Wearable Devices (WLDS) F-1Registration statement (foreign)

As filed with the Securities and Exchange Commission on February 18, 2022

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

WEARABLE DEVICES LTD.

(Exact name of registrant as specified in its charter)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company ☒

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.  

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Ordinary Shares

Wearable Devices Ltd.

This is the initial public offering in the United States of Wearable Devices Ltd., an Israeli company. We are offering ordinary shares, par value NIS 0.01 per share, or the Ordinary Shares. We anticipate that the initial public offering price will be between $4.00 and $6.00. We are offering all of the Ordinary Shares offered by this prospectus.

We have applied to list the Ordinary Shares on the Nasdaq Capital Market, or Nasdaq, under the symbol “WLDS.” No assurance can be given that our application will be approved or that a trading market will develop.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are subject to reduced public company reporting requirements.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8.

Neither the Securities and Exchange Commission, or the SEC, nor any state or other foreign securities commission has approved nor disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have granted the representative of the underwriters an option to purchase from us, at the public offering price, up to an additional 540,000 Ordinary Shares, less the underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any. If the representative of the underwriters exercises the option in full, the total underwriting discounts and commissions payable will be approximately $1.7 million and the total proceeds to us, before expenses, will be $20.7 million.

The underwriters expect to deliver the Ordinary Shares on or about              , 2022. 

Sole Book – Running Manager

Aegis Capital Corp.

The date of this prospectus is           , 2022

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are offering to sell the Ordinary Shares, and seeking offers to buy the Ordinary Shares, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Ordinary Shares.

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

In this prospectus, “we,” “us,” “our,” the “Company” and “Wearable Devices” refer to Wearable Devices Ltd. “Mudra” is a registered trademark of Wearable Devices Ltd.

Our reporting currency and functional currency is the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus to “NIS” are to New Israeli Shekels, and references to “dollars” or “$” mean U.S. dollars.

This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information.

We report in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

RISK FACTORS

An investment in our Ordinary Shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our Ordinary Shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs and, as a result, the market price of our Ordinary Shares could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.

Risks Related to Our Business

There is no assurance that wrist SNC will be the dominant input method in the wearable computing and consumer electronics industry.

Although we believe that SNC, the technology behind our Mudra gesture recognition system that tracks neural signals in the user’s wrist, will become the industry standard input method for wearable computing and consumer electronics, it is possible that other input methods, such as electroencephalography, electromyography voice or camera gestures—or a new, disruptive sensor based on new or existing technology—will achieve acceptance or dominance in the market. If wearable computing and consumer electronics based on other input methods gain acceptance by the market, consumer electronics companies, consumer electronics brands and consumers in place of or as a substitute to SNC, and we do not sign license and integration agreements to the same extent as we expect, our business, results of operations and financial condition would be adversely affected.

If we are unable to successfully develop and timely introduce new products and services or enhance existing products and services, our business may be adversely affected.

We must continually develop and introduce new products and services and improve and enhance our existing products and services to maintain or increase our sales. The success of new or enhanced products and services may depend on a number of factors, including anticipating and effectively addressing consumer preferences and demand, the success of our sales and marketing efforts, timely and successful research and development, effective forecasting and management of product demand, purchase commitments and inventory levels, effective management of manufacturing and supply costs, and the quality of or defects in our products.

The development of our products and services is a complex and costly process, and we typically have several products and services in development at the same time. Given the complexity, we occasionally have experienced, and could experience in the future, delays in completing the development and introduction of new and enhanced products, product features, and services. Problems in the design or quality of our products or services may also have an adverse effect on our business, financial condition, brand, and operating results. Unanticipated problems in developing products and services could also divert substantial research and development resources, which may impair our ability to develop new products and services and enhancements of existing products and services, and could substantially increase our costs. If new or enhanced product and service introductions are delayed or not successful, we may not be able to achieve an acceptable return, if any, on our research and development efforts, and our business may be adversely affected.

If we are unable to develop and introduce new gesture input functions and improve existing functions in a cost-effective and timely manner, our business, results of operations and financial condition would be adversely affected.

Our business and future operating results will depend on our ability to complete development of existing finger and hand gestures and to develop and introduce new and enhanced gesture functions that incorporate the latest technological advancements in user experience and user interaction, software, algorithms and electrode technologies and to satisfy our customers and consumers. This will require us to invest resources in research and development and also require that we:

If there are delays in or we fail to complete our existing and new development programs, we may not be able to meet the requirements, needs and preferences of our customers and consumers and our results of operations and financial condition would be adversely affected. In addition, we cannot assure you that our investment in research and development will lead to any corresponding revenue, in which case our business, results of operations and financial condition would also be adversely affected.

The failure to effectively manage the introduction of new or enhanced products may adversely affect our operating results.

We must successfully manage introductions of new consumer products or enhanced product features. Introductions of new consumer products could adversely impact the sales of our existing products to consumers. For instance, consumers may decide to purchase new products instead of existing products. Moreover, future consumer electronics customers may decide to integrate enhanced features which do not yet exist in our own consumer products. This could lead to excess inventory and discounting of our existing products. In addition, we anticipate incurring higher levels of sales and marketing expenses accompanying each product introduction. Accordingly, if we fail to effectively manage introductions of new consumer products or enhanced product features, our operating results would be harmed.

We invest effort and money into seeking validation of our technology and products with B2B companies, such as consumer electronics companies and consumer electronics brands, and there can be no assurance that we will enter into license agreements, which could adversely affect our future business, results of operations and financial condition.

We invest effort and money from the time of our initial contact with a B2B company, be it a consumer electronics company or a consumer electronics brand, to the date on which the B2B company chooses to integrate our technology into one or more of its products. The B2B company integrates our products and our proprietary software and hardware into a complete consumer electronics product that it manufactures. Successful validation of our technology will result in a signed commercial license agreement with the B2B company. However, we estimate there will be a three-to-five-year period from the time we are first introduced to such a customer to signing a licensing agreement and as of the date of this prospectus, we have not entered into any licensing agreements. This is a significant amount of time and negotiations may break down during the course of such negotiations. Accordingly, there is a possibility that we could expend our resources without success.

In addition, a B2B company’s current solution, internally developed or integrated with a third-party solution, may have an advantage with the company going forward because of the established trust and relationship between the parties, which could make it more difficult for competitors, like us, to integrate new solutions for other products or product lines. If we fail to sign a significant number of B2B license agreements in the future, our business, results of operations and financial condition would be adversely affected.

The period of time from a license agreement to implementation of our technology is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation.

Our products are technologically complex, incorporate many technological innovations and are typically intended for use in interface input applications. Prospective consumer electronics customers generally must make significant commitments of resources to test and validate our technology before including it in any particular product device. The development cycles of our products with new consumer electronics customers may take approximately one to three years after an initial agreement is reached, depending on the customer and the complexity of the input solution. These development cycles result in our investment of our resources prior to realization of any revenues. Further, we are subject to the risk that a consumer electronics company cancels or postpones implementation of our technology, as well as that we may not be able to implement our technology successfully. Further, our sales could be less than forecast if the product device is unsuccessful, due to reasons related or unrelated to our technology. Long development cycles and product cancellations or postponements may adversely affect our business, results of operations and financial condition.

Our current and future products and services may experience quality problems from time to time that can result in adverse publicity, product recalls, litigation, regulatory proceedings, and warranty claims resulting in significant direct or indirect costs, decreased revenue and operating margin, and harm to our brand.

We sell complex products and services that could contain design and manufacturing defects in their materials, hardware, software, and firmware. These defects could include defective materials or components, or “bugs” that can unexpectedly interfere with the products’ intended operations or cause injuries to users. Although we significantly and thoroughly test new and enhanced products and services before their release, there can be no assurance we will be able to detect, prevent, or fix all defects.

Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of returns of products than expected from our customers and consumers, or future retail customers, regulatory proceedings, product recalls, and litigation, which could harm our revenue and operating results. The occurrence of real or perceived quality problems or material defects in our current and future products could expose us to warranty claims. If we experience relatively large returns from our retail customers or our other customers and consumers, our business and operating results could be harmed. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also affect our brand and decrease demand for our products and services, and adversely affect our operating results and financial condition.

Furthermore, our products are used to monitor our users’ hand bio-potentials activity and to operate control functions on a large variety of digital devices which operate on different users’ wrist physiology and device operating system and model. It may happen that our products do not provide accurate measurements or correctly classify gestures to users, which may result in negative publicity, and, in some cases, may require us to expend time and resources to defend litigation. If our products fail to provide accurate measurements and control functions to users, or if there are reports or claims of inaccurate measurements or claims regarding the overall benefits of our products and services in the future, we may become the subject of negative publicity, litigation, including class action litigation, regulatory proceedings, and warranty claims, and our brand, operating results, and business could be harmed.

We are a growth company with limited operating history. We may never be able to effectuate our business plan or achieve sufficient revenue or reach profitability.

For some aspects of our technology, we are still a growth company, and are subject to all of the risks inherent in the establishment of a new business enterprise. We have a limited operating history and only a preliminary and unproven business plan upon which investors may evaluate our prospects. Although we have produced a working development kit, the Mudra Inspire, we have not mass produced any product planned for global consumers. Even if we are able to do so, we may not be able to manufacture the product at the low costs needed to support our business models. We have not yet entered into any commercial arrangement for the licensing of our technology under a licensing model.

Furthermore, even if our technology becomes commercially viable, our business models may not generate sufficient revenue necessary to support our business. The consumer electronics industry is highly competitive, and our technology, products, services or business models may not achieve widespread market acceptance. If we are unable to address any of the aforementioned issues, or encounter other problems, expenses, difficulties, complications, and delays in connection with the starting and expansion of our business, our entire business may fail.

Our ability to generate revenue from our operations and, ultimately, achieve profitability will depend on, among other things, whether we can complete the development and commercialization of our technology, our ability to integrate and license our technology into consumer electronic devices, our future products and our services, whether we can manufacture products on a commercial scale in such amounts and at such costs as we anticipate, and whether we can achieve market acceptance of our products, services and business models. We may never generate any revenue or operate on a profitable basis. Even if we achieve profitability, we may not be able to sustain it.

If we are unable to anticipate and satisfy consumer preferences in a timely manner, our business may be adversely affected.

Our success depends on our ability to anticipate and satisfy consumer preferences in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Consumers may decide not to choose our solutions or purchase our products and services as their preferences could shift rapidly to different types of input methods or away from these types of products and services altogether, and our future success depends in part on our ability to anticipate and respond to shifts in consumer preferences. In addition, future products may have higher prices than our current products and the products of some of our competitors, which may not appeal to consumers or only appeal to a smaller subset of consumers. It is also possible that competitors could introduce new products and services that negatively impact consumer preferences for our input method and technology, which could result in decreased sales of our products and services and a loss in market share. Accordingly, if we fail to anticipate and satisfy consumer preferences in a timely manner, our business may be adversely affected.

If we are unable to successfully comply with Apple’s “Accessory Design Guidelines for Apple Devices”, our business, results of operation and financial condition may be adversely affected.

Our consumer product, the “Mudra Band”, is an aftermarket accessory band for the Apple Watch which allows touchless operation and control of the watch. Apple enforces strict guidelines which address the physical design of cases, covers, screen overlays, and camera attachments for Apple devices and specifications for hardware accessories that use Bluetooth to communicate with Apple products including Mac, iPhone, iPad and iPod touch models. All accessories must meet requirements which include, and may not be limited to, compliance testing, integrated USB receptacles, user supplied cables and AC power adapters, attachments, magnetic interference, radio frequency performance, thermal management and tripod connections. In particular, watch bands, such as the Mudra Band, have to meet certain requirements with respect to lugs, magnetic chargers, band sizes and dimensions, band material, and environmental regulations. Accessories have to also comply with Bluetooth accessory identification, accessory power (lighting), app discovery, device power, power and communications protocols, Bluetooth, Bluetooth low energy and connectors.

Apple reserves the right to change specifications and the terms and conditions at its sole consideration, and, therefore, we may be required to change the Mudra Band specifications to comply with future Apple change requirements. Our company is investing significant resources to ensure that the Mudra Band is compatible with all the relevant guidelines. Therefore, a significant change in the Apple guidelines may cause our business, results of operations and financial condition to be adversely affected.

We rely on a limited number of suppliers, contract manufacturers, and logistics providers, and each of our products is manufactured by a single contract manufacturer.

We rely on a limited number of suppliers, contract manufacturers, and logistics providers. In particular, we use contract manufacturers located in Asia and Israel, and each of our products’ sub-components are manufactured by a different single contract manufacturer.  Our reliance on single contract manufacturers for each of our products’ components increases our risks since we do not currently have any alternative or replacement manufacturers. In the event of an interruption from a contract manufacturer, we may not be able to develop alternate or secondary sources without incurring material additional costs and substantial delays. While component shortages have historically been immaterial, they could be material in the future. Furthermore, these risks could materially and adversely affect our business if one of our contract manufacturers is impacted by a natural disaster or other interruption at a particular location because each of our contract manufacturers produces our product’s components in a single location. In addition, some of our suppliers, contract manufacturers, and logistics providers may have more established relationships with our competitors and potential competitors, and as a result of such relationships, such suppliers, contract manufacturers, and logistics providers may choose to limit or terminate their relationship with us.

If we experience significantly increased demand, or if we need to replace an existing supplier, contract manufacturer, or logistics provider, we may be unable to supplement or replace such supply, contract manufacturing, or logistics capacity on terms that are acceptable to us, which may undermine our ability to deliver our products to customers in a timely manner. For example, for certain of our products, it may take a significant amount of time to identify a contract manufacturer that has the capability and resources to build the product to our specifications in sufficient volume. Identifying suitable suppliers, contract manufacturers, and logistics providers is an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of any key supplier, contract manufacturer, or logistics provider could adversely impact our revenue and operating results.

Because many of the key components in our products come from limited or sole sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain.

Many of the key components used to manufacture our products come from limited or sole sources of supply. Our contract manufacturers generally purchase these components on our behalf, subject to certain approved supplier lists, and we do not have any long-term arrangements with our suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. We have in the past experienced and may in the future experience component shortages, and the predictability of the availability of these components may be limited. While component shortages have historically been immaterial, they could be material in the future. In the event of a component shortage or supply interruption from suppliers of these components, we may not be able to develop alternate sources in a timely manner. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to meet our requirements or to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to meet our scheduled product deliveries to our customers and users. This could harm our relationships with our channel partners and users and could cause delays in shipment of our products and adversely affect our operating results. In addition, increased component costs could result in lower gross margins. If we are unable to buy these components in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver products and services to our customers and users.

We have limited control over our suppliers, contract manufacturers, and logistics providers, which subjects us to significant risks, including the potential inability to obtain or produce quality products on a timely basis or in sufficient quantity.

We have limited control over our suppliers, contract manufacturers, and logistics providers, including aspects of their specific manufacturing processes and their labor, environmental, or other practices, which subjects us to significant risks, including the following:

Our future success depends on the continuing efforts of our key employees, including our founders, Asher Dahan, Guy Wagner and Leeor Langer, and on our ability to attract and retain highly skilled personnel and senior management.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. In particular, we are highly dependent on the contributions of our co-founders, Asher Dahan, Guy Wagner and Leeor Langer, as well as other members of our management team. The loss of any key personnel could make it difficult to manage our operations and research and development activities, reduce our employee retention and revenue, and impair our ability to compete. Although we have entered into employment agreements with our key personnel, these agreements have no specific duration and provide for at-will employment, which means they may terminate their employment relationship with us at any time.

Competition for highly skilled personnel is often intense, especially in Israel where we are located, and we may incur significant costs to attract them. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.

We collect, store, process, and use personal information and other customer data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and our actual or perceived failure to comply with such obligations could harm our business.

We collect, store, process, and use personal information and other user data, and we rely on third parties that are not directly under our control to do so as well. Our users’ neural finger and hand signals and movement-related data and other personal information may include, but is not limited to, names, addresses, phone numbers, email addresses, payment account information, wrist size and circumference, and biometric information such as neural signals, hand movement rotation and acceleration, GPS-based location, and hand activity patterns. Due to the volume and sensitivity of the personal information and data we manage and the nature of our products, the security features of our platform and information systems are critical. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive user data. If we or our third-party service providers, business partners, or third-party apps with which our users choose to share their data were to experience a breach of systems compromising our users’ sensitive data, use of our products and services could decrease, our brand and reputation could be adversely affected, and we could be exposed to a risk of loss, litigation, and regulatory proceedings. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to our user data, we may also have obligations to notify users about the incident and we may need to provide some form of remedy for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data. Our users may also accidentally disclose or lose control of their passwords, creating the perception that our systems are not secure against third-party access. Additionally, if third parties we work with, such as vendors, developers, or consumer electronics customers who licensed our technology, violate applicable laws, agreements, or our policies, such violations may also put our users’ information at risk and could in turn have an adverse effect on our business.

We rely on third-party application stores to distribute our mobile application.

We are dependent on third-party application stores that may prevent us from timely updating our applications, building new features, integrations, capabilities and enhancements or charging for access.

We distribute the mobile Mudra Inspire, Mudra Band application, and other future applications, through smartphone and tablet application stores managed by Apple and Google, among others. We cannot assure you that the third-party application stores through which we distribute our mobile applications will maintain their current structures or that such application stores will not charge us fees to list our application for download. We are also depending on these third-party application stores to enable us and our users to timely update our mobile applications and to incorporate new features, integrations, capabilities and enhancements. In addition, certain of these companies are now, and others may in the future become, competitors of ours and could stop allowing or supporting access to our platform through their products, could allow access for us only at an unsustainable cost, or could make changes to the terms of access in order to make our platform less desirable or harder to access, in each case for competitive reasons.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

If we experience a period of significant growth or expansion, it could place a substantial strain on our resources, and we may be unable to execute our business plan or maintain high levels of service and customer satisfaction.

We may experience rapid growth, which will place significant demands on our management and our operational and financial resources. We may also experience significant growth in the number of customers and organizations using our products, and in the amount of data that we collect and process. Additionally, our organizational structure and our operations may become more complex, requiring us to scale our operational, financial and management controls as well as our reporting systems and procedures.

As we continue to grow our business, we will face challenges in integrating, developing, training and motivating a growing employee base and maintaining our company culture. Moreover, our potential continued growth will require significant capital expenditures and the allocation of valuable management resources. Our growth could place a significant strain on our management, customer experience, research and development, sales and marketing, and other resources. In addition, as we expand our business and our customer base continues to grow, it is important that we continue to maintain a high level of customer service and satisfaction. As such, we will need to expand our account management, our customer service and other personnel so we can continue providing personalized account management and customer service as well as personalized features, integrations, capabilities and enhancements. If we fail to manage our growth in a manner that preserves high levels of customer service and the key aspects of our corporate culture, the quality of our products and services may suffer, which could negatively affect our reputation and harm our ability to attract employees, users and organizations.

We have recently begun to spend significant amounts on advertising and other marketing campaigns to acquire new users, and we expect to increase these advertising and marketing efforts after this offering, which may not be successful or cost effective.

We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as online advertising and social media, to acquire new users and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new users and increase awareness of our products and services. We expect to increase advertising and marketing efforts after this offering. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing, accurately predict user acquisition, or fully understand or estimate the conditions and behaviors that drive user behavior. If for any reason any of our advertising campaigns prove less successful and/or cost effective than anticipated in attracting new users, we may not be able to recover our advertising spend, and our rate of user acquisition may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products and services.

We depend on third-party data center service providers. Any disruption in the operation of the data center facilities or failure to renew the services could adversely affect our business.

Our services are hosted using data centers operated by third parties. We control neither the operation of the data centers nor our third-party data center service providers. The third-party data center service providers may have no obligation to renew their services with us on commercially reasonable terms, or at all. If we are unable to renew these services on commercially reasonable terms, we may be required to transfer our servers or data to new data center facilities or engage new service providers, and we may incur significant costs and a possible interruption in our platform in connection with doing so.

Problems with our third-party data center service providers, the telecommunications network providers with whom they contract, or with the systems by which telecommunications providers allocate capacity among their users could adversely affect the experience of our users. Our third-party data center service providers could decide to close their facilities or cease to provide us services without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data center service providers or parties they contract with may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, any failure of our data centers to meet our needs for capacity could have an adverse effect on our business. Any changes in third-party service levels at our data centers or any errors, defects, disruptions, or other performance problems with our platform could harm our brand and may damage the data of our users. Outages at our data centers, and future interruptions to our platform, might reduce our revenue, cause us to issue refunds, subject us to potential liability, or harm our ability to retain users and attract new customers.

Disruptions to our Information Technology, or IT, system may disrupt our operations and materially adversely affect our business and results of operations.

We depend on our IT systems, as well as those of third parties, to develop new products and services, operate our websites, host and manage our services, store data, process transactions, respond to user inquiries, and manage inventory and our supply chain. Our servers and equipment may be subject to cyber-security crimes, ransom hijacking, computer viruses, break-ins and similar disruptions from unauthorized tampering with computer systems. We can provide no assurance that our current IT system are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. A cyber-attack that bypasses our IT security systems causing an IT security breach may lead to a material disruption of our IT business systems and/or the loss of business information. Any such event could have a material adverse effect on our business until we recover using our back-up information. To the extent that such disruptions or uncertainties result in delays or cancellations of customer programs or misappropriation or release of our confidential data or our intellectual property, our business and results of operations could be materially and adversely affected.

Our business is subject to data security risks, and our data security measures may be inadequate to address these risks, making our systems susceptible to compromise, which could materially adversely affect our business, financial condition, results of operations, and prospects.

During the ordinary course of our business, we may collect, process, store and transmit substantial amounts of data and information, including users’ data. We have implemented measures to separate the data stored in our internet data centers and those stored with the third-party vendors. Security incidents may occur in the future, causing unauthorized access to, loss of, or unauthorized disclosure of such information, resulting in regulatory enforcement actions, litigation, indemnification obligations, and other potential liabilities, as well as negative publicity, which could materially adversely affect our business, reputation, financial condition, results of operations, and prospects. Cyberattacks, computer malware, and other compromises of information security measures or malicious internet-based activity continue to increase, and cloud-native platform providers of products and services have been targeted, resulting in breaches of their information security, and are expected to continue to be targeted. We and our third-party vendors are at risk of suffering from similar attacks and breaches.

Our products may also be subject to fraudulent usage and schemes, including third parties accessing customer accounts or viewing data from our platform without our authorization. While we undertake significant efforts to protect the security and integrity of the information we collect, process, store, and transmit, we cannot entirely mitigate these risks, and there is no guarantee that inadvertent or unauthorized use or disclosure of such information will not occur or that third-parties will not gain unauthorized access to such information despite our efforts. In addition, we rely on our third-party vendors to take appropriate measures to protect the security and integrity of the information on their information systems. We may not be able to anticipate or prevent all techniques that could be used to obtain unauthorized access or to compromise our systems because such techniques change frequently and are generally not detected until after an incident has occurred. Additionally, we cannot be certain that we will be able to address any vulnerabilities in our software that we may become aware of in the future. We expect similar issues to arise in the future as we continue to expand the features and functionality of our products and platform and introduce new products, and we expect to expend significant resources in an effort to protect against security incidents. In addition, any actual or suspected cybersecurity incident or other compromise of our security measures, or those of our third-party vendors, whether as a result of hacking efforts, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, or otherwise, could result in governmental investigations or enforcement actions, litigation, harm to our business, damage to our brand and reputation, significant costs for remediating the effects of such an incident and preventing future incidents, lost revenue due to network downtime, and a decrease in customer and user trust. Concerns regarding privacy, data protection, and information security may also cause some of our customers to stop using our products and platform and decline to renew their subscriptions, and make it harder to acquire new customers. To the extent we do not effectively address these risks, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data. We are also contractually required to notify certain customers of certain data security breaches. To protect customers’ information, we have adopted multiple security measures that address security risks associated with data transmission, usage, storage, export and presentation. We have adopted an access control policy that requires user authentication every time there is a request to access non-public data. In addition, we have implemented an encryption program that encrypts the sensitive and confidential information stored by us. Despite our efforts, security incidents experienced by us, or by others, such as our competitors or customers, may lead to public disclosures and widespread negative publicity for us, our customers, or the construction software industry generally.

Regulatory requirements regarding the protection of personal information are constantly evolving and can be subject to differing interpretations, making the extent of our responsibilities in that regard uncertain. We currently adopt a data privacy policy with respect to how we collect, store, process and use user data and information, and we may only use such data and information to provide and improve our services, content and advertising in strict compliance with such policy. Despite the absence of any material data breach or similar incidents and our continuous efforts to comply with our privacy policy as well as all applicable laws and regulations, any failure or perceived failure to comply with these laws, regulations or policy may result in inquiries and other proceedings or actions against us by governmental authorities or others, which could cause us to lose users and business partners.

There can be no assurance that any limitations of liability provisions in our subscriptions with customers would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. The successful assertion of one or more large claims against us could materially adversely affect our business, financial condition, results of operations, and prospects.

Risks Related to the Industry in Which We Operate

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to the expected growth in the market for wearable computing devices, wearable devices, and consumer electronics industry may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

The market for wearable computing devices is still in the early stages of growth and if it does not continue to grow, grows more slowly than we expect, or fails to grow as large as we expect, our business and operating results would be harmed.

The market for wearable computing devices is relatively new and unproven, and it is uncertain whether wearable devices and wearable computers will sustain high levels of demand and wide market acceptance. Our success will depend to a substantial extent on the willingness of people to widely adopt these products and services. In part, adoption of our products and services will depend on the increasing prevalence of connected wearable computing devices as well as new entrants to the wearable computing device market to raise the profile of both the market as a whole and our own platform. Our input technology devices have largely been used to control the Apple Watch and explore input methods for wearable computers and consumer electronics. However, they have not been widely adopted for other consumer electronics devices such as AR glasses, VR headsets, and large displays for which other products are more often used. Furthermore, some individuals may be reluctant or unwilling to use wearable input devices because they have concerns regarding the risks associated with data privacy, security, accuracy and comfortability. If the wider public does not perceive the benefits of our neural input devices or chooses not to adopt them as a result of concerns regarding privacy, data security, accuracy, comfortability, or for other reasons, then the market for these products and services may not further develop, it may develop more slowly than we expect, or it may not achieve the growth potential we expect it to, any of which would adversely affect our operating results. The development and growth of this relatively new market may also prove to be a short-term trend.

The COVID-19 pandemic could harm our business and results of operations.

In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, as well as government mandates, we implemented a hybrid work model, which combines office and remote work. We continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available. We may temporarily suspend travel and doing business in person or other measures that may negatively affect our customer success efforts, sales and marketing efforts, challenge our ability to enter into customer contracts in a timely manner, slow down our recruiting efforts, or create operational or other challenges, any of which could harm our business and results of operations.

In addition, COVID-19 has disrupted and may continue to disrupt the operations of our customers for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations. More generally, the COVID-19 pandemic has adversely affected economies and financial markets globally, leading to an economic downturn, which could decrease technology spending and adversely affect demand for our products and harm our business and results of operations. The increase in remote working may increase exposure vulnerabilities, resulting in privacy, data protection, data security and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.

To date, the main impact from COVID-19 on us has been on our B2B engagements. Due to the economic uncertainty, consumer electronics companies and consumer electronics brands halted new product releases. Additionally, it was more challenging for us to identify new B2B customers as many in-person conventions, tradeshows and conferences were cancelled. Therefore, COVID-19 prevented us from advancing with existing customers and acquiring new B2B customers.

COVID-19 has also impacted our manufacturing and production. Due to COVID-19, procurement of components has resulted in longer lead times and components shortages, with higher prices than before COVID-19. Manufacturing cycles are now longer. Additionally, our inability to be physically present in the manufacturing sites has resulted in longer communication and iteration cycles. We also witnessed an increase in shipment costs and longer shipment times.

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment and mitigation actions, including restrictions on economic activity and the continued rollout of an efficient worldwide vaccination campaign, it has already had an adverse effect on the global economy, and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. While we have developed and expect to continue to develop plans to help mitigate the potential negative impact of COVID-19, these efforts may not be effective, and any protracted economic downturn will likely limit the effectiveness of our efforts. Accordingly, it is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

We operate in a highly competitive market. If we do not compete effectively, our prospects, operating results, and financial condition could be adversely affected.

The market of input methods and peripheral devices for digital computers is highly competitive, with companies offering a variety of competitive products and services. We plan to develop and offer additional consumer electronics products for controlling and interacting with computers and digital devices. Additional consumer offerings will include applications for a variety of devices which will add value to the consumer beyond hardware functions. However, if we are unable to successfully develop additional consumer products, our results of operation may suffer. We expect competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. The digital devices input methods market has a multitude of participants, including specialized consumer electronics companies, such as Apple Inc., or Apple, Facebook, Inc., or Facebook, and Google LLC, and traditional peripheral and input solutions companies, such as Microsoft Corporation, Logitech International S.A. and Razer. In addition, many large, broad-based consumer electronics companies either compete in our market or adjacent markets or have announced plans to do so, including Apple and Facebook. For example, in December 2021, Apple released the Apple Watch AssistiveTouch capability to users for controlling the Apple Watch, with gesture recognition functionalities that do not require any additional sensors. We also compete with a wide range of after-market periphery-related input devices that can be purchased in retail and online stores from a multitude of manufacturers. We believe that many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, ability to leverage app stores which they may operate, and greater financial, research and development, marketing, distribution, and other resources than we do. Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.

An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services.

Our products and services may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, and other factors, such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. Our sensitivity to economic cycles and any related fluctuation in consumer demand for our products and services may have an adverse effect on our operating results and financial condition.

Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our services and have a negative impact on our business.

The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business solutions. We may be required to comply with laws or regulations regarding the use of the internet in foreign jurisdictions, such as the General Data Protection Regulation in the European Union, or the GDPR, and the California Consumer Privacy Act in the United States. Changes in these laws or regulations could require us to modify our products in order to comply with these changes. While we have implemented measures to promote compliance with applicable laws and regulations and track their developments, we cannot assure you that we will always be in compliance. In addition, the modification of our products to ensure compliance can be time-consuming, if not technically impossible. If we are unable to comply with these laws and regulations, or if we cannot modify our products in a timely fashion, our reputation, business, results of operations and financial condition could be materially adversely affected.

In addition, government agencies may begin to impose taxes, fees or other charges for accessing the internet. These laws and changes could limit the growth of internet-related commerce or communications generally and reduce the demand for internet-based services such as ours. As our suppliers also carry out their services on the internet, such measures could increase our operating costs and we may not be able to maintain our competitive pricing as compared to the legacy software. These effects combined could adversely affect our business, results of operations and financial condition.

In addition, use of the internet as a business tool could be adversely affected. The performance of the internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms” and similar malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for our services could suffer.

Our business is subject to a variety of U.S. and international laws and regulations, including those regarding privacy, cybersecurity and data protection. Any failure of our platform to comply with applicable laws and regulations could harm our business, operating results and financial condition.

Our operations may from time to time involve cross-border transfer of data, which may subject us and our customers that use our products to privacy, cybersecurity and data protection-related laws and regulations that impose obligations in connection with the collection, processing and use of personal data, financial data, health or other similar data and general cybersecurity. Multiple jurisdictions have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of information, including personally identifiable information of individuals.

In the United States, the U.S. Federal Trade Commission and numerous state attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of data, and to the security measures applied to such data. We continue to see increased regulation of privacy cybersecurity and data protection, including the adoption of more stringent subject matter specific state laws in the United States. For example, in 2018, California enacted the CCPA, which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete 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. The CCPA may increase our compliance costs and potential liability, and we may be required to modify our practices and take additional steps in an effort to comply with the CCPA. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the United States, which could increase our potential liability and adversely affect our business.

Similarly, many other countries and governmental bodies, including the EU member states, have laws and regulations concerning the collection and use of personal data obtained from individuals located in the EU or by businesses operating within their jurisdiction, which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal data that identifies or may be used to identify an individual, such as names, telephone numbers, email addresses and, in certain circumstances, IP addresses and other online identifiers. For example, the EU has adopted the GDPR, which took full effect on May 25, 2018. The GDPR enhances data protection obligations for businesses and requires service providers (data processors) processing personal data on behalf of customers 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 or greater of €20 million or 4% of global annual revenues. Given the breadth and depth of its obligations, working to meet the requirements of the GDPR has required significant time and resources, including a review of our technology and systems currently in use against the requirements of the GDPR. There are also additional EU laws and regulations (and member states implementations thereof) which govern the protection of consumers and of electronic communications. We have taken measures to address certain obligations under the GDPR and to make us GDPR compliant, but we may be required to take additional steps in order to comply with the GDPR. If our efforts to comply with GDPR or other applicable EU laws and regulations are not successful, we may be subject to penalties and fines that would adversely impact our business and operating results, and our ability to conduct business in the EU could be significantly impaired.

We also continue to see jurisdictions imposing data localization laws, which require personal information, or certain subcategories of personal information to be stored in the jurisdiction of origin. These regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant additional costs.

Additionally, although we endeavor to have our products and platform comply with applicable laws and regulations, these and other obligations may be modified, they may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another, other regulatory requirements, contractual commitments or our practices. We expect that there will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU and other jurisdictions, and we cannot yet determine the impact such future laws, rules, regulations and standards may have on our business. The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, delay or reduce demand for our services, restrict our ability to offer services in certain locations, impact our customers’ ability to deploy our products and solutions in certain jurisdictions, or subject us to claims and litigation from private actors and investigations, proceedings, and sanctions by data protection regulators, all of which could harm our business, financial condition and operating results.

We also may be bound by contractual obligations relating to our collection, use and disclosure of personal, financial and other data or may find it necessary or desirable to join industry or other self-regulatory bodies or other privacy, cybersecurity or data protection-related organizations that require compliance with their rules pertaining to privacy and data protection.

Any failure or perceived failure by us, our products or our platform to comply with new or existing U.S., EU or other foreign privacy, cybersecurity or data protection laws, regulations, policies, industry standards or legal obligations, any failure to bind our suppliers and contractors to appropriate agreements or to manage their practices or any systems failure or security incident that results in the unauthorized access to, or acquisition, release or transfer of, personally identifiable information or other data relating to customers or individuals may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, fines and penalties, adverse publicity or potential loss of business.

Our business is subject to the risk of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by manmade problems such as terrorism.

In addition to and as evidenced by the COVID-19 global pandemic, our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, and similar events. The third-party systems and operations and contract manufacturers we rely on, such as the data centers we lease, are subject to similar risks. For example, a significant natural disaster, such as an earthquake, fire, or flood, could have an adverse effect on our business, operating results, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices are located in Israel, a state that frequently experiences terrorist attacks and acts of war. In addition, the facilities at which our contract manufacturers manufacture our products are located in parts of Asia that frequently endure typhoons and earthquakes. Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our or our suppliers’, contract manufacturers’, and logistics providers’ businesses or the economy as a whole. Our servers may also be vulnerable to computer viruses, break-ins, denial-of-service attacks, and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, and loss of critical data. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting Israel or other locations where we have data centers or store significant inventory of our products. As we rely heavily on our data center facilities, computer and communications systems, and the Internet to conduct our business and provide high-quality customer service, these disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt suppliers’ businesses, which could have an adverse effect on our business, operating results, and financial condition.

Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

As a public company, we will be subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which will require us to conduct due diligence on and disclose whether or not our products contain conflict minerals. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes, or sources of supply as a consequence of such due diligence activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes, or sources of supply to avoid such materials.

Risks Related to Our Financial Condition and Operations

Our quarterly operating results or other operating metrics may fluctuate significantly, which could cause the trading price of our Ordinary Shares to decline.

Our quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate from quarter to quarter. We expect that this trend will continue as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.

The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of any analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Ordinary Shares could fall substantially, and we could face costly lawsuits, including securities class action suits.

We may need to raise additional capital required to grow our business, and we may not be able to raise capital on terms acceptable to us or at all, and the sale of additional shares or equity or debt securities could result in additional dilution to our shareholders.

Growing and operating our business will require significant cash outlays and capital expenditures and commitments. If cash on hand and cash from operating activities are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financing, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financing may be on terms that are dilutive or potentially dilutive to our shareholders, as described below, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share. The holders of new securities may also have rights, preferences, or privileges which are senior to those of existing holders of Ordinary Shares. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.

We may need to raise additional capital through a combination of private and public equity offerings, debt financings and collaborations, and strategic and licensing arrangements. To the extent that we raise additional capital through the issuance of equity (such as this offering) or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of our Ordinary Shares. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our operating results could be materially harmed if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory.

To ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders with our suppliers and contract manufacturers sufficiently in advance based on our estimates of future demand for our products. Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in customer demand for our products and services or for products and services of our competitors, product and service introductions by competitors, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. We may face challenges acquiring adequate and timely supplies of our products to satisfy the levels of demand, which we believe negatively affects our revenue. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory, either directly or with our contract manufacturers or logistics providers, to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength of our brand. Conversely, if we underestimate customer demand for our products and services, our contract manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.

Our financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.

In part because we have incurred losses in each year since our inception, including net losses of approximately $1.3 million and $1 million for the years ended December 31, 2020 and 2019, respectively, our audited financial statements for the period ended December 31, 2020 contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. As of December 31, 2020, we had an accumulated deficit of approximately $4.3 million. These events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The financial statements for 2020 do not include any adjustments that might result from the outcome of this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. In January 2022, our board of directors authorized us to enter into a series of SAFEs for aggregate proceeds of up to$3 million. As of February 16, 2022, we have received $400 thousand under the SAFEs we have entered into, we will require additional funding. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as a going concern.

Our financial performance is subject to risks associated with changes in the value of the U.S. dollar, Israeli shekel, versus local currencies.

Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of our foreign currency-denominated sales and earnings, and generally leads us to raise international pricing, potentially reducing demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of the Israeli shekel or foreign currencies relative to the U.S. dollar will increase our Israeli operations costs, and could cause us to increase our international pricing and become less competitive. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.

We may not be able to sustain our revenue growth rate or profitability in the future.

Our recent revenue growth should not be considered indicative of our future performance. As we grow our business, we expect our revenue growth rates to slow in future periods due to a number of reasons, which may include increasing competition, slowing demand for our products and services, a decrease in the growth of our overall market, our failure, for any reason, to continue to capitalize on growth opportunities, or the maturation of our business.

We have not achieved profitability on a quarterly or annual basis. We expect our expenses to increase substantially in the near term, particularly as we make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure internationally, develop new products and services, and enhance our existing products and services. In addition, in connection with operating as a public company, we will incur additional significant legal, accounting, and other expenses that we did not incur as a private company. If our revenue does not increase to offset these increases in our operating expenses, we may not be profitable in future periods.

Risks Related to this Offering and the Ownership of the Ordinary Shares

Our current five percent shareholders, officers and directors currently beneficially own approximately 73.0% of our Ordinary Shares. Although this percentage will decrease after this offering, they will continue to be able to exert significant control over matters submitted to our shareholders for approval.

As of the date of this prospectus, our current five percent shareholders, officers and directors beneficially own approximately 73.0% of our Ordinary Shares. Although this percentage will decrease after this offering, they will continue to be able to exert significant control over matters submitted to our shareholders for approval. This significant concentration of share ownership may adversely affect the trading price for our Ordinary Shares because investors often perceive disadvantages in owning shares in companies with controlling shareholders. As a result, these shareholders, if they acted together, could significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of other shareholders.

If you purchase the Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The offering price of the Ordinary Shares is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore, if you purchase Ordinary Shares in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible book value per Ordinary Share after this offering. To the extent outstanding options or warrants are exercised, you will incur further dilution. Based on an assumed offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $3.79 per Ordinary Share, representing the difference between our pro forma net tangible book value per Ordinary Share after giving effect to this offering and the offering price. See “Dilution” for further information.

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

Although we intend to list the Ordinary Shares on Nasdaq, an active trading market for the Ordinary Shares may not be sustained. It may be difficult for you to sell your Ordinary Shares without depressing the market price for the Ordinary Shares or at all. As a result of these and other factors, you may not be able to sell your Ordinary Shares at or above the offering price or at all. Further, an inactive market may also impair our ability to raise capital by selling Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies, products, or services by using our equity securities as consideration.

We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future. 

We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, you should not rely on an investment in Ordinary Shares as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.

Management will have broad discretion as to the use of the proceeds from this offering.

Our management will have broad discretion in the allocation of the net proceeds and could use them for purposes other than those contemplated at the time of this offering and as described in the section titled “Use of Proceeds.” Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds.

The JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of the Ordinary Shares.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

We intend to take advantage of some of these exemptions until we are no longer an “emerging growth company.” We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale of ordinary equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We cannot predict if investors will find the Ordinary Shares less attractive because we may rely on these exemptions. If some investors find the Ordinary Shares less attractive as a result, there may be a less active trading market for the Ordinary Shares, and our market prices may be more volatile and may decline.

As a “foreign private issuer” we are subject to less stringent disclosure requirements than domestic registrants and are permitted, and may in the future elect to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. registrants.

As a foreign private issuer and emerging growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Israeli legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

We will follow Israeli laws and regulations that are applicable to Israeli companies. However, Israeli laws and regulations applicable to Israeli companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic registrants that are non-accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Israeli laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Israeli law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. registrant.

These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.

The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2022. In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic registrant may be significantly higher.

We may be a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of the Ordinary Shares if we are or were to become a PFIC.

 Based on the projected composition of our income and valuation of our assets, we do not expect to be a PFIC for 2021 and we do not expect to become a PFIC in the future, although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of the Ordinary Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year during which a U.S. taxpayer holds the Ordinary Shares, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of the Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the Ordinary Shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held the Ordinary Shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold the Ordinary Shares if we believe we will be treated as a PFIC for any taxable year in order to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. taxpayers annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold the Ordinary Shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to the Ordinary Shares in the event that we are a PFIC. See “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.

Risks Related to Our Intellectual Property

We may not be able to adequately protect or enforce our intellectual property rights throughout the world, and our efforts to do so may be costly.

If we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors may be able to access our proprietary technology and our business, results of operations and financial condition could be adversely affected. We currently attempt to protect our technology through a combination of patent, copyright, trademark and trade secret laws, unfair competition laws, employee and third party nondisclosure agreements and similar means. Despite our efforts, other parties may attempt to disclose, obtain or use our technologies or systems. Our competitors may also be able to independently develop similar products or design around our patents. In addition, the laws of some countries do not protect our proprietary rights as fully as do the laws of other countries. As a result, we may not be able to protect our proprietary rights adequately in the United States, China or abroad.

Filing, prosecuting, and defending patents on products and services, as well as monitoring their infringement in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries can be less extensive than those according to federal and state laws in the United States or laws in China. Competitors may use our technologies to develop their own products or services in jurisdictions where we have not obtained patent protection and may export infringing products or services to territories where we have patent protection, but where patents are not enforced as strictly as they are in the United States. These products or services may compete with our products or services. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in some jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the marketing of competing products or services in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly, put the issuance of our patent applications at risk, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and any damages or other remedies that we may be awarded, may not be commercially meaningful. Accordingly, our efforts to monitor and enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

In addition, any litigation initiated by us concerning the violation by third parties of our intellectual property rights is likely to be expensive and time-consuming and could lead to the invalidation of, or render unenforceable, our intellectual property, or could otherwise have negative consequences for us. In the future, we may be a party to claims and litigation as a result of alleged infringement by third parties of our intellectual property. Even when we sue other parties for such infringement, that suit may have adverse consequences for our business. Any such suit may be time-consuming and expensive to resolve and may divert our management’s time and attention from our business. Furthermore, such a lawsuit could result in a court or governmental agency invalidating or rendering unenforceable our patents or other intellectual property rights upon which the suit is based, which would seriously harm our business.

If we are unable to protect our domain names, our brand, business, and operating results could be adversely affected.

We have registered domain names for websites, or URLs, that we use in our business, such as wearabledevices.co.il, getmudra.com, and mudra-band.com. We have registered digital names for social media handlers, that we use in our business, such as Facebook and LinkedIn. If we are unable to maintain our rights in these domain and digital names, our competitors or other third parties could capitalize on our brand recognition by using these domain names for their own benefit. In addition, we might not be able to, or may choose not to, acquire or maintain other country-specific versions of the “Wearable Devices” or “Mudra” domain and digital names or other potentially similar URLs. The regulation of domain and digital names in the United States and elsewhere is generally conducted by Internet regulatory bodies and is subject to change. If we lose the ability to use a domain or digital name in a particular country, we may be forced to either incur significant additional expenses to market our solutions within that country, including the development of a new brand and the creation of new promotional materials, or elect not to sell our solutions in that country. Either result could substantially harm our business and operating results. Regulatory bodies could establish additional top-level domains, appoint additional domain or digital name registrars, or modify the requirements for holding domain or digital names. As a result, we may not be able to acquire or maintain the domain or digital names that utilize the name “Wearable Devices” or “Mudra” in all of the countries in which we currently conduct or intend to conduct business. Further, the relationship between regulations governing domain and digital names and laws protecting trademarks and similar proprietary rights varies among jurisdictions and is unclear in some jurisdictions. Domain and digital names similar to ours have already been registered in the United States and elsewhere, and we may be unable to prevent third parties from acquiring and using domain or digital names that infringe, are similar to, or otherwise decrease the value of, our brand or our trademarks. Protecting and enforcing our rights in our domain and digital names and determining the rights of others may require litigation, which could result in substantial costs, divert management attention, and not be decided favorably to us.

We may become subject to litigation brought by third parties claiming infringement by us of their intellectual property rights.

The industry in which our business operates is characterized by a large number of patents, some of which may be of questionable scope, validity or enforceability, and some of which may appear to overlap with other issued patents. As a result, there is a significant amount of uncertainty in the industry regarding patent protection, enforcement and infringement. In recent years, there has been significant litigation globally involving patents and other intellectual property rights. We could become subject to claims and litigation alleging infringement by us of third-party patents and other intellectual property generally. These claims and any resulting lawsuits, if resolved adversely to us, could subject us to significant liability for damages, impose temporary or permanent injunctions against our products or business operations, or invalidate or render unenforceable our intellectual property. In addition, because patent applications can take many years until the patents are issued, there currently may be pending applications of which we are unaware, which may later result in issued patents that our products may infringe. If any of our products infringes a valid and enforceable patent, or if we wish to avoid potential intellectual property litigation on any alleged infringement of such products, we may be prevented from selling, or elect not to sell, such products unless we obtain a license, which may be unavailable. Alternatively, we may be forced to pay substantial royalties or to redesign one or more of our products to avoid any infringement or allegations thereof. Additionally, we may face liability to our customers, business partners or third parties for indemnification or other remedies in the event that they are sued for infringement in connection with their use of our products.

We also may not be successful in any attempt to redesign our products to avoid any alleged infringement. A successful claim of infringement against us, or our failure or inability to develop and implement non-infringing technology, or license the infringed technology, on acceptable terms and on a timely basis, could materially adversely affect our business and results of operations. Furthermore, such lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention from our business, which could seriously harm our business. Also, such lawsuits, regardless of their success, could seriously harm our reputation with our consumer electronics customers and in the industry at large.

Our use of “open source” software could negatively affect our ability to sell our products and subject us to possible litigation.

A portion of the technologies we use incorporates “open source” software, and we may incorporate open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our products and services that incorporate the open source software for no cost, that we make publicly available source code for modifications or derivative works we create based upon, incorporating, or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license, or limitations on intellectual property protection and enforcement. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose or provide at no cost any of our source code that incorporates or is a modification of such licensed software. If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages and enjoined from the sale of our products and services that contained the open source software. Any of the foregoing could disrupt the distribution and sale of our products and services and harm our business.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of any patents that may issue from our patent applications or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we were the first to file the invention claimed in our owned and licensed patent or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming all other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention without undue delay in filing, is entitled to the patent, while generally outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted on September 16, 2011, the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business and financial condition.

We may be subject to claims challenging the inventorship of our intellectual property.

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

Risks Related to Operations in Israel

Conditions in Israel affect our operations and may limit our ability to produce and sell our products.

Our headquarters, executive offices and research and development offices are located in Yokne’am Illit, Israel. In addition, the majority of our key employees, officers and directors are residents of Israel. Political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and groups in its neighboring countries. In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terrorist activities, political instability or violence in the region or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations and the market price of our Ordinary Shares.

Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.

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

We may be required to pay monetary remuneration to our Israeli employees for their inventions, even if the rights to such inventions have been duly assigned to us.

We enter into agreements with our Israeli employees pursuant to which such individuals agree that any inventions created in the scope of their employment are either owned exclusively by us or are assigned to us, depending on the jurisdiction, without the employee retaining any rights. A portion of our intellectual property has been developed by our Israeli employees during their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the course of his or her employment and within the scope of said employment are considered “service inventions”. Service inventions belong to the employer by default, absent a specific agreement between the employee and employer otherwise. The Patent Law also provides that if there is no agreement regarding the remuneration for the service inventions, even if the ownership rights were assigned to the employer, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for these inventions. The Committee has not yet determined the method for calculating this Committee-enforced remuneration. While it has previously been held that an employee may waive his or her rights to remuneration in writing, orally or by conduct, litigation is pending in the Israeli labor court is questioning whether such waiver under an employment agreement is enforceable. Although our Israeli employees have agreed that we exclusively own any rights related to their inventions, we may face claims demanding remuneration in consideration for employees’ service inventions. As a result, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

We received Israeli government grants for certain of our research and development activities, the terms of which may require us to pay royalties and to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. If we fail to satisfy these conditions, we may be required to pay penalties and refund grants previously received.

Our research and development efforts have been financed in part through royalty-bearing and non-royalty-bearing grants in an aggregate amount of 1.7 million that we received from the IIA as of June 30, 2021. With respect to the royalty-bearing grants we are committed to pay royalties at a rate of 3.0%-3.5% on sales proceeds from our products that were developed under the Israeli Innovation Authority, or the IIA, programs up to the total amount of grants received, linked to the U.S. dollar and bearing interest at an annual rate of LIBOR applicable to U.S. dollar deposits. As of June 30, 2021, our contingent liabilities regarding IIA grants received by us were in an aggregate amount of $1.7 million. We are further required to comply with the requirements of the Israeli Encouragement of Industrial Research, Development and Technological Innovation Law, 5744-1984, as amended, and related regulations, or the Research Law, with respect to those past grants. When a company develops know-how, technology or products using IIA grants, the terms of these grants and the Research Law restrict the transfer or license of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel, without the prior approval of the IIA. Our obligations in regard to know-how, technology or products that may be subject to these restrictions are not to transfer to anyone the information, rights thereon and production rights to be derived from the research and development, in whole or part, of our Mudra Inspire product and our Mudra Band product, without the IIA Research Committee approval. Therefore, the discretionary approval of an IIA committee would be required for any transfer or license to third parties inside or outside of Israel of know how or for the transfer outside of Israel of manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development.

The transfer or license of IIA-supported technology or know-how outside of Israel and the transfer of manufacturing of IIA-supported products, technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred or licensed technology or know-how, our research and development expenses, the amount of IIA support, the time of completion of the IIA-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell, license or otherwise transfer our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.

We may not be able to enforce covenants not-to-compete under current Israeli law that might result in added competition for our products.

We have non-competition agreements with all of our employees, all of which are governed by Israeli law. These agreements prohibit our employees from competing with or working for our competitors, generally during their employment and for up to 12 months after termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend to enforce those provisions for relatively brief periods of time in restricted geographical areas, if at all, and only when the employee has provided unique value to the employer specific to that employer’s business and not just regarding the professional development of the employee. If we are not able to enforce non-compete covenants, we may be faced with added competition.

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

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

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts.

We were incorporated in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.

Our amended and restated articles of association to be effective upon the closing of this offering may be deemed to have an anti-takeover effect.

Certain provisions of our amended and restated articles of association to be effective upon the closing of this offering may make a change in control of us more difficult to effect. Our amended and restated articles of association will provide for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our shareholders. This classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of shareholders, instead of one, will generally be required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may delay, defer or prevent an attempt to change control of us, even though a change in control might be considered by our shareholders to be in their best interest.

Your rights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.

The rights and responsibilities of the holders of our Ordinary Shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S. companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in such company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s amended and restated articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval, as well as a general duty to refrain from discriminating against other shareholders. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. companies (see “Description of Share Capital – Provisions Restricting Change in Control of Our Company” for additional information).

General Risk Factors

We will incur significant increased costs as a result of the listing of our securities for trading on Nasdaq. By becoming a public company in the United States, our management will be required to devote substantial time to new compliance initiatives as well as compliance with ongoing U.S. requirements. 

Upon the listing of securities on Nasdaq, we will become a publicly traded company in the United States. As a public company in the United States, we will incur additional significant accounting, legal and other expenses that we did not incur before the offering. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers.  

Even if we meet the initial listing requirements of Nasdaq, there can be no assurance that we will be able to comply with the continued listing standards of Nasdaq. Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Ordinary Shares.

Even if we meet the initial listing requirements of Nasdaq, we cannot assure you that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our Ordinary Shares on Nasdaq. If after listing we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum stockholder’s equity requirement, Nasdaq may take steps to de-list our Ordinary Shares. Such a de-listing would likely have a negative effect on the price of our Ordinary Shares and would impair our shareholders’ ability to sell or purchase our Ordinary Shares when they wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any action taken by us would result in our Ordinary Shares becoming listed again, or that any such action would stabilize the market price or improve the liquidity of our Ordinary Shares.

If we engage in future merger and acquisition activities or strategic partnerships, this could require significant management attention, may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

As part of our business strategy, we may make investments in other companies, products, or technologies. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by users or investors. In addition, if we fail to successfully integrate such acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and operating results of the combined company could be adversely affected.

Additionally, we may evaluate various strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

We are subject to risks associated with doing business globally.

Our operations are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. In addition to risks related to currency exchange rates, these risks include changes in exchange controls, changes in taxation, importation limitations, export control restrictions, changes in or violations of applicable laws, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, economic and political instability, disputes between countries, diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including war, terrorism, riot, civil insurrection or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect our global operations could have an adverse effect on our business, results of operations and financial condition.

Our operating margins may decline as a result of increasing product costs.

Our business is subject to significant pressure on pricing and costs caused by many factors, including intense competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from users to reduce the prices we charge for our products and services, and changes in consumer demand. Costs for the raw materials used in the manufacture of our products are affected by, among other things, energy prices, consumer demand, fluctuations in commodity prices and currency, global pandemic slowing down manufacturing capacity, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business in the United States and internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows.

Sales of a significant number of shares of our Ordinary Shares in the public markets or significant short sales of our Ordinary Shares, or the perception that such sales could occur, could depress the market price of our Ordinary Shares and impair our ability to raise capital. 

Sales of a substantial number of shares of our Ordinary Shares or other equity-related securities in the public markets, could depress the market price of our Ordinary Shares. If there are significant short sales of our Ordinary Shares, the price decline that could result from this activity may cause the share price to decline more so, which, in turn, may cause long holders of the Ordinary Shares to sell their shares, thereby contributing to sales of Ordinary Shares in the market. Such sales also may impair our ability to raise capital through the sale of additional equity securities in the future at a time and price that our management deems acceptable, if at all. 

The market price of our Ordinary Shares may be highly volatile, and you could lose all or part of your investment.

The market price of our Ordinary Shares is likely to be volatile. This volatility may prevent you from being able to sell your Ordinary Shares at or above the price you paid for your securities. Our share price could be subject to wide fluctuations in response to a variety of factors, which include:

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance, and we have little or no control over these factors.

We may be subject to securities litigation, which is expensive and could divert management attention.

In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities. 

 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 the Ordinary Shares, our share price and trading volume could decline.

The trading market for the 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 and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the Ordinary Shares, or provide more favorable relative recommendations about our competitors, the price of our Ordinary Shares would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our Ordinary Shares or trading volume to decline.

Our internal control over financial reporting does not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business. Further, a material weakness was noted in our financial reporting closing process.

Considering the size and the complexity of our operations and our early stage of generating revenues, we did not have a capable Chief Financial Officer during 2021, and we based our financial reporting process on an outsourced accounting firm while our Chief Executive Officer held the position of interim Chief Financial Officer.

As a result, we identified a material weakness in our internal control over financial reporting due to an insufficient knowledge of accounting principles generally accepted in the United States of America, or GAAP.

In January 2022, we engaged an experienced and capable Chief Financial Officer with sufficient U.S. GAAP knowledge and U.S. public company reporting experience and will begin the process of documenting our internal control procedures to satisfy the requirements of Section 404 (a) of the Sarbanes-Oxley Act, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. The estimated incremental cost of the new Chief Financial Officer is not material as it will be balanced out by our decreased dependency on the services of the outsourced accounting firm.

We are in the process of addressing our internal control over financial reporting and we will establish formal policies, processes and practices related to financial reporting and identify key financial reporting risks, including an assessment of the potential impact and linkage of those risks to specific areas and activities within our organization.

We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act and, therefore, are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon completion of this offering, we will be required to comply with the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act, which will require our management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of control over financial reporting. Though we will be required to disclose material changes in internal control over financial reporting on an annual basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first filing of an annual report on Form 20-F. Additionally, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We expect to remediate this material weakness by the end of 2022.

As a public entity, we will be required to complete our initial assessment in a timely manner. If we are not able to implement and document the necessary policies, processes and controls to mitigate financial reporting risks, we may not be able to comply with the requirements of Sections 404(a) in a timely manner or with adequate compliance. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in our company and the reliability of our financial statements. Confidence in the reliability of our financial statements could also suffer if we were to report a material weakness in our internal control over financial reporting. This could materially adversely affect us and lead to a decline in the price of our Ordinary Shares. 

We may be subject to liability claims if we breach our contracts, and our insurance may be inadequate to cover our losses.

We are subject to numerous obligations in our contracts with organizations and our partners. Despite the procedures, systems and internal controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, negligence or the willful act of an employee or contractor. Our insurance policies may be inadequate to compensate us for the potentially significant losses that may result from claims arising from breaches of our contracts, disruptions in our services, failures or disruptions to our infrastructure, catastrophic events, and disasters or otherwise. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.

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.

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

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

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 prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. 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 prospectus.

LISTING DETAILS

We have applied to list the Ordinary Shares on Nasdaq under the symbol “WLDS.” This offering is contingent upon the Ordinary Shares being listed; however, no assurance can be given that our application will be approved. As of the date of this prospectus our only listed class of securities will be our Ordinary Shares. All of our Ordinary Shares have the same rights and privileges. See “Description of Share Capital.”

USE OF PROCEEDS

We expect to receive approximately $15 million in net proceeds from the sale of Ordinary Shares offered by us in this offering (approximately $17.5 million if the underwriters exercise their over-allotment option in full), based upon an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.

A $1.00 increase or decrease in the assumed public offering price of $5.00 per Ordinary Share would increase or decrease the proceeds from this offering by approximately $3.3 million, assuming that the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase or decrease of 1,000,000 Ordinary Shares offered would increase or decrease our proceeds by approximately $4.6 million, assuming the assumed public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from this offering for the following purposes:

Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our global marketing and sales efforts, the development efforts and the overall economic environment. Therefore, our management will retain broad discretion over the use of the proceeds from this offering. We may ultimately use the proceeds for different purposes than what we currently intend. Pending any ultimate use of any portion of the proceeds from this offering, if the anticipated proceeds will not be sufficient to fund all the proposed purposes, our management will determine the order of priority for using the proceeds, as well as the amount and sources of other funds needed.

Pending our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

Under the Israeli Companies Law 5759-2999, or the Companies Law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distribution according to our then last reviewed or audited financial statements, provided that the end of the period to which the financial statements relate is not more than six months prior to the date of distribution. In the event that we do not meet such earnings criteria, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.  

Payment of dividends may be subject to Israeli withholding taxes. See “Taxation—Israeli Tax Considerations and Government Programs” for additional information.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2021:  

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

You should read this table in conjunction with the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

The number of Ordinary Shares held by existing shareholders is based on 11,136,850 Ordinary Shares outstanding as of February 16, 2022, and excludes as of such date:

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

But does not assume or give effect to:

DILUTION

If you invest in our Ordinary Shares, your interest will be diluted immediately to the extent of the difference between the public offering price per Ordinary Share you will pay in this offering and the pro forma net tangible book value per Ordinary Share after this offering. On June 30, 2021, we had a net tangible book value of $2.53 million, corresponding to a net tangible book value of $0.23 per Ordinary Share. Net tangible book value per share or per Ordinary Share represents the amount of our total tangible assets less our total liabilities, divided by 11,136,850, the total number of Ordinary Shares issued and outstanding on June 30, 2021.

After giving effect to the sale of the Ordinary Shares offered by us in this offering, assuming no exercise of the underwriter’s option to purchase additional Ordinary Shares and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value estimated at June 30, 2021 would have been approximately $ million, representing $ per Ordinary Share. At the assumed public offering price for this offering of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, this represents an immediate increase in historical net tangible book value of $0.98 per Ordinary Share to existing shareholders and an immediate dilution in net tangible book value of $3.79 per Ordinary Share to purchasers of Ordinary Shares in this offering. Dilution for this purpose represents the difference between the price per Ordinary Share paid by these purchasers and net tangible book value per Ordinary Share immediately after the completion of this offering.

The following table illustrates this dilution on a per Ordinary Share basis to purchasers of Ordinary Shares in this offering:

The dilution information set forth in the table above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

A $1.00 increase or decrease in the assumed initial public offering price of $5.00 per Ordinary Share would increase or decrease our net tangible book value per Ordinary Share after this offering by $0.22 and the dilution per Ordinary Share to new investors by $0.78, assuming the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Ordinary Shares we are offering. 

An increase or decrease of 1,000,000 Ordinary Shares in the number of Ordinary Shares offered by us would increase or decrease our net tangible book value after this offering by approximately $4.6 million. An increase of 1,000,000 Ordinary Shares in the number of Ordinary Shares offered by us would increase the net tangible book value per Ordinary Share after this offering and would decrease the dilution per Ordinary Share to new investors by $0.21, after deducting estimated underwriting discounts and estimated offering expenses payable by us. A decrease of 1,000,000 Ordinary Shares in the number of Ordinary Shares offered by us would decrease the net tangible book value per Ordinary Share after this offering and would increase the dilution per Ordinary Share to new investors by $0.25, after deducting estimated underwriting discounts and estimated offering expenses payable by us.

The following table summarizes, on an as adjusted basis as of June 30, 2021, the differences between the number of Ordinary Shares acquired from us, the total amount paid and the average price per Ordinary Share paid by the existing holders of our Ordinary Shares and by investors in this offering and based upon an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.

The number of Ordinary Shares held by existing shareholders is based on 11,136,850 Ordinary Shares outstanding as of February 16, 2022, and excludes as of such date:

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

But does not assume or give effect to:

If all of such issued and outstanding options and warrants had been exercised as of June 30, 2021, the number of Ordinary Shares held by existing shareholders would increase to 12,993,431, or 77.8% (excluding the Ordinary Shares issuable upon the conversion of SAFEs) of the total number of Ordinary Shares outstanding after this offering, and the average price per Ordinary Share paid by the existing shareholders would be $0.88. 

If the underwriters exercise their option to purchase additional Ordinary Shares in full in this offering, the number of Ordinary Shares held by new investors will increase to 4,140,000, or 26.9% of the total number of Ordinary Shares issued and outstanding after this offering, and the percentage of Ordinary Shares held by existing shareholders and shareholders as a result of the SAFEs conversion will decrease to 73.1% of the total Ordinary Shares issued and outstanding.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Our company develops a non-invasive neural input interface for controlling digital devices. Since our founding in 2014, we have developed the Mudra technology, that allows digital devices to be controlled through a neural input interface.

We are in a growth stage and at an early stage of revenues. We are currently in the transition phase from research and development to commercialization of our technology into B2B and B2C products.

We are finalizing the manufacturing of our first B2C consumer product, the “Mudra Band” and expect it to be shipped to early-booking orders in the first quarter of 2022. Selling directly to consumers will allow us to learn, improve and enhance our consumer product offerings, and enable us to mine meta-data to build a large hand and finger movements and gestures database, which presents significant monetization opportunities.

Impact of COVID-19

The COVID-19 pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions, and the extent of its impact on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak. We considered the impact of COVID-19 on our estimates and assumptions and determined that there were no material adverse impacts on our consolidated financial statements as of December 31, 2020 and June 30, 2021.

Components of Results of Operations

Revenues

Revenue is recognized when (or as) control of the promised goods or services is transferred to the customer, and in an amount that reflects the consideration we are contractually due in exchange for those services or goods. We follow five steps to record revenue: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy our performance obligations.

A pilot transaction has multiple performance obligations and it generally takes a few months but less than one year.

Each Mudra Inspire development kit sale also has multiple performance obligations.

In those transactions, each obligation: hardware and API (for Mudra Inspire development kit) and tailor-made software application and technical support (for a pilot transaction) is distinct and separately identifiable.

The amount allocated to the delivered items is recognized upon delivery, the amount allocated to API is recognized over the API period and the amount allocated to the technical support is recognized over the service period (a pilot period).

The payment terms of the Mudra Inspire development kits are upon delivery of the hardware, while the payment terms of the pilot transactions are within the pilot period.

Operating Expenses

Our current operating expenses consist of four components—cost of materials, research and development expenses, sales and marketing expenses and general and administrative expenses. Labor costs are the most significant component of operating expenses and consist of salaries (including benefits) and share-based compensation.

Cost of materials

Cost of materials consists primarily of cost of component parts of our products sold.

Research and Development Expenses, net

Research and development expenses consist primarily of labor cost, subcontractors and materials. Costs are expensed as incurred, net of governmental grants from the IIA. We expect that our research and development expenses will materially increase as we continue to develop products and recruit additional research and development employees.

Sales and Marketing Expenses, net

Sales and marketing expenses consist primarily of labor cost, consultants, and digital advertising. Costs are net from governmental grants from the Israeli Ministry of Economy and Industry, or the IMEI.

General and Administrative Expenses

General and administrative expenses consist primarily of labor cost, professional service fees and facilities.

Financial Income and Expense

Financial income consists of net currency exchange rate differences, while financial expenses consist of accrued interest on convertible securities, net of currency exchange rate differences and bank charges.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this prospectus. The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020 (U.S. dollars in thousands):

Comparison of the Six Months Ended June 30, 2021 and 2020

Revenues

Revenue increased by approximately $73 thousand, or 215%, to approximately $107 thousand for the six months ended June 30, 2021 from approximately $34 thousand for the six months ended June 30, 2020. The revenues were primarily due to $84 thousand of revenues received with respect to a pilot transaction delivered in the six months ended June 30, 2021, and due to approximately $23 thousand from the sales of Mudra Inspire, our B2B development kit product. In the six months ended June 30, 2021, we engaged in a pilot transaction with a Japanese company (that is not a related party) composed of hardware, tailor-made software application and technical support to demonstrate the ability of the Mudra Inspire to classify Industry 4.0 gestures of hand and finger movement on assembly line. This pilot transaction is a part of our regular course of business of piloting the Mudra Inspire and was completed in the six months ended June 30, 2021, with no further obligations.

Cost of materials

Cost of materials sold increased by approximately $3 thousand, or 75%, to approximately $7 thousand for the six months ended June 30, 2021 from approximately $4 thousand for the six months ended June 30, 2020. The increase was primarily due to higher expenses of royalties owed to IIA due to higher revenues in the six months ended June 30, 2021 compared to 2020 period.

Research and Development expenses, net

Research and development expenses, net decreased by approximately $78 thousand, or 17%, to approximately $388 thousand for the six months ended June 30, 2021 from approximately $466 thousand for the six months ended June 30, 2020. The decrease was primarily due to increased participation of the IIA, which represents an increase of approximately $145 thousand in IIA participation, slightly offset by an increase of approximately $30 thousand in labor cost reflecting an increase in the number of research and development employees as well as an increase of $48 thousand in subcontractors.

Sales and Marketing expenses, net

Sales and marketing expenses, net decreased by approximately $24 thousand, or 16%, to approximately $130 thousand for the six months ended June 30, 2021, from approximately $154 thousand for the six months ended June 30, 2020. The decrease was primarily due to lower advertising expenses related to our campaigns for our Mudra Band in the 2021 period compared to the 2020 period.

General and administrative expenses

General and administrative expenses increased by approximately $94 thousand, or 100%, to approximately $188 thousand for the six months ended June 30, 2021, from approximately $94 thousand for the six months ended June 30, 2020. The increase was primarily due to an increase of approximately $22 thousand in labor cost, to a lesser extent an increase of approximately $21 thousand in professional services and to an increase of approximately $52 thousand in share-based compensation expenses.

Financial expenses, net

Financial expenses, net was approximately $34 thousand for the six months ended June 30, 2021, compared to financial expenses, net of approximately $71 thousand for the six months ended June 30, 2020. The decrease was primarily related to lower interest accrued for the convertible securities due to their conversion in April 2021, as well as to exchange rate differences between the NIS and USD.

Comprehensive and net loss

As a result of the foregoing, our total comprehensive and net loss for the six months period ended June 30, 2021 was approximately $640 thousand, compared to approximately $755 thousand for the same period ended June 30, 2020, a decrease of approximately $115 thousand, or 15%.

Comparison of the Years Ended December 31, 2020 and December 31, 2019

Results of Operations

Revenues

Revenues decreased by approximately $185 thousand, or 77%, to approximately $57 for the year ended December 31, 2020 from approximately $242 thousand for the year ended December 31, 2019. The decrease was due to $200 thousand received with respect to a pilot transaction to a related company delivered in 2019. This pilot transaction was aligned with our strategy to expand our brand to the vertical of consumer electronics.

Cost of materials

Cost of materials decreased by approximately $12 thousand, or 57%, to approximately $9 thousand for the year ended December 31, 2020 from approximately $21 thousand for the year ended December 31, 2019. The decrease was primarily due to lower costs incurred due to lower sales of Mudra Inspire development kits in 2020 compared to 2019.

Research and development expenses, net

Research and development expenses, net decreased by approximately $44 thousand, or 5%, to approximately $743 thousand for the year ended December 31, 2020 from approximately $787 thousand for the year ended December 31, 2019. The decrease was primarily due to an increase of approximately $352 in governmental grants from IIA, partially offset by an increase of approximately $131 thousand in labor cost and to a lesser extent an increase of approximately $211 thousand in subcontractors, consultants and materials.

Sales and marketing expenses, net

Sales and marketing expenses, net increased by approximately $122 thousand, or 74%, to approximately $287 thousand for the year ended December 31, 2020 from approximately $165 thousand for the year ended December 31, 2019. The increase was primarily due to an increase of approximately $119 thousand in advertising and marketing expenses associated with our Mudra Band campaign in 2020 and to an increase in consultants expenses in the amount of approximately $21, partially offset by a decrease of approximately $17 thousand in share-based compensation.

General and administrative expenses

General and administrative expenses decreased by approximately $44 thousand, or 20%, to approximately $174 thousand for the year ended December 31, 2020, from approximately $218 thousand year ended December 31, 2019. The decrease was primarily due to a decrease of approximately $54 thousand in share-based compensation and to a decrease of approximately $12 thousand in professional services, offset by an increase of approximately $22 thousand in labor cost.

Financial expense, net

Financial expenses, net were approximately $102 thousand for the year ended December 31, 2020, compared to financial expenses, net of approximately $28 thousand for the year ended December 31, 2019. The increase was primarily due to interest expenses associated with the convertible securities and to exchange rate differences.

Comprehensive and net loss

As a result of the foregoing, our total comprehensive and net loss for the year ended December 31, 2020 was approximately $1.26 million, compared to approximately $977 thousand for the same period ended December 31, 2019, an increase of approximately $281 thousand, or 29%.

Liquidity and Capital Resources

Overview

We are still in our development stage and at an early stage of generating revenues. Therefore, we have suffered recurring losses from operations and negative cash flows from operations since inception. Our operations have been funded substantially through issuance of convertible securities to certain investors which were converted to equity, issuance of shares and warrants and through Israeli governmental grants. Considering the above, our dependency on external funding for our operations raises a substantial doubt about our ability to continue as a going concern.

Since our inception, we have financed our operations primarily through issuances of shares and issuances of convertible securities for aggregate proceeds of approximately $6.3 million (net of issuance expenses) and through Israeli governmental grants for aggregate gross proceeds of approximately $1.7 million. As of December 31, 2020, our principal source of liquidity was cash, totaling $475 thousand. As of June 30, 2021, our principal source of liquidity was cash, totaling $2.9 million. In January 2022, we began entering into SAFEs for aggregate proceeds of up to $3 million. As of February 16, 2022, we had received $400 thousand under the SAFEs we had entered into.

We believe that our existing cash will be sufficient to support working capital and capital expenditure requirements through March 2022, without using the net proceeds from this offering and/or the net proceeds from exercise of existing warrants. Our future capital requirements will depend on many factors, including:

We believe the proceeds of this offering, together with our current cash, including the proceeds from the sale of the SAFEs in January 2022, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 24 months through December 2023. 

Until we can generate significant recurring revenues, profit and cash flow provided by operating activity we expect to satisfy future cash needs through debt or equity financings as well as governmental grants and proceeds from exercises of options and warrants. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm its business, results of operations, and financial condition.

The following table presents our cash flows for the six months ended June 30, 2021 and June 30, 2020:

Operating Activities

We have generated negative cash flows. Our primary uses of cash from operating activities are for labor cost, sales and marketing expenses and office facilities related expenses.

Cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including share-based compensation, accrued interest on convertible securities, depreciation expenses and changes in operating assets and liabilities during each period.

During the six months ended June 30, 2021 and 2020, net cash used in operating activities was approximately $491 thousand and approximately $943 thousand, respectively. The primary factors affecting operating cash flows during these periods were net losses of approximately $640 thousand and approximately $755 thousand during the six months period ended June 30, 2021 and 2020, respectively, partially offset by non-cash adjustments of approximately $149 thousand and approximately $188 thousand, respectively.

Net cash used in investing activities

Cash used in investing activities for the six months ended June 30, 2021 and 2020 was $14 thousand and $15 thousand, respectively, which was used for the purchase of computer and other lab equipment.

Net cash provided by financing activities

Cash provided by financing activities during the six months ended June 30, 2021 totaled to approximately $2.9 million as a result of the issuance of 1,343,374 Ordinary Shares and 671,687 warrants exercisable to Ordinary Shares for total consideration of $2.925 million, net of issuance expenses.

The following table presents our cash flows for the years ended December 31, 2020 and December 31, 2019:

Net cash used in operating Activities

During the fiscal years ended December 31, 2019 and 2020, net cash used in operating activities was approximately $481 thousand and approximately $1.1 million, respectively. The primary factors affecting operating cash flows during these periods were net losses of approximately $977 thousand and approximately $1.26 million during the fiscal years ended December 31, 2019 and December 31, 2020, respectively, partially offset by non-cash adjustments of approximately $500 thousand and approximately $169 thousand, respectively.

Net cash used in investing activities

Cash used in investing activities was approximately $16 thousand during 2020 and approximately $1 thousand during 2019, primarily as a result of our purchase of computer and other lab equipment.

Net cash provided by financing activities

Cash provided by financing activities for the fiscal year ended December 31, 2019 totaled $1.9 million as a result of our issuance of convertible securities.

In January 2022, our board of directors authorized us to enter into a series of SAFEs for aggregate proceeds of up to $3 million. As of February 16, 2022, we had received $400 thousand under the SAFEs we had entered into. Any amounts received under the SAFEs entered into by us will be automatically converted into our Ordinary Shares in the event we close an Equity Financing (as defined hereinafter) at a discount of 20% from the per share purchase price in such Equity Financing. An Equity Financing is a transaction or series of transactions with the principal purpose of raising capital in an aggregate amount of at least $5,000,000, excluding all outstanding (i) SAFEs, and (ii) other convertible securities (if any), pursuant to which we issue and sell Ordinary Shares at a fixed pre-money valuation. In case of an initial public offering or a Change of Control transaction (as defined hereinafter), the SAFE amount shall, at the election of the investor thereunder, either (i) convert into our Ordinary Shares at a discount of 20% from the per share price at such event, or (ii) be repaid to the investor (subject to adjustments in case there are insufficient funds for such repayment to all SAFE investors) at the closing thereof. The conversion of the SAFE amounts into the Ordinary Shares in case of an initial public offering, is also subject to certain lock-up periods and other restrictions on transfer. In the event of a dissolution event (e.g., a voluntary or involuntary termination of operations, dissolution or our winding-up), the SAFE amount shall be repaid to the investors prior to or concurrently with the consummation of such an event. In addition, we agreed to issue to each SAFE investor a warrant to purchase our Ordinary Shares with an exercise price equal to 150% of the public offering price in such offering for an aggregate amount of up to 25% of such investor’s SAFE amount. The warrants shall be exercisable until the earlier of: (i) eighteen (18) months from January 2022; or (ii) in a Change of Control event, which generally covers (a) transaction in which any person or group becomes the beneficial owner, directly or indirectly, of more than 50% of our outstanding voting securities with the right to vote for the election of members of our board of directors, or (b) any reorganization, merger or our consolidation, or (c) a sale, lease or other disposition of all or substantially all of our assets.

Off-Balance Sheet Arrangements

We have headquarters which are located at Ha-Ta’asiya St 2 Yokne’am Illit, Israel. This facility comprises approximately 200 square meters, or 2,140 square feet, of space. Our current lease, which we entered into on July 1, 2018, expires on September 30, 2022. Our monthly rent payment as of June 30, 2021, was approximately NIS 14,950 (approximately $4,635).

We have off-balance sheet arrangements in connection with our research and development agreements with the IIA. Under the applicable laws, we are required to pay royalties at the rate of 3%-3.5% of sales of products developed with the funds provided by the IIA, up to an amount equal to 100% of the IIA research and development grants received, linked to the dollar including accrued interest at the LIBOR rate. We obligated to repay the Israeli government for the grants received only to the extent that there are revenues of the funded products. The LIBOR accrued interest of the total IIA grants is approximately $81,000, which we do not consider to be a material liability. In September 2021, the Bank of Israel, which determines annual interest rates, published a directive which stated that annual interest at a variable rate linked to the LIBOR rate for loans in U.S. dollars will be replaced by the Secured Overnight Financing Rate, or the SOFR, in June 2023. We believe that this change would not have a material impact on our results or our financial position.

As of June 30, 2021, we had a contingent obligation to pay royalties to the IIA in the principal amounted of $1.7 million.

We also have off-balance sheet arrangements in connection with our sales and marketing agreement with the IMEI. Under the applicable laws, if the export revenues in the defined target market increase by $311 thousand compared to the base year, the Company would be required to pay royalties at the rate of 3% of the increase.

As of June 30, 2021, the maximum obligation with respect to the grant received from the IMEI, contingent upon entitled future sales, was $51 thousand.

We do not believe that off-balance sheet arrangements and commitments are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of foreign currency exchange rates, which is discussed in detail in the following paragraph.

Foreign Currency Exchange Risk

Currency Fluctuations

Our reporting currency and the functional currency is the U.S. dollar. Our funding was in U.S. dollars and our sales are currently denominated in U.S. dollars. Our operating expenses are denominated mainly in NIS, and therefore, our NIS denominated operating expenses are currently subject to foreign currency risk. To date, we have been affected by changes in the rate of inflation and NIS currency compared to the U.S. dollar, as shown below.

The NIS revaluated against the U.S. dollar by approximately 7% in 2020 and 7.8% in 2019.

The NIS revaluated against the U.S. dollar by approximately 1.4% in the six months period ended June 30, 2021 and devaluated by 0.3% in the six months period ended June 30, 2020.

A decrease of 10% in the U.S. dollar/NIS exchange rate would have increased our cost of revenue and operating expenses by approximately $89 thousand, $76 thousand, $44 thousand and $38 thousand, for the years ended December 31, 2019 and 2020 and the six months ended June 30, 2020, and June 30, 2021, respectively. If the NIS fluctuates significantly against the U.S. dollar, it may have a negative impact on our results of operations. 

During the years ended December 31, 2019 and 2020 and the six months ended June 30, 2020 and 2021, we did not hedge our foreign currency exchange risk. If we were to determine that it is in our best interests to enter into hedging transactions in the future in order to protect ourselves in part from currency fluctuations, we may not be able to do so, or such transactions, if entered into, may not materially reduce the effect of fluctuations in foreign currency exchange rates on our results of operations and may result in additional expenses.

We cannot assure you that we will not be adversely affected by currency fluctuations in the future.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that are the most important to the portrayal of the Company’s financial condition and results of operations, and that require the most difficult, subjective and complex judgments. The most critical accounting policies, discussed below, pertain to areas where judgment of management, historical factors and estimates require a high degree of involvement when determining the final reported balance in the Company’s consolidated financial statements.

Revenue recognition

Revenue is recognized when (or as) control of the promised goods or services is transferred to the customer, and in an amount that reflects the consideration we are contractually due in exchange for those services or goods. We follow five steps to record revenue: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy our performance obligations.

A pilot transaction has multiple performance obligations and it generally takes a few months but less than one year.

Each Mudra Inspire development kit sale has multiple performance obligations. 

In those transactions, each obligation: hardware and API (for Mudra Inspire development kit) and tailor-made software application and technical support (for a pilot transaction) is distinct and separately identifiable:

The payment terms of Mudra Inspire development kit sales are upon delivery of the hardware and of pilot transactions within the pilot period.

Convertible Securities

The convertible securities were presented as current liabilities as they were not mandatorily redeemable, nor redeemable at the option of the holder after a specified date, but a change of control event (constituting a redemption event outside of the Company’s control). The beneficial conversion features of the convertible securities were valued at zero.

Going Concern

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company is still in its development stage and at an early stage of generating revenues. Therefore, the Company has suffered recurring losses from operations and negative cash flows from operations since inception. The Company’s operations have been funded substantially through issuance of convertible securities to certain investors which were converted to equity, issuance of shares and warrants and through Israeli governmental grants. Considering the above, the consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Governmental grants

The Company receives royalty-bearing grants from the Israeli government for approved research and development projects and marketing efforts. These grants are recognized at the time the Company is entitled to such grants based on the costs incurred or milestones achieved as provided by the relevant agreement and included as a deduction from research and development or sales and marketing expenses, respectively.

BUSINESS

Company Overview

We are a growth company developing a non-invasive neural input interface in the form of a wrist wearable band for controlling digital devices using subtle finger movements. Since our technology was introduced to the market in 2014, we have been working with both B2B and B2C customers as part of our push-pull strategy. We are now in the transition phase from research and development to commercialization of our technology into B2B products. At the same time, we are in the final stage of manufacturing our first B2C consumer product, the “Mudra Band” wristband, an aftermarket accessory band for the Apple Watch which allows touchless operation and control of the watch.

Our company’s vision is to create a world in which the user’s hand becomes a universal input device for touchlessly interacting with technology. We believe that our technology is setting the standard input interface for the Metaverse. According to an article “CES 2021: The Mudra Band and How Wearable Devices Defining the Future of Immersive Customer Experiences,” published in January 2021 by Futurum Research, the Mudra Band has the potential to bring a whole new level of accessibility and immersive experiences to the wearer of the device. Moreover, according to the article, what sets the Mudra Band apart from similar technology is its add-on approach to interface with existing commands, as opposed to fixing the technology into the controlled device. Further, we have generated insights based on dozens of feedbacks we have received for our technology and learned about the preferred methods of users to produce commands with multiple digital devices, and the Mudra Band incorporates those preferred methods. We intend to transform interaction and control of digital devices to be as natural and intuitive as real-life experiences. We imagine a future in which humans can share skills, thoughts, emotions, and movements with each other and with computers, using wearable interfaces and devices. We believe that neural-based interfaces will become as ubiquitous to interact with wearable computing and digital devices in the near future as the touchscreen is a universal input method for smartphones.

Combining our own proprietary sensors and AI algorithms into a stylish wristband, our Mudra platform enables users to control digital devices through subtle finger movements and hand gestures, without physical touch or contact. These digital devices include consumer electronics, smart watches, smartphones, AR glasses, VR headsets, televisions, personal computers and laptop computers, drones, robots, etc.

Mudra Inspire, our B2B development kit product, started selling to B2B customers in 2018 as the first point of business engagement and contributed to our early-stage revenues. At CES 2021, the Mudra Band for Apple Watch, our flagship B2C product, won Innovation Award Honoree and the Best Wearable Award. The product is in its final stages of manufacturing.

Our early-stage revenues are composed of sales of our Mudra Inspire and from pilot transactions with several B2B customers. In 2019, 2020, and the six months ended on June 30, 2021, we had revenues of $242 thousand, $57 thousand, and $107 thousand, respectively, and comprehensive and net loss of $(977) thousand, $(1,258) thousand, and $(640) thousand, respectively.

Over 100 companies have purchased our Mudra Inspire development kit, 30 of which are multinational technology companies. These companies are exploring various input and control use-cases for their products, ranging over multiple countries and industry sectors, including consumer electronics manufacturers, consumer electronics brands, electronic components manufacturers, IT services and software development companies, industrial companies, and utility providers. Our objective with these companies is to commercialize the Mudra technology by licensing it for integration in the hardware and software of these companies’ products and services. We estimate that there will be a three-to-five-year period from the time we are first introduced to a customer to signing a licensing agreement. As of the date of this prospectus, we have not signed a license agreement with any of these companies.

In addition to consumer electronics, we have recently expanded our brand to include neurotech and brain-computer interface sensors, with additional verticals that include Industry 4.0 – a new phase in the Industrial Revolution that focuses on interconnectivity, automation, machine learning, and real-time data, digital health, sport analytics, and more.

The core of our platform is Mudra, which means “gesture” in Sanskrit language. Mudra– our SNC technology and wristband—tracks neural signals on the user’s wrist skin surface, which our algorithms decipher to predict as gestures made by finger and hand movements. The interface binds each gesture with a specific digital function, allowing users to input commands without physical touch or contact. Mudra gestures are natural to perform, and gestures can be tailored per a user’s intent, desired function, and the controlled digital device. Mudra can detect multiple gesture types, including hand movements, finger movements, and fingertip pressure gradations. In addition to the control use-case, our Mudra technology and SNC sensor can be utilized in multiple monitoring use-cases where we can monitor neural and hand movements for digital health purposes, sport analytics performance, and Industry 4.0 solutions.

Figure 1: Our Mudra Platform

Figure 1 above displays the appearance and major features of our current products—the Mudra Band for Apple Watch in black and white band color, and the Mudra Inspire (seen above from right to left). Our gestures are discrete or continuous hand and finger movements, deciphered from neural signals at the wrist. Our interface can control multiple digital devices using a single interface. In addition to consumer electronics, we have recently expanded our brand to include neurotech and brain/computer interface monitoring, with additional verticals including Industry 4.0, digital health, sport analytics, and more.

Our Strengths

We believe that our strengths include:

Industry Overview and Market Opportunity

Total Addressable Market

Every digital device - whether worn on the body, placed on a desk, held in the hands, or hung on a wall - requires an interface. The Total Addressable Market, or TAM, of digital devices that we are targeting can be categorized into three segments—wearable computers, face computers and home digital devices. We view Mudra as an all-encompassing input, operation, and control interface for all digital devices, connecting the physical world with digital devices using subtle finger movements and gestures.

The basic pillars of Human-Computer Interface, or HCI, input are text, navigation, and digital element interaction. The most common interface solutions include the keyboards and mice for PCs. Additional common interfaces are the touchscreens for mobile phones and tablet computers, handheld controllers for televisions, game consoles, VR headsets, and temple area touchpads and/or gesture cameras for AR glasses. Voice assistants are now commonly used with smart home devices.

The pace of technology advancements has always been dictated by user interfaces. With the future of computers tilting increasingly toward wearable devices, especially as smartwatches and smart glasses enter the market, HCI methods for wearable computing will need to be reinvented as well. We believe that the industry’s foreseeable future is based on wearable computers for different body parts, instead of computers that are restricted to lying on a desk.

The industry of digital computers peripherals and input devices has evolved dramatically in the past 70 years. It started in the 1950s with punch-cards as the major input method. Punch-cards were replaced by the QWERTY keyboard to input text and for two-dimensional navigation starting in the 1960s. The computer mouse, which allowed users to navigate and interact with digital elements on a Graphical User-Interface, was introduced in the 1980s. Touchpads became popular as a mouse replacement for laptop computers in the 1990s. Gesture recognition cameras to detect body, hand and finger movement were introduced in the early 2000s. Touchscreens as inputs for mobile smartphones became ubiquitous at the end of 2010.

Technologies which are used in all devices for input, interaction, control and operation, include:

According to an article “Worldwide Wearables Market Forecast to Maintain Double-Digit Growth in 2020 and Through 2024, According to IDC,” by International Data Corporation, or IDC, published in September 2020 by Bloomberg, in 2020, a total of 396 million units of wearable devices were shipped to consumers, of which 91.4 million were smartwatches and 67.7 million were smart wristbands. IDC forecasts the market for wearable devices will reach 631.7 million units shipped to consumers in 2024, of which 156.0 million will be smartwatches. This industry is expected to show a 14.30% compound annual growth rate, or CAGR. If we assume the average selling price of $160.00 per wrist wearable device, a price we believe to be a reasonable estimation based on our research, the wearables market represents over $128 billion in opportunity growth between 2021 to 2024.

According to an article “AR and VR Headsets Will See Shipments Decline in the Near Term Due to COVID-19, But Long-term Outlook Is Positive, According to IDC,” published in March 2020 by IDC, 2020 shipments of face computers reached a total of 7.1 million units shipped, of which 6.4 million were VR devices and 0.4 million were AR devices. IDC forecasts that the face computers market will reach 76.7 million shipped units in 2024, of which 41.1 million will be smart glasses. The category is expected to show a 81.5% CAGR. If we assume an average selling price of $499.00 per face computer, a price we believe to be a reasonable estimation based on our research, this market represents over $73 billion in growth opportunity of input solutions and services between 2021 to 2024. Face computers are considered devices that have a potential to replace smartphones by the end of the decade. This product category includes AR glasses and VR head-mounted devices.

Smart computing devices include smartphones, tablets, desktop computers, and laptop computers. According to IDC, 2020 shipments of category products reached a total of 1.761 billion units shipped. IDC forecasts this market will reach 1.833 billion units shipped in 2024.

Smart home devices are expected to show high demand as consumers seek out additional conveniences brought about by home automation products and ambient computing. The smart home product category includes smart-TVs and large displays, gaming consoles, smart speakers, and home monitoring/security systems. According to an article “IDC Forecasts Double-Digit Growth for Smart Home Devices as Consumers Embrace Home Automation and Ambient Computing”, published in March 2021 by IDC, 2020 shipments of smart-TVs and smart-speakers reached a total of 427.0 million units shipped. According to IDC forecasts, this market will reach 559.2 million units shipped in 2024.

Taking the aforementioned figures into consideration, the TAM that we are targeting is 11.86 billion devices shipped between 2021 to 2024. The smart-computing and smart-home device categories present several challenges that need to be addressed before we will be able to take advantage of this opportunity. One of our major challenges is to determine whether consumers will be reluctant to adopt our products and services as an alternative to established, traditional devices, such as remote controls, touchscreens, keyboards and mice.

As a result, we plan to focus on delivering the greatest value to users by first focusing on the wearables and face computer device categories. We believe that as we continue to expand our platform and as consumers increasingly view a connected world of ambient computing and smart-home products and services as an alternative or complement to wearable devices, there will be an opportunity to extend our addressable market to the broader consumer electronics categories and markets.

Neural control interface market

The global neural control interface market is expanding due to several significant trends, including:

Our Technology

Our technology is based on six layers which form three pillars-- hardware, software and humanware. We develop the hardware and the software from the bottom up and define the user-experience. Using the domain expertise and the insights we have gathered and continue to gather as users provide feedback, we define the standard for interaction with wearables and digital devices. Our technology layers are interdependent and are optimized to the wrist area thus creating a significant protection moat - there is a very high interdependency between each layer to adjacent layers, and developing similar solutions requires expertise in each individual layer.

The first pillar is hardware, which includes electrodes, band design, including form factor and materials, the SNC sensor and the miniaturized flex-rigid electronics. We research and develop electrode materials and geometry to achieve a durable electrode that sustains its physical properties on wrist skin contact and endures thousands of wear/off cycles. Band design includes the modeling of the curvature of the band to snuggly fit the wrist area, and feel pleasant and comfortable to be worn on daily basis. The SNC sensors were developed specifically for the inner wrist area; therefore, they are able to sense low energy biopotentials and to maintain optimal bandwidth and minimize external interference sources. The miniaturized flex-rigid electronics design and manufacturing offer a flexible shell with semi flex-rigid printed circuit board, to meet strict bill of materials and design for assembly requirements, and consumer laws.

Figure 2: The Three Pillars of the Mudra Technology

Figure 2 above displays the three pillars of our technology. The first pillar is hardware, which includes electrodes, band design, including form factor and materials, the SNC sensor and the miniaturized flex-rigid electronics.

The second pillar is software, which includes cross platform software engine, artificial intelligence learning algorithms and software applications. We developed a unique cross-platform software engine, which supports real-time signal processing and is capable of cross-platform algorithms mitigation on multiple operating systems. This allows us to run our software on low compute power wearables and digital devices, and to mitigate algorithms across platforms without the need to re-write the algorithms for each operating system. Our machine learning algorithms and deep learning neural networks artificial intelligence architecture leverages the most advanced approaches of few-shot learning algorithms, making classification based on a very small number of samples, on a unique bio-signal for which we create the unique, and non-available, training and validation sets. We achieved over 96% accuracy with a very short calibration procedure for multiple users. We develop software applications for mobile and desktop operating systems which integrate the algorithms and supply the users with the desired gestures and functions.

The third pillar is the humanware and user experience which is the hand and finger gestures that the user performs and the functions that bind with these gestures to input commands and control devices. We developed a set of gestures that create a natural interaction and are optimized for humans rather than for computers. As a result, we immerse users naturally to control their devices and increase the fidelity of intention.

Our gestures include discrete gestures, continuous gestures, and air-touch gestures:

Figure 3: The Mudra Platform Gestures

Figure 3 above displays the three types of Mudra gestures – discrete gestures, continuous gestures, and air-touch gestures.

We specifically tailor the set of gestures to each controlled device and scenario, as we deeply believe each device’s form factor and user input should be tailored specifically to the user’s intent, rather than having a set of pre-defined gestures for all devices and functions. Each electronics company or electronic brand may require different bundles of hardware, software, and humanware solutions, with integration interfaces for its device, system and design.

Our Core Products and Solutions

The Mudra Platform

Mudra, our neural interface platform, is designed to enable our customers and users to improve interaction and control of digital devices by:

Our Products

We are offering both B2B and B2C products.

B2B products. We offer two ways for our business customers to access our technology: (i) purchase of a Mudra Inspire or research software to evaluate the experience and to validate the technology, and (ii) an SNC sensor module to integrate into a customer device (including AR/VR headsets, smartphones, smartwatches, televisions, and laptops) under a license agreement. Typically, after a B2B customer purchases a Mudra Inspire as the first phase of business engagement, we work with the customer on validating our technology with the goal of integrating our technology into the customer’s device. We also offer licensing of a SNC sensor module, with the option to license our operating system, or OS, software package and algorithm software package.

Our B2B product offerings include:

We believe that offering our own consumer products presents vast monetization opportunities because we can utilize meta-data mining for the purpose of building a large hand and finger gestures database.

Our B2C product offerings include:

What our platform devices track

Our products track the following signals which our algorithms decipher to classify the user intent hand and finger gestures:

Compatibility and Wireless Syncing

In order to reach the widest set of corporate customers and customer users, we focus on ensuring that our devices are compatible with a broad range of mobile devices and OSs. Currently, our platform can sync with mobile devices operating with iOS8 and above, Android 8.0 and above, and Windows 10 and above.

Our Customers

Our customers include businesses and private consumers, as we operate in both the B2B and B2C sectors. We define “customer” as an individual or entity that has purchased our products. We consider individuals that are or could be interested in our products as “consumers.”

B2B Market

Our B2B customer market includes consumer electronics companies, consumer electronics brands, industrial manufacturing companies, IT and software solutions providers, software development studios, and academic institutions. As the rate of adoption for neural input solution among companies and users increases, the likelihood of our platform becoming universally compatible with any wearable device or computer also increases, creating positive network effects that enhance our growth. In addition, the data we accept from our large user and customer base enables us to enhance our product features, provide improved insights, and offer more valuable experiences for our users.

We explore a large variety of use-cases with our customers. A use-case is a well-defined scenario, which involves a user, a user objective or task, a controlled device, and the user’s environment. An example for a use-case is a bike-rider that controls the display of data layers on AR smart glasses designed for cycling, and uses touchless subtle finger movements to scroll, swipe and select data layers and digital items. While cycling, the rider wears gloves and has the fingers clenched on the bike steering wheel.

Figure 4: Number of Our B2B Customers and Use-Cases

In Figure 4 above, the chart on the left illustrates the number of total business customers buying the Mudra Inspire, which was 27 in the second half of 2018 (all of which were new customers), 82 in 2019 (55 of which were new customers), 103 in 2020 (21 of which were new customers), and 115 in the first three quarters of 2021 (12 of which were new customers). If a separate team from a company bought the Mudra Inspire, we consider such team as a new customer. If the same team bought the Mudra Inspire, we do not consider it as a new customer.

The chart on the right above illustrates the number of total business customer use-cases for integrating or implementing our Mudra technology into their devices, products or services: 21 in the second half of 2018 (all of which were new use-cases), 59 in 2019 (38 of which were new use-cases), 74 in 2020 (15 of which were new use-cases), and 84 in the six months ended June 30, 2021 (10 of which were new use-cases).

Consumer Electronics Companies

We define consumer electronics companies as a B2B market, where these customers have all the resources needed to develop, manufacture and market a wide variety of consumer electronic devices. Our customers in this market are exploring our Mudra technology as an input-method for current and future products, which include AR glasses, smartwatches, VR headsets, gaming consoles, mobile phones, smart televisions, voice assistants, smart homes, and large displays.

We estimate there will be a three-to-five-year period from the time we are first introduced to a customer to signing a licensing agreement. Some of the following seven phases may be introduced earlier to qualify the customer.

The first phase of engagement usually occurs when the customer has bought the Mudra Inspire. In this phase, we educate the customer about our technology, including our cutting-edge algorithms, the product form factor, the gestures and binding functions, and the user experience. During this period, the customer usually evaluates these factors and validates the technology as a whole.

In the second phase the customer defines a use-case for evaluating our Mudra technology for its business goals. This includes defining user functions, and defining the gestures that will be used to control the device. The second phase is mostly focused on the end-user experience, or what we term as the “humanware” layer.

The third phase focuses on the customer’s needs, desires and “nice-to-have” features that it lists in a technical document. This phase has a prolonged direct interaction with the customer which includes support, conversations, and further explorations of our technology scope.

The fourth phase includes a detailed written pilot transaction scope and software requirement specification document. The outcome is, generally, a software or a mobile application which includes customer specific requests for which gestures perform certain functions on a specific device and operating system. This phase may also include defining new gestures, collecting new gesture data from users, developing algorithms, and writing the program.

In the fifth phase, upon successful completion of the customer’s pilot transaction, a full technical specification of the solution and the integration method are discussed, including: definition of the wrist device form factor, material, and design; definition of the software, and compute unit requirements; the full set of gestures and interactions; and finally, the complete product specification and integration methods.

In the sixth phase, we define the business model and revenue model, the licensing scope, the site license rights, and the license period. We offer a business model which includes a mix of fixed annual license fee and variable royalties per each device sold. The business model and pricing are dependent on the integration level required, the development period, the exclusivity rights, the scope of the reference engineering design, and the expected volume of units that the customer is expected to sell.

In the seventh and final phase, the commercial contract with the customer in signed. All necessary integration design information to start serial manufacturing and integration into the consumer electronics customer device are delivered.

Consumer Electronics Brands

We define consumer electronics brands as a B2B market, where these customers have all the necessary resources to develop, manufacture and market a single product or product line of a consumer electronic device. Customers in this market are exploring our Mudra technology as an input method for current and future products. We are working with leading consumer electronics brands on integrating the Mudra technology into their products.

With this type of customer, we seek to get enter into a bulk purchase order or to create a co-branded device or a white label. We are in charge of the development and manufacturing of the wrist device, based on the customer’s specifications.

The business model with this customer segment is to charge for research and development costs to adjust our Mudra technology per customer specification. We sell a bulk order of the devices at an agreed price to the customer. The minimum order quantity for this customer segment is 10,000 units per year.

Industrial Companies

We define industrial companies as a B2B market segment, where the customer operates in various Industry 4.0 areas such as automotive, aircraft, energy, medical, infrastructure, and utilities, among others.

As explained briefly above, Industry 4.0 refers to a new phase in the Industrial Revolution that focuses heavily on interconnectivity, automation, machine learning, and real-time data. Industry 4.0, which encompasses the Industrial Internet of Things, or IoT, and smart manufacturing, unites physical production and operations with smart digital technology, machine learning, and big data to create a more holistic and better-connected ecosystem for companies that focus on manufacturing and supply chain management.

Customers in this market are seeking ways to increase profitability and reduce costs in production and assembly lines, optimize manufacturing processes, and make their employees more efficient and less vulnerable to mistakes or physical harm.

We conducted several evaluations of the Mudra technology with industrial companies, which included developing new gestures for monitoring manual activity of assembly line employees. The motivations of the customers are:

Manufacturing and assembly lines contain multiple manual tasks that employees perform repeatedly without being monitored with regard to accuracy or the employees’ physical conditions. Using our Mudra technology to monitor employee actions and the way they perform tasks can reduce mistakes on assembly lines, and continuously improve employee productivity and engineering processes. Principally, a manual hand operation on a production line or an assembly line can be defined as a gesture with our Mudra technology. We offer these customers wristbands that their employees can wear and monitor hand and finger movements. A local computer unit such as smartphone, tablet or PC, is connected to a cloud-based server to collect, analyze and identify if a certain manual task is performed accurately, thus preventing incurring losses on later stages of production. It can also monitor the movement frequency and infer stress of the employee to alert when performance is degrading during a work day, or over time.

Based on customer feedback and pilot transactions, the business model for this customer segment is SaaS. We supply the wrist devices, specific software, and the cloud and integration solution. The customer pays per site where the solution is implemented and on the number of users, on monthly or annual automatic renewable subscription.

Information Technology, Software Solutions Providers

We define information technology, or software solutions providers, as a B2B market, where the customers offer third-party clients with project management needs, from conception to installation. Customers in this market are traditionally hired as vendors for consumer electronics companies, consumer electronics brands, or industrial company segments, to integrate the Mudra technology as part of a solution to their clients. The common use-cases include defining new input methods for industrial robots, drones, and other machines or devices. The business model is similar to the business model we will use when directly facing the customer’s client, which can be a license agreement, a bulk order, or a SaaS model.

Software Development Studios

We define software development studios as a B2B market, where the customers seek new opportunities in computer games and mobile applications. The customers can leverage their existing users and install-base with new innovative digital health, entertainment, and gaming applications. The business model is revenue sharing from the install base, based on monthly or annual revenues. The software segment includes developers, designers and artists, all working together towards delivering engaging, high visual and technical quality games.

Academia

We have a few customers from academia and research universities which explored the use of our Mudra technology to aid individuals with physical disabilities, and new alternative methods of input and interaction for individuals with limited hand movements.

B2C Market

We have started offering our products directly to consumers, in the form of pre-orders, or early bookings. The Mudra Band for Apple Watch is our first consumer product, launched in June 2020. The band connects to the Apple Watch and allows a user touchless operation and control of watch functions. We have over 1,300 backers who pre-ordered the Mudra Band units thorough our 2020 Indiegogo crowdfunding campaign and over 1,200 pre-orders, or early bookings, directly from our website www.mudra-band.com.

Establishing a direct connection with users enables us to learn, improve and enhance our product offerings. This also enables us to mine meta-data to build hand and finger movements and gestures database, which we believe has huge monetization opportunities. The Mudra Band for Apple Watch is aimed at four major consumer markets: (i) users who are Apple enthusiasts and like buying Apple related products; (ii) users who are technology early adopters and like purchasing innovative consumer gadgets; (iii) users who are active sport and fitness users, and (iv) crowd-funding backers who ordered the device in our Indiegogo crowdfunding campaign.

We plan to develop and offer additional consumer electronics products for controlling and interacting with computers and digital devices. We expect additional consumer offerings will include applications for a variety of devices which will add value to the consumer beyond hardware functions.

The value of Mudra Input Technology to Our Customers

Smartwatch operation methods include touchscreen, buttons, digital crown, bezel, and wrist gestures. By integrating our Mudra technology into a smartwatch, our business customers can:

Our Mudra technology enables the smartwatch end-user to enjoy a touchless watch operation experience. The user can operate applications and watch OS functions without physical touch using same-hands subtle finger movements, while multi-tasking or on-the-go, keeping a visible display.

Mobile phone usage has been limited by the touchscreen, an interface which requires constant physical touch. By linking a Mudra wristband with a mobile phone, our business customers can:

Our Mudra technology allows the mobile phone end-user to benefit from turning the phone into a stationary hub for work, video streaming, and gaming. The user can access a world of new experiences by integrating touchless interactions with connected eco-system devices to achieve more of the phone.

AR glasses use semi-transparent display lenses to overlay digital data and digital holograms into the user’s real-world view. AR glasses input solutions include gesture recognition cameras, temple area touchpads, wired remote, handheld clicker, handheld remote, and voice commands.

By integrating our Mudra technology with AR glasses, our business customers can:

When using our Mudra technology, the AR glasses end-user enjoys a natural, hands-free, and safer input method to interact with digital overlays. The user can operate the device using natural and intuitive hand postures and gestures along the waist, with less fatigue caused by waving the hands in mid-air. The user’s real-world environment is clear and not blocked by the hands.

VR headsets use digital displays which cover eyes to immerse the user in a fully computer-generated alternative environment, displaying computer-generated video capture which entirely occludes the user’s natural surroundings. VR headset input solutions include handheld controllers, a gesture camera, a keyboard, a mouse, input gloves, and voice commands.

By integrating our Mudra technology with VR glasses, our business customers can:

When using our Mudra technology, the VR headset end-user is immersed in a real-life VR experience. Interaction with digital holograms such as grabbing, throwing, holding, and dragging is done using hand and finger movements instead of by pressing buttons. Using our Mudra technology allows the user to be fully immersed into an entertaining digital experience that feels like a real-life interaction.

Competition

The basic input pillars of HCI are through text, navigation, and digital element interaction. The most common interface solutions include keyboard and mouse for PC, touchscreen for mobile phones and tablet computers, handheld controllers for television, game consoles, and VR headsets, temple area touchpads and/or gesture cameras for AR glasses, and voice recognition for smart home devices.

The market of input methods and peripheral for digital devices is both evolving and competitive, with companies offering a variety of competitive products in multiple price points. The established industry-standard technologies include physical or digital keyboards, PC-mice, handheld controllers, touch surfaces, voice assistants, and gesture cameras. These categories have a multitude of participants including specialized consumer electronics companies such as Logitech International S.A., Razer, and Microsoft. There is also a wide range of after-market products that can be purchased on retail and online stores from a multitude of manufacturers. Voice assistants are now available through multiple technology consumer companies such as Apple, Google, Amazon, Microsoft, and Samsung.

There are also many large, broad-based consumer electronics companies that either compete in our market or adjacent markets, or have announced plans to do so. For example, Apple released the Apple Watch AssistiveTouch capability to users for controlling the Apple Watch in December 2021, with same-hand gestures to control the Apple Watch, whereas Facebook acquired our former direct competitor CTRL-Labs in September 2019.

There are also multiple participants which utilize emerging wearable, sensor, and bio-potential signals to offer neural and wearable interfaces. Neural wrist area competitors include Pison Technology Inc. and CoolSo Inc., whereas Electroencephalogram-based companies include Neuralink Corporation and NextMind.

We believe that our competitive advantages include:

Based on these variables, we believe that we compete favorably when compared with the global competition in this market, which will enable us to maintain and extend our leadership position.

Our Growth Strategy

We intend to achieve a leading position for neural input technology, and to expand our operations to digital and wearable computers. Key elements of our growth strategy include:

Intellectual Property

Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology in hardware, software, sensors, and user experience. Our policy is to obtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently hold two U.S. patents: the first patent concerns a wrist wearable gesture control system that uses bio-potential signals to control digital devices and provides user feedback, and the second patent is a continuation in part of the first patent, and adds the ability to detect user applied fingertip pressure for analog control of digital devices. In addition, we have one China patent application, and one U.S. patent application. As of the date of this prospectus, we do not conduct any material business in China.

In addition to patent laws, we rely upon a combination of designs, copyrights, trade secrets, domain names and trademark rights, and contractual restrictions such as confidentiality agreements, licenses, and intellectual property assignment agreements. We attempt to protect our trade secrets and other proprietary information through agreements with all our B2B customer segments, other customers and suppliers, distributors, proprietary information agreements with our employees and consultants, and other similar measures. Our primary U.S. registered trademark is for our product line name (“Mudra”). We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, hardware, software and other proprietary know-how have value, changing technology makes our future success dependent principally upon our ability to successfully achieve continuing innovation.

Litigation may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others, or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management’s resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations.

At this time, we are not a party to any pending litigation for infringement of intellectual property rights.

Research and Development

We are passionate about developing innovative products and services that allow interaction and control of computers to become natural and intuitive as real-life experiences. We believe our future success depends on our ability to develop new products and features that expand the versatility and performance of our existing platform, and we plan to continue to invest significant resources to enhance performance, functionality, and convenience and style for our users.

Our research and development team supports the design and development of our wrist-worn devices, proprietary sensors, firmware, algorithms, and mobile apps. The team is composed of dedicated research employees, electrical engineers, mechanical engineers, firmware engineers, site operations engineers, and mobile app developers. Our research and development team is primarily based at our headquarters in Yokne’am Illit, Israel.

Our research and development expenses, net were approximately $743 thousand and approximately $787 thousand for the years ended December 31, 2020 and 2019, respectively, and approximately $388 thousand and approximately $466 thousand for the six month periods ended in June 30, 2021 and 2020, respectively.

The changes in research and development expenses, net are primarily attributable governmental grants from the IIA. The approximate aggregate amounts of the IIA grants were approximately $373 thousand and approximately $21 thousand for the years ended December 31, 2020 and 2019, respectively, and approximately $236 thousand and approximately $90 thousand for the six month periods ended June 30, 2021 and 2020, respectively.

We believe that the receipt of these IIA grants in the years 2015 to 2020 is a positive signal that our technology is innovative and feasible. We received these grants for the purpose of developing the Mudra SNC core technology, and for developing the Mudra Band for Apple Watch hardware architecture.

We continue to pursue non-dilutive grants from the IIA as well as other organizations in Israel.

Manufacturing, Logistics and Fulfillment

We outsource the manufacturing of our products to several contract manufacturers. These contract manufacturers produce components of our products in their facilities located in Asia and Israel. The components used in our products are sourced either directly by us or on behalf of us by our contract manufacturers from a variety of component suppliers selected by us and located worldwide.

Our operations employees coordinate our relationships with our contract manufacturers and component suppliers. We believe that using outsourced manufacturing enables greater scale and flexibility at lower costs than establishing our own manufacturing facilities. We evaluate on an ongoing basis our current contract manufacturers and component suppliers, including, whether or not to utilize new or alternative contract manufacturers or component suppliers.

We use several suppliers from China for the Mudra Band for commercial off-the-shelf products, such as batteries, and customized mechanical parts, such as magnets, connectors, buckles and cables. With the exception of the aforementioned interactions, we do not have any China-based operations.

We work with third-party fulfillment partners to deliver our products from final manufacturing facilities worldwide, which allows us to reduce order fulfillment time, reduce shipping costs, and improve inventory flexibility.

Sales Channels

Direct to consumer channel. We market and offer our products directly to consumers in the United States and other countries through our online stores at Mudra-band.com and Getmudra.com. We drive consumers to our website through online and offline advertising as well as marketing promotions.

We plan to offer additional channels as we increase our production capability.

Retail channel. We plan to offer our products in retail stores and are currently focused on building close relationships with our retailers, working with them to merchandise our products in a compelling manner both in-store and on their e-commerce sites, promote our products through their marketing efforts, and educate their sales forces about our products. Retail channel stores may also include consumer electronics and specialty retailers, e-commerce retailers, mass merchant, department store, and club retailers, as well as wireless carriers’ stores.

Marketing and Advertising

Our marketing and advertising programs are focused on building global brand awareness, increasing product adoption, and driving sales. Our B2C marketing and advertising efforts target consumers primarily by digital marketing, channel marketing, newsletters, and public relations. We are also exploring opportunities of endorsements by micro-influencers and brand ambassadors. Our B2B marketing and advertising efforts target business customers by thought leadership content creation, inbound marketing, conferences, and tradeshows.

Employees

As of the date of this prospectus, we have fifteen (15) full-time employees, including senior management positions. We have five (5) part-time employees. In addition, we have several consultants and sub-contractors, some of whom are engaged on a part time basis. The majority of our employees are located in Israel. We have one additional employee located in the United States, engaged through our subsidiary company.

We have one (1) part-time consultant located in Japan, and one (1) part-time consultant located in Israel.

We have four (4) sub-contractors located in India, performing front end software application development.

None of our employees are represented by labor unions or covered by collective bargaining agreements. We believe that we maintain good relations with all of our employees. In Israel, we are subject to certain Israeli labor laws, regulations and national labor court precedent rulings, as well as certain provisions of collective bargaining agreements applicable to us by virtue of extension orders issued in accordance with relevant labor laws by the Israeli Ministry of Economy and which apply such agreement provisions to our employees even though they are not part of a union that has signed a collective bargaining agreement.

Facilities

Our corporate headquarters are located at Ha-Ta’asiya St 2 Yokne’am Illit, Israel. This facility comprises approximately 200 square meters, or 2,140 square feet, of space. Our current lease, which we entered into on July 1, 2018, expires on September 30, 2022. Our monthly rent payment as of June 30, 2021, was approximately NIS 14,950 (approximately $4,635).

We consider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.

Organizational Structure

We have one wholly-owned subsidiary – Mudra Wearable, Inc., or Mudra Wearable, which was incorporated in Delaware. Mudra Wearable has one employee that acts as executive Vice President of U.S. operations. Mudra Wearable is responsible for the marketing and distribution of the company’s products in the United States.

Legal Proceedings

We are not currently subject to any material legal proceedings.

MANAGEMENT

Directors and Senior Management

The following table sets forth information regarding our executive officers, key employees and directors as of February 16, 2022:

Asher Dahan, Chief Executive Officer, Director

Mr. Asher Dahan has served as our director since March 2014 and as our Chief Executive Officer and as acting Chief Financial Officer since March 2016. Mr. Dahan founded our company together with Mr. Guy Wagner and Mr. Leeor Langer in March 2014. From 2013 to 2015, Mr. Dahan worked as Electrical Validation Manager at Intel Haifa, Israel. He worked for Intel Haifa, Israel from 2006 to 2012 as Technical Leader and Engineer for High Speed Interfaces. Mr. Dahan has a BSc. in Electrical Engineering from Ort Braude College.

Alon Mualem, Chief Financial Officer

Mr. Alon Mualem has served as our Chief Financial Officer since January 7, 2022. Mr. Mualem previously served as the Chief Financial Officer of Eltek Ltd. (Nasdaq: ELTK), an Israeli public company, from January 2019 to January 2022. Mr. Mualem served as the Chief Financial Officer of SharpLink Gaming Ltd. (Nasdaq: SBET), formerly known as Mer Telemanagement Solutions Ltd., an Israeli public company, from 2007 to September 2018. Prior thereto, between 2005 and 2007, Mr. Mualem served as the Chief Financial Officer of Xfone, Inc. (AMEX and TASE: XFN), an international communications services company. Previously, Mr. Mualem served as a controller and Chief Financial Officer of hi-tech companies, and as an audit manager at Somekh Chaikin, a member firm of KPMG International. Mr. Mualem holds a B.A. degree in Accounting and Economics from Tel Aviv University and is a licensed CPA (Israel).

Guy Wagner, Chief Scientific Officer, President and Director

Mr. Guy Wagner has served as our director since March 2014 and as our Chief Scientific Officer and as Company President since March 2016. Mr. Wagner founded our company together with Mr. Asher Dahan and Mr. Leeor Langer in March 2014. From 2005 to 2014, Mr. Wagner worked as Hardware Engineer at Intel Haifa, Israel. Mr. Wagner has a BSc. in Electrical Engineering from Ort Braude College.

Leeor Langer, Chief Technology Officer

Mr. Leeor Langer has served as our Chief Technology Officer since March 2016. Mr. Langer founded our company together with Mr. Asher Dahan and Mr. Guy Wagner in March 2014. From 2014 to 2015, Mr. Langer worked as an algorithms developer at CMT Medical Technologies Ltd., developing image processing techniques for medical x-ray applications. Prior to that, he worked for BrandShield Ltd. from 2012 to 2014 as an algorithms engineer, developing ranking algorithms for digital brand protection. From 2009 to 2012, Mr. Langer worked as a tools developer and algorithms engineer at Intel in Israel, developing signal processing methods for electrical validation labs. Mr. Langer has a BSc. in Electrical Engineering from the Technion - Israel Institute of Technology and an MSc. in Applied Mathematics from the Tel Aviv University. Mr. Langer graduated cum laude and published his thesis and papers on digital pathology in peer reviewed journals.

Eli Bachar, Director

Mr. Eli Bachar has served as our director since 2016. From 2013 to 2021, Mr. Bachar is a serial investor. He was a director of Xjet3D from 2014 to 2021. From 2015 to 2019, Mr. Bachar was a director of 6 Over 6 Vision Ltd. He was a director of GetSat Ltd. from 2014 to 2021. From 2013 to 2021, Mr. Bachar was a director of Silentium Ltd. He was a director of Cupixel Ltd. from 2017 to 2021. Mr. Bachar holds a BA in Business Administration and Management from the Reichman University (previously known as IDC Herzliya).

Barry Kaplan, Director, Executive Vice President of the U.S. Operations

Mr. Barry Kaplan has served as our director since 2018. From 2012 to 2021, Mr. Kaplan worked as Chief of Operations at Stuhrling Original Group of companies. From 2009 to 2014 he founded and worked as CEO at KIVA watch. He was Chief Executive Officer and Chief Designer of Alexander Watch LLC from 2014 to 2017. Mr. Kaplan has a Bachelor of Accounting (B.Acc.) in Accounting from University of the Witwatersrand (South Africa).

Family Relationships

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

Arrangements for Election of Directors and Members of Management

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

Compensation

The following table presents in the aggregate all compensation we paid to each of our directors and senior management as a group for the year ended December 31, 2021. 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. 

All amounts reported in the tables below reflect the cost to the Company, in thousands of U.S. dollars, for the year ended December 31, 2021.

For so long as we qualify as a foreign private issuer, we will not be required to comply with the proxy rules applicable to U.S. domestic companies regarding disclosure of the compensation of certain executive officers on an individual basis. Pursuant to the Companies Law, we will be required, after we become a public company, to disclose the annual compensation of our five most highly compensated officers on an individual basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer. We intend to commence providing such disclosure, at the latest, in the annual proxy statement for our first annual meeting of shareholders following the closing of this offering, which will be filed under cover of a report on Form 6-K.

Employment Agreements with Executive Officers

We have entered into written employment agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we intend to enter into agreements with each executive officer and director pursuant to which we will indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance upon the consummation of this offering.

For a description of the terms of our options and option plans, see “Management—Equity Incentive Plan” below.

Directors’ Service Contracts

Other than with respect to our directors who are also executive officers, we do not have written agreements with any director providing for benefits upon the termination of his employment with our company.

Differences between the Companies Law and Nasdaq Requirements

The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with various corporate governance practices. In addition, following the listing of the Ordinary Shares on Nasdaq, we will be required to comply with the Nasdaq rules. Under those rules, we may elect to follow certain corporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by the Nasdaq rules for U.S. domestic issuers.

In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq rules, we have elected to follow the provisions of the Companies Law, rather than the Nasdaq rules, with respect to the following requirements:

Board Practices

Introduction

Our board of directors presently consists of four members, excluding two external directors required to be appointed under the Companies Law. Upon the completion of this offering, we intend to add                       ,                and                          as directors, each of whom will qualify as independent for the purposes of the Nasdaq rules. Our amended and restated articles of association provide that the number of board of directors’ members (including external directors) shall be set by the general meeting of the shareholders provided that it will consist of not less than three and not more than twelve. Pursuant to the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are appointed by our Chief Executive Officer. Their terms of employment are subject to the approval of the board of directors’ compensation committee and of the board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with them. Our board of directors intends to establish an audit committee, a financial statement examination committee and a compensation committee prior to the completion of this offering.

Each director, except external directors, will hold office until the next annual general meeting of our shareholders following his or her appointment, or until he or she resigns or unless he or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our amended and restated articles of association.

In addition, under certain circumstances, our amended and restated articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors or in addition to the acting directors (subject to the limitation on the number of directors), until the next annual general meeting or special general meeting in which directors may be appointed or terminated. External directors may be elected for up to two additional three-year terms after their initial three-year term under the circumstances described below, with certain exceptions as described in “External Directors” below. External directors may be removed from office only under the limited circumstances set forth in the Companies Law. See “Management—Board Practices—External Directors” below.

Under the Companies Law, any shareholder holding at least one percent of our outstanding voting power may nominate a director. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our board of directors. Any such notice must include certain information, including the consent of the proposed director nominee to serve as our director if elected, and a declaration that the nominee signed declaring that he or she possesses the requisite skills and has the availability to carry out his or her duties. Additionally, the nominee must provide details of such skills, and demonstrate an absence of any limitation under the Companies Law that may prevent his or her election, and affirm that all of the required election-information is provided to us, pursuant to the Companies Law.

Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our 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 the minimum number of directors of our company who are required to have accounting and financial expertise is one.

The board of directors must elect one director to serve as the chairman of the board of directors to preside at the meetings of the board of directors, and may also remove that director as chairman. Pursuant to the Companies Law, neither the chief executive officer nor any of his or her relatives is permitted to serve as the chairman of the board of directors, and a company may not vest the chairman or any of his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman may not be vested with authorities of a person who reports, directly or indirectly, to the chief executive officer; and the chairman may not serve in any other position in the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, the Companies Law permits a company’s shareholders to determine, for a period not exceeding three years from each such determination, that the chairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities, and that the chief executive officer or his or her relative may serve as chairman or be vested with the chairman’s authorities. Such determination of a company’s shareholders requires either: (1) the approval of at least a majority of the shares of those shareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination) (shares held by abstaining shareholders shall not be considered); or (2) that the total number of shares opposing such determination does not exceed 2% of the total voting power in the company. We expect that                          will serve as the chairman of our board of directors upon completion of this offering.

The board of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees of the board, and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations. Unless otherwise expressly provided by the board of directors, the committees shall not be empowered to further delegate such powers. The composition and duties of our audit committee, financial statement examination committee and compensation committee are described below.

The board of directors oversees how management monitors compliance with our risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by us. The board of directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to our audit committee.

We provided a board observer right to one of our beneficial shareholders, Alpha Capital Anstalt, or Alpha, pursuant to a share purchase agreement we entered into in April 2021. For more information, see “Related Party Transactions— Share Purchase Agreement with Alpha.” Alpha’s board observer right shall last until we conduct an initial public offering of our Ordinary Shares, registered pursuant to an effective registration statement under the Securities Act, or the securities laws of another jurisdiction as determined by our board of directors, raising a gross amount of at least $10,000,000 and resulting in the listing of our Ordinary Shares on a trading market (which shall not include any market operated by OTC Markets, Inc.), or Qualified IPO. We are also obligated to receive Alpha’s prior written consent for a Qualified IPO, which we intend to obtain prior to the closing of this offering, which we believe will constitute a Qualified IPO.

External Directors

Under the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in or outside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards of independence. We expect to appoint and as our external directors upon completion of this offering.

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 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. We expect that both and will have accounting and financial expertise.

A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses a high degree of proficiency in, and an understanding of, business – accounting matters and financial statements, such that he or she is able to understand the financial statements of the company in depth and initiate a discussion about the manner in which financial data is presented. A director is deemed to have “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.

External directors are elected by a majority vote at a shareholders’ meeting, as long as either:

The term “control” is defined in the Companies Law as the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder “holds” (within the meaning of the Companies Law) 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a 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, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.

The Companies Law provides for an initial three-year term for an external director. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to two additional three-year terms, provided that:

The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including Nasdaq, 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). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.

The Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation or other disqualifying relationship with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as chairman of the board or chief executive officer, with a holder of 5% or more of the issued share capital or voting power in the company or with the most senior financial officer.

The term “relative” is defined under the Companies Law as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of the foregoing persons.

Under the Companies Law, the term “affiliation” and the similar types of disqualifying relationships include (subject to certain exceptions):

The term “office holder” is defined under the Companies Law as a 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.

In addition, no person may serve as an external director if that person’s position or professional or other activities create, or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as a director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct or indirect compensation from the company including amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage, other than for his or her service as an external director as permitted by the Companies Law and the regulations promulgated thereunder.

Following the termination of an external director’s service on a board of directors, such former external director and his or her spouse and children may not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’s control. This includes engagement as an office holder or director of the company or a company controlled by its controlling shareholder or employment by, or provision of services to, any such company for consideration, either directly or indirectly, including through a corporation controlled by the former external director. This restriction extends for a period of two years with regard to the former external director and his or her spouse or child and for one year with respect to other relatives of the former external director.

External directors may be removed only by a special general meeting of shareholders called by the board of directors after the board has determined the occurrence of circumstances allow such dismissal, at the same special majority of shareholders required for their election or by a court, and in both cases only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to our company. In the event of a vacancy created by an external director which causes the company to have fewer than two external directors, the board of directors is required under the Companies Law to call a shareholders meeting as soon as possible to appoint such number of new external directors in order that the company thereafter has two external directors.

External directors may be compensated only in accordance with regulations adopted under the Companies Law.

 If at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives of controlling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender. A director of a company may not be appointed as an external director of another company if at the same time a director of such other company is acting as an external director of the first company.

Under regulations promulgated pursuant to the Companies Law, a company with no controlling shareholder whose shares are listed for trading on specified exchanges outside of Israel, including the Nasdaq Capital Market, may adopt exemptions from various corporate governance requirements of the Companies Law, so long as such company satisfies the requirements of applicable foreign country laws and regulations, including applicable stock exchange rules, that apply to companies organized in that country and relating to the appointment of independent directors and the composition of audit and compensation committees. Such exemptions include an exemption from the requirement to appoint external directors and the requirement that an external director be a member of certain committees, as well as exemption from limitations on directors’ compensation. We do not currently have a controlling shareholder. Following the closing of this offering, we also do not expect to have a controlling shareholder and, as such, subject to closing of this offering, we will use this exemption from the requirement described herein.

Independent Directors Under the Companies Law

An “independent director” is either an external director or a director who meets the same non-affiliation criteria as an external director (except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications), as determined by the audit committee, and who has not served as a director of the company for more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.

Regulations promulgated pursuant to the Companies Law provide that a director in a public company whose shares are listed for trading on specified exchanges outside of Israel, including the Nasdaq Capital Market, who qualifies as an independent director under the relevant non-Israeli rules and who meets certain non-affiliation criteria, which are less stringent than those applicable to independent directors as set forth above, would be deemed an “independent” director pursuant to the Companies Law provided: (i) he or she has not served as a director for more than nine consecutive years; (ii) he or she has been approved as such by the audit committee; and (iii) his or her remuneration shall be in accordance with the Companies Law and the regulations promulgated thereunder. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.

Furthermore, pursuant to these regulations, such company may reappoint a person as an independent director for additional terms, beyond nine years, which do not exceed three years each, if each of the audit committee and the board of directors determine, in that order, that in light of the independent director’s expertise and special contribution to the board of directors and its committees, the reappointment for an additional term is in the company’s best interest.

Alternate Directors

Our amended and restated articles of association provide, as allowed by the Companies Law, that any director may, subject to the conditions set thereto including approval of the nominee by our board of directors, appoint a person as an alternate to act in his place, to remove the alternate and appoint another in his place and to appoint an alternate in place of an alternate whose office is vacated for any reason whatsoever. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is to replace an external director, he or she is required to be an external director and to have either “financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external director he or she is replacing. A person who does not have the requisite “financial and accounting experience” or the “professional expertise,” depending on the qualifications of the external director he or she is replacing, may not be appointed as an alternate director for an external director. A person who is not qualified to be appointed as an independent director, pursuant to the Companies Law, may not be appointed as an alternate director of an independent director qualified as such under the Companies Law. Unless the appointing director limits the time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment.

Committees of the Board of Directors

Our board of directors will establish three standing committees, the audit committee, the compensation committee and the Financial Statement Examination Committee.

Audit Committee

Under the Companies Law, we are required to appoint an audit committee. The audit committee must be composed of at least three directors, including all of the external directors (one of whom must serve as chair of the committee). The audit committee may not include the chairman of the board; 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 who derives most of his or her income from a controlling shareholder.

In addition, a majority of the members of the audit committee of a publicly traded company must be independent directors under the Companies Law. The members of our audit committee are expected to include           ,                      and                  .

Under the Companies Law, our audit committee is responsible for:

Our audit committee may not conduct any discussions or approve any actions requiring its approval (see “Management—Approval of Related Party Transactions under Israeli law”), unless at the time of the approval a majority of the committee’s members are present, which majority consists of independent directors under the Companies Law, including at least one external director.

Our board of directors intends to adopt an audit committee charter to be effective upon the listing of our Ordinary Shares on Nasdaq setting forth, among others, the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq rules (in addition to the requirements for such committee under the Companies Law), including, among others, the following:

Nasdaq Requirements for Audit Committee

Under the Nasdaq rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial management expertise.

As noted above, the members of our audit committee are expected to include and who are external directors, and who is an independent director, each of whom is “independent,” as such term is defined in under Nasdaq rules. We expect that will serve as the chairman of our audit committee upon completion of this offering. All members of our audit committee meet the requirements for financial literacy under the Nasdaq rules. Our board of directors has determined that will be an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq rules.

Financial Statement Examination Committee

Under the Companies Law, the board of directors of a public company in Israel must appoint a financial statement examination committee, which consists of members with accounting and financial expertise or the ability to read and understand financial statements. Our financial statement examination committee is expected to include             ,                          and                     .. The function of a financial statements examination committee is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with the preparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financial statements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; and (5) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent registered public accounting firm and our internal auditor are invited to attend all meetings of our financial statements examination committee.

Compensation Committee

Under the Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee must be composed of at least three directors, including all of the external directors, who must constitute a majority of the members of the compensation committee. Each compensation committee member that is not an external director must be a director whose compensation does not exceed an amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to: (a) who may not be a member of the committee; and (b) who may not be present during committee deliberations as described above.

Our compensation committee will be acting pursuant to a written charter, and is expected to include                  ,                        and                          . Our compensation committee will comply with the provisions of the Companies Law, the regulations promulgated thereunder, and our amended and restated articles of association, on all aspects referring to its independence, authorities and practice. Our compensation committee will follow home country practice as opposed to complying with the compensation committee membership and charter requirements prescribed under the Nasdaq rules.

Our compensation committee will review and recommend to our board of directors: with respect to our executive officers’ and directors’: (1) annual base compensation (2) annual incentive bonus, including the specific goals and amounts; (3) equity compensation; (4) employment agreements, severance arrangements, and change in control agreements and provisions; (5) retirement grants and/or retirement bonuses; and (6) any other benefits, compensation, compensation policies or arrangements.

The duties of the compensation committee will include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. Such policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee. The compensation policy is then brought for approval by our shareholders, which requires a special majority (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”). Under the Companies Law, the board of directors may adopt the compensation policy if it is not approved by the shareholders, provided that after the shareholders oppose the approval of such policy, the compensation committee and the board of directors revisit the matter and determine that adopting the compensation policy would be in the best interests of the company. Under the Companies Law, we are required to adopt an office holder compensation policy no later than 9 months from the consummation of this offering.

The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officers and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:

The compensation policy must also include the following principles:

The compensation policy must also consider appropriate incentives from a long-term perspective.

The compensation committee is responsible for: (1) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by the shareholders); and (2) duties related to the compensation policy and to the compensation of a company’s office holders, including:

Our compensation policy will be designed to promote our long-term goals, work plan and policy, retain, motivate and incentivize our directors and executive officers, while considering the risks that our activities involve, our size, the nature and scope of our activities and the contribution of an officer to the achievement of our goals and maximization of profits, and align the interests of our directors and executive officers with our long-term performance. To that end, a portion of an executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy will include measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer and minimum vesting periods for equity-based compensation.

Our compensation policy will also address our executive officer’s individual characteristics (such as his or her respective position, education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation among our executive officers, and considers the internal ratios between compensation of our executive officers and directors and other employees. For example, the compensation that may be granted to an executive officer may include: base salary, annual bonuses, equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executive officer’s base salary. In addition, our compensation policy will provide for maximum permitted ratios between the total variable (cash bonuses and equity based compensation) and non-variable (base salary) compensation components, in accordance with an officer’s respective position with the company.

An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to executive officers other than our chairman or Chief Executive Officer may be based entirely on a discretionary evaluation. Our Chief Executive Officer will be entitled to recommend performance objectives to such executive officers, 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 chairman and Chief Executive Officer will be determined annually by our compensation committee and board of directors. A less significant portion of the chairman’s and/or the Chief Executive Officer’s annual cash bonus may be based on a discretionary evaluation of the chairman’s or the Chief Executive Officer’s respective overall performance by the compensation committee and the board of directors based on quantitative and qualitative criteria.

The equity-based compensation under our compensation policy for our executive officers (including members of our board of directors) will be designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the executive officers’ interests with our long-term interests and those of our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation policy will provide for executive officer compensation in the form of share options or other equity-based awards, such as restricted shares, options, in accordance with our stock option plan then in place. Share options granted to executive officers shall be subject to vesting periods in order to promote long-term retention of the awarded executive officers. The equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.

In addition, our compensation policy will contain compensation recovery provisions which allows us under certain conditions to recover bonuses paid in excess, will enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer (provided that the changes of the terms of employment are in accordance our compensation policy) and allows us to exculpate, indemnify and insure our executive officers and directors subject to certain limitations set forth thereto.

Our compensation policy will also provide for compensation to the members of our board of directors either: (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may be amended from time to time; or (ii) in accordance with the amounts determined in our compensation policy.

Nasdaq Requirements for Compensation Committee

Under the Nasdaq rules, we are required to maintain a compensation committee consisting of at least two members, each of whom are independent.

As noted above, the members of our compensation committee will include and who are external directors, and who is an independent director, each of whom is “independent,” as such term is defined in under Nasdaq rules. We expect that will serve as the chairman of our compensation committee upon completion of this offering.

Internal Auditor

Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor nominated by the audit committee. We intend to appoint our internal auditor within 90 days following the consummation of this offering. The role of the internal auditor is to examine, among other things, whether a company’s actions comply with the law and proper business procedure. 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. An internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the outstanding shares or voting rights of a company, any person or entity that has the right to appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. Our internal auditor is not our employee, but partner of a firm which specializes in internal auditing.

Remuneration of Directors

Under the Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directors and thereafter, unless exempted under the regulations promulgated under the Companies Law, by the general meeting of the shareholders. In case the remuneration of the directors is in accordance with regulations applicable to remuneration of the external directors then such remuneration shall be exempt from the approval of the general meeting. Where the director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply.

Fiduciary Duties of Office Holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.

The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:

The duty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:

Insurance

Under the Companies Law, a company may obtain insurance for any of its office holders against the following liabilities incurred due to acts he or she performed as an office holder, if and to the extent provided for in the company’s articles of association:

We currently have directors’ and officers’ liability insurance, providing total coverage of $1,000,000 million for the benefit of all of our directors and officers, in respect of which we paid a twelve-month premium of approximately $2,783, which expires on July 4, 2022. We intend to purchase additional insurance coverage prior to the consummation of this offering, subject to the completion of this offering.

Indemnification

The Companies Law, and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:

The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:

We intend to enter into indemnification agreements with all of our directors and with all members of our senior management upon completion of this offering. We expect that each such indemnification agreement will provide the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.

Exculpation

Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we will exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.

Limitations

The Companies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty 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, also by the shareholders.

Our amended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.

The foregoing descriptions summarize the material aspects and practices of our board of directors. For additional details, we also refer you to the full text of the Companies Law, as well as of our amended and restated articles of association, which are exhibits to this registration statement of which this prospectus forms a part, and are incorporated herein by reference.

There are no service contracts between us or our Subsidiary, on the one hand, and our directors in their capacity as directors, on the other hand, providing for benefits upon termination of service.

Approval of Related Party Transactions under Israeli Law

General

Under the Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:

Disclosure of Personal Interests of an Office Holder

The Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:

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 a transaction:

The Companies Law does not specify to whom within us nor the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our board of directors.

Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is in the company’s interest. If the transaction is an extraordinary transaction in which an office holder has a personal interest, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. 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 unless the chairman of the audit 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. A director who has a personal interest in a transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majority of members of the board of directors or the audit committee, as the case may be, has a personal interest. If a majority of the board of directors has a personal interest, then shareholder approval is generally also required.

Disclosure of Personal Interests of a Controlling Shareholder

Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of engagement and compensation of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee or the compensation committee, as the case may be, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements:

In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.

The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.

The term “controlling shareholder” is defined in the Companies Law as 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 be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. 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.

Approval of the Compensation of Directors and Executive Officers

The compensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval of the company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify, insure or exculpate is inconsistent with the company’s stated compensation policy, or if the said office holder is the chief executive officer of the company (subject to a number of specific exceptions), then such arrangement is subject to the approval of our shareholders, subject to a special majority requirement.

Directors. Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the general meeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, shareholder approval by a special majority will be required.

Executive officers other than the chief executive officer. The Companies Law requires the approval of the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) only if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders by a special majority. However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.

Chief executive officer. Under the Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders by a special majority. However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provides detailed reasons for their decision. In addition, the compensation committee may exempt the engagement terms of a candidate to serve as the chief executive officer from shareholders’ approval, if the compensation committee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjecting the approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s chief executive officer (and provide detailed reasons for the latter).

The approval of each of the compensation committee and the board of directors, with regard to the office holders and directors above, must be in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committee and the board of directors may approve compensation terms of a chief executive officer that are inconsistent with the company’s compensation policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained by a special majority requirement.

Duties of Shareholders

Under the Companies Law, a shareholder has a duty to refrain from abusing his power in the company and to act in good faith and in an acceptable manner in exercising his rights and performing his obligations toward the company and other shareholders, including, among other things, in voting at general meetings of shareholders (and at shareholder class meetings) on the following matters:

A shareholder also has a general duty to refrain from oppressing other shareholders. The remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of oppression of other shareholders, additional remedies are available to the injured shareholder.

In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty 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, taking the shareholder’s position in the company into account.

Equity Incentive Plan

In September 2015, our board of directors adopted the 2015 Plan, pursuant to the provisions of the Israeli Income Tax Ordinance, or the Tax Ordinance. Upon the adoption of the 2015 Plan, our board of directors was provided with the discretion to grant options, or Options, to purchase Ordinary Shares of our company from a pool of up to 500,000 Ordinary Shares, or the Pool. The Pool was reserved as a part of our authorized share capital for this purpose.

Pursuant to the 2015 Plan, the Options may be granted to employees, consultants and service providers, directors and non-employees of our company and/or our affiliates, or the Optionees; provided however, that the Optionees who are Israeli employees or directors (who are not controlling shareholders of our company) may only receive Options pursuant to Section 102 of the Tax Ordinance, or Section 102, and non-employees (and/or employees who are also controlling shareholders), may receive Options pursuant to Section 3(i) of the Tax Ordinance. Section 102 Options may be either approved Options or unapproved Options. Approved Section 102 Options are: (1) required to be held by a trustee appointed by our board of directors pursuant to the 2015 Plan, or Trustee; (2) require a holding period as set forth in Section 102; and (3) are subject to an irrevocable proxy provided to the Trustee. Section 102 Options may either be subject to a capital gains track or ordinary income track, as elected and designated by us.

Our board of directors has the discretion to determine the terms of the Options for each option grant, including the exercise price and vesting dates of the Options. If not earlier exercised, the Options expire upon the earlier of (i) 10 years from the date of grant; (ii) depending on the circumstances, following a pre-determined time period after the termination of the Optionees employment or engagement with us, as applicable; or (iii) as provided in the Optionee’s option agreement. Any Ordinary Shares underlying Options which are forfeited, expired or canceled before expiration of the 2015 Plan, become available for future grants thereunder. Our board of directors has discretion to change the terms of existing Options, including the acceleration of vesting periods in connection with a change of control transaction.

Following its adoption in 2015 and until December 31, 2020, our board of directors has approved from time to time the increase of the Pool (and the corresponding number of reserved shares in our authorized share capital) by an additional 532,805 Ordinary Shares, to a total of 1,032,805 Ordinary Shares.

On April 22, 2021, our board of directors increased the Pool by an additional 200,000 Ordinary Shares, to a total of 1,232,805 Ordinary Shares. As of February 16, 2022, 368,105 Ordinary Shares had been issued upon the exercise of Options, 1,162,689 Options had been allocated and/or granted but had not been exercised, and 302,011 Ordinary Shares remained available for future grants. The number of Ordinary Shares in the Pool is also subject to adjustment under certain circumstances (e.g., reorganization of our equity capital). On November 9, 2021, our shareholders approved the increase in the number of Ordinary Shares reserved for future grants to 1,832,805 and approved additional issuances of Options in the aggregate amount of 600,000.

BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our Ordinary Shares as of February 16, 2022 by:

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to Ordinary Shares. Ordinary Shares issuable under share options or warrants that are exercisable within 60 days after February 16, 2022, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or warrants but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Percentage of shares beneficially owned before this offering is based on 11,136,850 shares outstanding on February 16, 2022. The number of Ordinary Shares deemed outstanding after this offering is based on 11,136,850 Ordinary Shares which does not assume exercise of the underwriters’ over-allotment option.

We are not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to us which would result in a change in control of our company at a subsequent date. Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each beneficial owner’s address is: c/o Wearable Devices Ltd., 2 Ha-Ta’asiya St., Yokne’am Illit, 2069803 Israel.

Record Holders

As of February 16, 2022, there were 26 shareholders of record of our Ordinary Shares.  These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were held of record by brokers or other nominees.

RELATED PARTY TRANSACTIONS

Employment Agreements

We have entered into written employment agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance. Members of our senior management are eligible for bonuses each year. The bonuses are payable upon meeting objectives and targets that are set by our Chief Executive Officer and approved annually by our board of directors that also set the bonus targets for our Chief Executive Officer.

Options

Since our inception, we have granted options to purchase our Ordinary Shares to our officers and certain of our directors. Such option agreements may contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our option plans under “Management—Equity Incentive Plan.” If the relationship between us and an executive officer or a director is terminated, except for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisable for three months after such termination.

Employment Agreement with Barry Kaplan

In July 2021, effective as of July 1, 2021, our subsidiary, Mudra Wearable Inc., entered into an employment agreement with Barry Kaplan, our director. Pursuant to the terms of his employment agreement, Mudra Wearable Inc. pays Mr. Kaplan a gross annual salary of $200,000 for his services as the Executive Vice President of the U.S. Operations. In addition to options received for service as one of our directors, on July 1, 2021, we also issued Mr. Kaplan options to purchase 50,000 Ordinary Shares under our 2015 Plan, at an exercise price of $2.25 per share. Pursuant to the employment agreement, we or Mr. Kaplan may terminate the employment agreement by providing 30 days’ prior written notice.

Share Purchase Agreement with Alpha

In April 2021, we entered into a share purchase agreement with one of our beneficial shareholders, Alpha, for a subscription amount of $1 million. We issued to Alpha for their subscription amount 444,091 Ordinary Shares and 222,045 warrants to purchase additional Ordinary Shares for an aggregate amount equal to 50% of Alpha’s subscription amount. Alpha’s warrants are exercisable until the earlier of: (i) eighteen (18) months from Qualified IPO; (ii) change of control event, such as sale of all or substantially all of our assets or the majority of shares, merger, consolidation or other business combination of us into another company or sale, lease, transfer, or exclusive license or disposition of all or substantially all of our intellectual property, or (iii) three (3) years from April 22, 2021. Pursuant to the share purchase agreement, we provided Alpha with a board observer right to designate one person, reasonably acceptable to us, to attend all our board of directors meetings and conference calls as an observer, with no right to vote on any matter. Such observer shall receive all information, written or oral, which our management provides to the other directors our company from time to time. Alpha’s board observer right shall last until we conduct a Qualified IPO. We are also obligated to receive Alpha’s prior written consent for a Qualified IPO. 

DESCRIPTION OF SHARE CAPITAL

The following descriptions of our share capital and provisions of our amended and restated articles of association which will be effective upon the closing of this offering are summaries and do not purport to be complete. A form of our amended and restated articles of association will be filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part. The description of the Ordinary Shares reflects changes to our capital structure that will occur upon the closing of this offering.

General

Upon the closing of this offering, our authorized share capital will consist of 50,000,000 Ordinary Shares, of which Ordinary Shares will be issued and outstanding (assuming that the underwriters do not exercise their option to purchase additional Ordinary Shares prior thereto). All of our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and do not have any preemptive rights. All Ordinary Shares have identical voting and other rights in all respects. 

In the last three years, we have issued an aggregate of 6,510,277 Ordinary Shares in several private placements, in several convertible loan agreement conversions, in conversion of ordinary A shares, and upon employees’ exercise of options, for aggregate net proceeds of $5.825 million. 

In addition to Ordinary Shares, in the last three years, we have issued warrants to investors to purchase an aggregate of 671,687 warrants exercisable into Ordinary Shares in consideration of 125% of the per share purchase price in our initial public offering, and granted options to purchase an aggregate of 565,058 Ordinary Shares, of which 23,971 were exercised and 18,029 where forfeited, to directors, officers and employees with exercise prices ranging from $0.003 to $2.251 per share.

Our registration number with the Israeli Registrar of Companies is 515056117. 

Purposes and Objects of the Company

Our purpose is set forth in our articles of association and includes every lawful purpose. 

Simple Agreements for Future Equity

In January 2022, our board of directors authorized us to enter into a series of SAFEs for aggregate proceeds of up to $3 million. As of February 16, 2022, we had received $400 thousand under the SAFEs we have entered into. Any amounts received under the SAFEs will be automatically converted into our Ordinary Shares in the event we close an Equity Financing (as defined hereinafter) at a discount of 20% from the per share purchase price in such Equity Financing. An Equity Financing is a transaction or series of transactions with the principal purpose of raising capital in an aggregate amount of at least $5,000,000, excluding all outstanding (i) SAFEs, and (ii) other convertible securities (if any), pursuant to which we issue and sell Ordinary Shares at a fixed pre-money valuation. In case of an initial public offering or a Change of Control transaction (as defined hereinafter), the SAFE amount shall, at the election of the investor thereunder, either (i) convert into our Ordinary Shares at a discount of 20% from the per share price at such event, or (ii) be repaid to the investor (subject to adjustments in case there are insufficient funds for such repayment to all SAFE investors) at the closing thereof. The conversion of the SAFE amounts into the Ordinary Shares in case of an initial public offering, is also subject to certain lock-up periods and other restrictions on transfer. In the event of a dissolution event (e.g., a voluntary or involuntary termination of operations, dissolution or our winding-up), the SAFE amount shall be repaid to the investors prior to or concurrently with the consummation of such an event. In addition, we agreed to issue to each SAFE investor a warrant to purchase our Ordinary Shares with an exercise price equal to 150% of the public offering price in such offering for an aggregate amount of up to 25% of such investor’s SAFE amount. The warrants shall be exercisable until the earlier of: (i) eighteen (18) months from January 2022; or (ii) in a Change of Control event, which generally covers (a) transaction in which any person or group becomes the beneficial owner, directly or indirectly, of more than 50% of our outstanding voting securities with the right to vote for the election of members of our board of directors, or (b) any reorganization, merger or our consolidation, or (c) a sale, lease or other disposition of all or substantially all of our assets.

The Powers of the Directors

Our board of directors shall direct our policy and shall supervise the performance of our Chief Executive Officer and his actions. Our board of directors may exercise all powers that are not required under the Companies Law or under our amended and restated articles of association to be exercised or taken by our shareholders.

Rights Attached to Shares

Our Ordinary Shares shall confer upon the holders thereof:

Certain of our shareholders have provided an irrevocable proxy to our director Eli Bachar to act on their behalf in connection with these shareholders’ ownership of 553,281 of our Ordinary Shares. Mr. Bachar shall (i) receive, instead of the shareholders and on their behalf, any notice otherwise delivered to the shareholder; (ii) waive any preemptive right, right of first refusal, right of first offer, co-sale right or any other similar participation right to which the shareholders are entitled by the virtue of their shares ownership. This proxy shall remain in force until the earlier of (1) the closing of our initial public offering or (2) upon our acquisition. 

Election of Directors

Pursuant to our amended and restated articles of association, our directors are elected at an annual general meeting of our shareholders and serve on the board of directors until the next annual general meeting (except for external directors) or until he or she resigns or unless he or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our amended and restated articles of association. The 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, and designated as Class I, Class II and Class III. The Board may assign members of the Board already in office to such classes at the time such classification becomes effective. If the number of directors is changed, any newly created directors or decrease in directors must be apportioned by the board among the classes to make them equal in number. Pursuant to our amended and restated articles of association, other than the external directors, for whom special election requirements apply under the Companies Law, the vote required to appoint a director is a simple majority vote of holders of our voting shares, participating and voting at the relevant meeting. In addition, our amended and restated articles of association allow our board of directors to appoint directors to fill vacancies and/or as an addition to the board of directors (subject to the maximum number of directors) to serve until the next annual general meeting. External directors are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See “Management—Board Practices—External Directors.” 

Under our amended and restated articles of association to be effective upon the closing of this offering, the approval of the holders of at least 70% of the total voting power of our shareholders is generally required to remove any of our directors from office or amend the provision requiring the approval of at least 70% of the total voting power of our shareholders to remove any of our directors from office, or certain other provisions regarding our staggered board, shareholder proposals, the size of our board and plurality voting in contested elections.

Annual and Special Meetings

Under the Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year, at such time and place which shall be determined by our board of directors, that must be no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special general meetings. Our board of directors may call special meetings whenever it sees fit and upon the request of: (a) any two of our directors or such number of directors equal to one quarter of the directors then at office; and/or (b) one or more shareholders holding, in the aggregate, (i) 5% or more of our outstanding issued shares and 1% of our outstanding voting power or (ii) 5% or more of our outstanding voting power. 

Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and forty days prior to the date of the meeting. Resolutions regarding the following matters must be passed at a general meeting of our shareholders:

Notices

The Companies Law and our amended and restated articles of association require that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, approval of the company’s general manager to serve as the chairman of the board of directors or an approval of a merger, notice must be provided at least 35 days prior to the meeting.

Quorum

As permitted under the Companies Law, the quorum required for our general meetings consists of at least two shareholders present in person, by proxy, written ballot or voting by means of electronic voting system, who hold or represent between them at least 25% of the total outstanding voting rights. If within half an hour of the time set forth for the general meeting a quorum is not present, the general meeting shall stand adjourned the same day of the following week, at the same hour and in the same place, or to such other date, time and place as prescribed in the notice to the shareholders and in such adjourned meeting, if no quorum is present within half an hour of the time arranged, any number of shareholders participating in the meeting, shall constitute a quorum. 

If a special general meeting was summoned following the request of a shareholder, and within half an hour a legal quorum shall not have been formed, the meeting shall be canceled.

Adoption of Resolutions

Our amended and restated articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required under the Companies Law or our amended and restated articles of association. A shareholder may vote in a general meeting in person, by proxy, by a written ballot.

Changing Rights Attached to Shares

Unless otherwise provided by the terms of the shares and subject to any applicable law, any modification of rights attached to any class of shares must be adopted by the holders of a majority of the shares of that class present a general meeting of the affected class or by a written consent of all the shareholders of the affected class.

The enlargement of an existing class of shares or the issuance of additional shares thereof, shall not be deemed to modify the rights attached to the previously issued shares of such class or of any other class, unless otherwise provided by the terms of the shares.

Limitations on the Right to Own Securities in Our Company

There are no limitations on the right to own our securities.  

Provisions Restricting Change in Control of Our Company

There are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change in control of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, as described below, certain provisions of the Companies Law may have such effect.

The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transaction approved by its board of directors and, unless certain requirements described under the Companies Law are met, a vote of the majority of shareholders, and, in the case of the target company, also a majority vote of each class of its shares.  For purposes of the shareholder vote of each party, unless a court rules otherwise, the merger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the other party to the merger (or by any person or group of persons acting in concert who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors. If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court must find that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders. In addition, a merger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the Israeli Registrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.

The Companies Law also provides that, subject to certain exceptions, an acquisition of shares in an Israeli public company must be made by means of a “special” tender offer if as a result of the acquisition (1) the purchaser would become a holder of 25% or more of the voting rights in the company, unless there is already another holder of at least 25% or more of the voting rights in the company or (2) the purchaser would become a holder of 45% or more of the voting rights in the company, unless there is already a holder of more than 45% of the voting rights in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholders’ approval, subject to certain conditions, (2) was from a holder of 25% or more of the voting rights in the company which resulted in the acquirer becoming a holder of 25% or more of the voting rights in the company, or (3) was from a holder of more than 45% of the voting rights in the company which resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. A “special” tender offer must be extended to all shareholders. In general, a “special” tender offer may be consummated only if (1) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (2) the offer is accepted by a majority of the offerees who notified the company of their position in connection with such offer (excluding the offeror, controlling shareholders, holders of 25% or more of the voting rights in the company or anyone on their behalf, or any person having a personal interest in the acceptance of the tender offer). If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of an Israeli company’s outstanding shares or of certain class of shares, the acquisition must be made by means of a tender offer for all of the outstanding shares, or for all of the outstanding shares of such class, as applicable. In general, if less than 5% of the outstanding shares, or of applicable class, are not tendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares. Any shareholders that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may request, by petition to an Israeli court, (i) appraisal rights in connection with a full tender offer, and (ii) that the fair value should be paid as determined by the court, for a period of six months following the acceptance thereof. However, the acquirer is entitled to stipulate, under certain conditions, that tendering shareholders will forfeit such appraisal rights.

Lastly, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.

Changes in Our Capital

The general meeting may, by a simple majority vote of the shareholders attending the general meeting:

Anti-Takeover Measures

As disclosed under “Description of Share Capital—Election of Directors,” we will have a classified board structure upon the closing of this offering, which will effectively limit the ability of any investor or potential investor or group of investors or potential investors to gain control of our board of directors.

Exclusive Forum

Our amended and restated articles of association to be effective upon the closing this offering will provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favourable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions of our amended and restated articles of association described above. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

SHARES ELIGIBLE FOR FUTURE SALE

In connection with this offering, we have applied to list our Ordinary Shares on Nasdaq, under the symbol “WLDS.” No assurance can be given that our application will be approved. Sales of substantial amounts of our Ordinary Shares in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices of our Ordinary Shares. Upon completion of this offering, we will have outstanding Ordinary Shares, assuming the underwriters do not exercise their over-allotment option. Of these shares, the Ordinary Shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates” (as that term is defined under Rule 144 of the Securities Act), who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.

The remaining Ordinary Shares will be held by our existing shareholders. Because substantially all of these shares were sold outside the United States to persons residing outside the United States at the time, they also will be freely tradable without restriction or further registration, except that shares acquired upon any conversion of the SAFEs and shares held by affiliates must be sold pursuant to Rule 144 or another available exemption, and except for the lock-up restrictions described below.

Lock-up Agreements

Subject to certain exceptions, we and our executive officers, directors, and certain shareholders have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any Ordinary Shares or any other securities convertible into or exchangeable for Ordinary Shares except for the Ordinary Shares offered in this offering without the prior written consent of the representative for a period of 180 days after the consummation of this offering.   

Additionally, our shareholders, who participated in our April 2021 financing and are not otherwise subject to lock-up agreements with the representative, have agreed not to, without our prior written consent, directly or indirectly, offer for sale, sell, assign, pledge, issue, distribute, grant any option or any contract for the sale of, or otherwise of the Ordinary Shares that such shareholders received for their investments in the April 2021 financing, for a period of 180 days after the consummation of this offering.

Rule 144

In general, under Rule 144 under the Securities Act as in effect on the date hereof, beginning 90 days after the date hereof, a person who holds restricted Ordinary Shares (assuming there are any restricted shares) and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least six months, would be entitled to sell an unlimited number of our Ordinary Shares, provided current public information about us is available. In addition, under Rule 144, a person who holds restricted shares in us and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least one year, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the date hereof, our affiliates who have beneficially owned our Ordinary Shares for at least six months will be entitled to sell within any three-month period a number of shares that does not exceed the greater of: