grant of options to purchase an aggregate of
|
| b. |
On July 18, 2024, the Company’s shareholders approved the grant of options to purchase an aggregate of
|
| c. |
On October 10, 2024, the Company’s shareholders approved the grant of options to purchase an aggregate of
|
| d. |
On February 20, 2025, the Company’s shareholders approved the grant of options to purchase an aggregate of
|
| e. |
On November 24, 2025, the Company’s shareholders approved the grant of options to purchase an aggregate of
|
Balances with related parties:
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Employees accrued salaries and bonuses
|
$
|
|
$
|
|
$
|
|
||||||
|
Directors accrued fees expenses
|
|
|
|
|||||||||
|
|
$
|
|
$
|
|
$
|
|
||||||
Transactions with related parties:
|
|
Year ended December 31,
|
|||||||||||
|
|
2025
|
2024
|
2023
|
|||||||||
|
Amounts charged to:
|
||||||||||||
|
Research and development payroll expenses
|
$
|
|
$
|
|
$
|
|
||||||
|
General and administrative payroll and directors’ fees expenses
|
$
|
|
$
|
|
$
|
|
||||||
F - 30
PRF TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 13:- |
SUBSEQUENT EVENTS |
| 1. |
On January 7, 2026, the Company held its Annual General Meeting of Shareholders, at which the shareholders approved the change of the Company’s name from PainReform Ltd. to PRF Technologies Ltd., the grant of
|
| 2. |
On February 6, 2026, the Company effected a
|
| 3. |
On March 16, 2026, the Company entered into an agreement with BladeRanger Ltd., pursuant to which BladeRanger may introduce new customers to the Company. If such introduction relates to a new customer and the Company, in its sole discretion, enters into a binding commercial agreement with such customer covering a minimum scope of
|
F - 31
FAQ
What financial condition does PRF Technologies (PRFX) report in its latest 20-F?
PRF Technologies reports a weak financial position, with recurring losses and limited cash. As of December 31, 2025, it held $4.1 million in cash and cash equivalents and had an accumulated deficit of $61.3 million, raising substantial doubt about its ability to continue as a going concern.
Why did PRF Technologies’ auditor raise going concern doubts in the 20-F?
The auditor added a going concern paragraph because the company has sustained multi‑year operating losses, significant negative cash flows, and only $4.1 million in cash at December 31, 2025. Management concedes it needs substantial additional funding and may be unable to meet obligations over at least the next 12 months.
How much did PRF Technologies (PRFX) lose in recent years according to the 20-F?
The company reports net losses of approximately $4.8 million, $14.6 million and $9.3 million for 2025, 2024 and 2023, respectively. These continuing losses contributed to an accumulated deficit of $61.3 million as of December 31, 2025, with no significant revenues generated so far.
What are PRF Technologies’ main business lines described in the 20-F?
PRF Technologies focuses on drug development and an AI solar analytics business. Its lead drug candidate is OcuRing™‑K, with PRF‑110 de‑emphasized after a failed Phase 3 endpoint. In 2025 it acquired the DeepSolar solution and invested in LayerBio, expanding into ophthalmology and solar analytics.
How many PRF Technologies shares were outstanding at the end of 2025?
The company states that 830,613 ordinary shares were outstanding as of December 31, 2025. This figure reflects the impact of multiple reverse share splits, including 1‑for‑10, 1‑for‑6, 1‑for‑4 and 1‑for‑5 consolidations implemented between 2023 and early 2026.
What capital-raising plans does PRF Technologies outline in its 20-F?
Management explains it will need substantial additional funding to continue operations, complete development of drug candidates and advance DeepSolar. It anticipates using public or private equity offerings, debt financings, collaborations or licensing deals, and warns that failure to raise funds could force it to cut or cease operations.
What key risks does PRF Technologies highlight around its DeepSolar AI business?
The DeepSolar business is at an early commercialization stage, with a new and unproven AI market. The company cites uncertain demand, technological and regulatory risks around AI, competition from established players, limited operating history and the possibility that DeepSolar may never generate significant revenue or profitability.
PRF Technologies Ltd.