ITEM
1. DESCRIPTION OF BUSINESS
Overview
and recent developments
Viewbix
Inc. (f/k/a Virtual Crypto Technologies, Inc., f/k/a Emerald Medical Applications Corp.) (the “Registrant” or the
“Company”) was incorporated in the State of Ohio in 1989 under a predecessor name, Zaxis International, Inc. (“Zaxis”).
On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company, a Delaware corporation, which entity changed its
name to Zaxis International, Inc. and the Company was reincorporated in Delaware under the name of Zaxis International, Inc. On
December 30, 2014, Zaxis entered into an agreement with Emerald Medical Applications Ltd., a private limited liability company
organized under the laws of the State of Israel (“Emerald Israel”).
On
March 16, 2015, Zaxis and Emerald Israel executed a share exchange agreement, which closed on July 14, 2015, and Emerald Israel
became the Company’s wholly-owned subsidiary. Emerald Israel was engaged in the business of developing Emerald Israel’s
DermaCompare technology and the development, sale and service of imaging solutions utilizing its DermaCompare software for use
in derma imaging and analytics for the detection of skin cancer. On January 29, 2018, the Company ceased the DermaCompare operations
of its former subsidiary.
On
January 17, 2018, the Company formed a new wholly-owned subsidiary under the laws of the State of Israel, Virtual Crypto Technologies
Ltd. (the “VCT Israel”), to develop and market software and hardware products facilitating and supporting the
purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices.
On February 12, 2018, the Registrant filed a definitive information statement to change its name from Emerald Medical Applications
Corp. to Virtual Crypto Technologies, Inc. to reflect its new operations and business focus, and, effective as of March 7, 2018,
the Financial Industry Regulatory Authority (“FINRA”) approved the Registrant’s name change and its trading
symbol was changed from “MRLA” to “VRCP” on the OTCQB.
During
the period commencing January 16, 2018 through March 23, 2018, the Registrant raised $1.9 million in equity capital through the
offering of units (the “Unit Offering”) at a price of $0.07 per unit, each unit consisting of: (i) one
(1) share of the Company’s common stock, par value $0.0001 (the “Shares”); (ii) one (1) warrant to
purchase a share of the Company’s common stock, par value $0.0001 exercisable for a period of twelve months at an exercise
price of $0.14 per Share (the “Class F Warrants”); and (iii) one (1) warrant to purchase a share of the Company’s
common stock, par value $0.0001 exercisable for a period of twelve months at an exercise price of $0.28 per Share (the
“Class G Warrants”).The proceeds of the Unit Offering were utilized by the Registrant to fund the operations
of Virtual Crypto Israel including, but not limited to the costs associated with the development of the products. Reference
is made to the disclosure under Item 5. “Market For Registrant’s Common Stock, Related Stockholder Matters And Issuer
Purchase Of Equity” and under the sub-caption “Sale of Unregistered Securities in 2018” with respect
to the Unit Offering from the sale of units in 2018.
Transaction
with Algomizer Ltd.
On February
7, 2019, the Registrant entered into a share exchange agreement (the “Share Exchange Agreement”) with Algomizer Ltd.
(TASE:ALMO), a company organized under the laws of the State of Israel (“Algomizer”), pursuant to which on July
25, 2019 (the “Closing Date”) Algomizer assigned, transferred and delivered its 99.83% holdings in Viewbix Ltd.
(“Viewbix Israel”) to the Company in exchange for shares of restricted common stock, par value $0.0001 per share
of the Company (the “Common Stock”), representing 65% of the issued and outstanding share capital of the
Company on a fully diluted basis as of the Closing Date, following the conversion of certain convertible notes of the Company
and excluding certain warrants to purchase shares of the Common Stock expiring in 2020 and additional warrants as further
described below (the “Fully Diluted Share Capital”). In addition, upon the earlier of: (a) the launch of a
live video product to an American consumer in the United States by Viewbix Israel, or (b) the launch of an interactive television
product to an American consumer in the United States by Viewbix Israel, the Company will issue to Algomizer an additional 1,642,193
shares of restricted common stock of the Company representing 5% of the Fully Diluted Share Capital immediately following the
Closing Date.
On
July 24, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of
Delaware reflecting its name change from Virtual Crypto Technologies, Inc. to Viewbix Inc. to reflect its new operations and business
focus and, effective on August 7, 2019, FINRA approved the Registrant’s name change and its trading symbol was changed from
“VRCP” to “VBIX” on the OTCQB.
On the Closing
Date, (i) the Company issued 20,281,085 shares of its common stock to Algomizer in exchange for consideration consisting
of 99.83% holdings in Viewbix Israel, and (ii) convertible notes representing 3,434,889 shares of Common Stock then
currently issued to holders were converted. The shares of Common Stock were issued under Regulation S. The Company
also issued a total of 7,298,636 warrants to Algomizer to purchase shares of Common Stock, whereby (i) 3,649,318 of such
warrants were issued with an exercise price of $0.48, and (ii) 3,649,318 of such warrants were issued with an exercise
price of $0.80.
Following the
Closing Date, Viewbix Israel became a subsidiary of the Registrant. Viewbix Israel was incorporated in February
2006 in Israel.
On January
27, 2020, VCT Israel was sold to a third party for NIS 50,000 ($14,459).
Viewbix
Business Overview
Viewbix
is an interactive video technology and data platform that provides its client with deep insights into their video marketing performance
as well as the effectiveness of its messaging. Viewbix allow companies to add a layer with interactive content on top of a video
that allows viewers to engage and interact with the video. The platform measures exactly when a view takes an action while watching
a video and collects and reports the results to the client.
Viewbix
developed the interactive video platform based on Software as a Service (“SaaS”) business model with interactive elements,
and the ability to collect and analyze information about each interactive action performed during the viewing of the video clip.
The interactive elements and information gathered allows the client to analyze user viewing habits and optimize real-time throughout
the campaign while increasing the effectiveness of online and live video marketing.
Viewbix
has adapted its technology platform to work on most nonproprietary platforms on the Internet, including, but not limited
to, online video campaigns, brand and image videos, online tutorials, live and real-time video streaming (e.g. music concerts
and sporting events), video presentations, and more. Using the Viewbix platform, video creators can integrate advances features
into their videos, specifically the inclusion of “click” buttons that trigger a particular action, into a given video,
like the insertion of a smart form for retrieving the contact information of the viewer. Viewbix then collects all the data around
the cross section of the viewing data and engagement data and offers its clients the opportunity to download and analyze the results.
Viewbix also offers a full service option where the Viewbix account managers will analyze the data and report results and suggestions
to its clients.
Certain
of Viewbix’s customers include H&R Block, Avaya and the University of Indiana, and each of which uses its platform in
a number of ways, including on its own web properties, email campaigns and twitter, in order to increase the efficiency of their
video content.
Notwithstanding
the foregoing, the Company has recently initiated certain cost-reduction measures and it remains unclear how and to what extent
this decision will impact the future business and operating success of Viewbix.
Industry
Overview
Video
marketing remains one of the fastest growing industries, and, accordingly is increasingly crowded with competition. According
to a study published by Cisco, by 2020 online videos will represent more than 80% of online consumer traffic, and 85% in the United
States alone. Today, 78% of online surfers watch online videos weekly, and 55% of such watch online videos daily. On YouTube alone,
more than 500 million hours of online video are watched by viewers each day. The amount of video content that has been uploaded
to the internet over the past 30 days represents the equivalent of television programming over the past 30 years.
Competition
While
there are many companies that offer hosting and streaming services, Viewbix focuses on providing expanded value to its clients
that reaches beyond the hosting and streaming platforms. Viewbix has several direct competitions, including Hapyak, which operates
primarily via websites, and Innovid, which focuses on advertisements. Additionally, video hosting companies, such as Wistia and
Vidyard, both offer certain interactive elements similar to Viewbix. However, Viewbix’s proprietary component is its focus
on interactivity and deep data, which results can thereafter be analyzed and applied.
Intellectual
Property and Other Proprietary Rights
Our
commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection, in the United
States and internationally, for the technologies used in our products. We cannot be sure that any of our patents will be commercially
useful in protecting our technology. Our commercial success also depends in part on our non-infringement of the patents or proprietary
rights of third parties. The patent positions can be highly uncertain and involve complex and evolving legal and factual questions.
We
have four patents that have been granted to us in the U.S. which we consider material to our business and operating success, including
the following:
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U.S.
Patent No. 10,467,684: the granted patent relates to novel techniques implemented by Viewbix which enables businesses to configure
their video players to incorporate interactivity functions, such as call-to-actions, into their video publishing and delivery
workflows;
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U.S.
Patent No. 8,706,562: the granted patent relates to video e-commerce networking, modules and methods used to configure a video
or playlist that is delivered to viewers where the content displayed in the video player is dynamic and can be automatically
customized based on the publisher site;
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U.S.
Patent No. 8,706,558: the granted patent relates video e-commerce networking, modules and methods to display a video or playlist
that is delivered to a viewer where the content displayed in the video player is dynamic and automatically customized based
on the publisher site; and
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U.S.
Patent No. 9,792,645: the granted patent provides a unique method to facilitate video interactions between a publisher and
end users, and measures the data produced through that interaction.
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We
also protect our proprietary technology and processes, in part, by confidentiality and invention assignment agreements with our
employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate
remedies for any breach. We also rely on trade secrets to protect our product candidates. However, our trade secrets may otherwise
become known or be independently discovered by competitors. To the extent that our employees, consultants, scientific advisors
or other contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related
or resulting know-how and inventions.
Product
Development
Viewbix
has been focusing its R&D efforts on the expansion of its interactive live capabilities also collecting the engagement data
for each session and relating back to a live stream. This would greatly enhance our client’s feedback on its stream
for both real time and future stream optimizations.
Marketing
Viewbix
marketing activities consist of targeted industry conferences, proactive email campaigns and direct client outreach.
Employees
As
of December 31, 2019, Viewbix employs five employees in Israel
as well as one consultant in the US and one consultant in the UK.
ITEM
1A. RISK FACTORS
The
shares of our Common Stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons
who can afford to lose their entire amount invested in the Common Stock. Accordingly, prospective investors should carefully consider,
along with other matters referred to herein, the following risk factors in evaluating our business before purchasing any shares
of Common Stock. If any of the following risks actually occurs, our business, financial condition or operating results could be
materially adversely affected. In such case, you may lose all or part of your investment. You should carefully consider the risks
described below and the other information in this Prospectus before investing in our Common Stock.
Risks
Associated with Our Business and Industry
Because
we have sustained significant turnover to key management positions, we may not have the leadership and personnel
with expertise to guide us to profitable operations.
We have recently
sustained significant turnover to our management team. Our success depends in part upon our ability to retain
the services of certain executive officers and other key employees, in addition to the skills, experience and performance
of senior management and certain other key personnel.
We are presently
dependent to a great extent upon the experience, abilities and continued services of Amihay Hadad, our sole officer. If he should
resign, or otherwise leave the Company, we will be left without any exeutive officers to naviate our business and operations
onward. If that should occur, and until we find another person to serve in those capacities, our operations could be
suspended, or be otherwise adversely affected.
The
loss of the services of our executive officers or other key employees would have a material adverse effect on our business, operating
results and financial condition.
We
have recently initiated certain cost-reduction measures that could have long-term adverse effects on our business and we may
not realize the operational or financial benefits from such actions.
We
have recently initiated certain cost-reduction measures, and we may engage in similar activities in the future. This decision
may distract management, could slow improvements in our platform and limit our ability to attract customers. It remains unclear
how and to what extent this decision will impact our future business and operating success.
Our
success depends, in part, upon the continued demand of video as an integral part of corporate marketing and internal communications
plans and the continued growth and acceptance of videos as effective alternatives to traditional online and offline marketing
products and services.
We
provide a platform that allows companies to understand what messages are resonating with their video viewers and how to
leverage that data to enrich and empower a more effective video experience. Our revenues are derived from the sale of our platform.
If the demand for video advertising does not continue to grow or customers do not embrace our platform, this could have a material
adverse effect on our business and financial condition.
Our
success also depends, in part, on our ability to compete for a share of available video advertising/marketing expenditures as
more traditional offline and emerging media companies continue to enter the online advertising/marketing market, as well as on
the continued growth and acceptance of online advertising generally. If for any reason online advertising is not perceived as
effective (relative to traditional advertising), web browsers, software programs and/or other applications that limit or prevent
advertising from being displayed become commonplace and/or the industry fails to effectively manage click fraud, the market for
online advertising will be negatively impacted. Any lack of growth in the market for online advertising/marketing (particularly
for paid listings) could adversely affect our business, financial condition and results of operations.
Due
to our evolving business model and rapid changes in the Internet and the nature of services, it is difficult to accurately predict
our future performance and may be difficult to increase revenue or profitability.
We
developed our platform based on Software as a Service (“SaaS”) business model. We do not have an extensive history
of ongoing operations in using our business model from which to predict our future performance, and making such predictions, particularly
with regard to the effect of our efforts to aggressively increase the distribution and profitability is very complex and challenging.
If we are unable to continuously improve our platform, this could have a negative effect on our competitiveness and ability to
service and attract customers. If we are unsuccessful in doing so in a timely fashion, we may not be able to achieve revenue growth
or increase our profitability.
Our
customers may reduce or terminate their business relationship with us at any time. If customers representing a significant portion
of our revenue reduce or terminate their relationship with us, it could have a material adverse effect on our business, results
of operations and financial condition.
We
generally engage with two types of customers: small companies who change from time to time and a number of large companies with
whom the engagement is for shorter periods of time. We do not enter into long-term contracts with our customers, and such customers
do business with us on a non-exclusive basis. Accordingly, our business is highly vulnerable to adverse economic conditions, market
evolution and development of new or more compelling offerings by our competitors, which could either lead to reduced advertising
spend generally or motivate our current or potential customers to migrate to our competitors. Any reduction in spending by, or
loss of, existing or potential customers would negatively impact our revenue and operating results.
Furthermore,
the discretionary, non-exclusive nature of our relationships with customers subjects us to increased pricing pressure. Although
we believe our rates are competitive, our competitors may be able to offer more favorable pricing or other advantageous terms.
As a result, we may be compelled to reduce our rates or offer other incentives in order to maintain our current customers and
attract new customers. If a significant number of customers are able to compel us to charge lower rates or provide rate concessions
or incentives, there is no assurance that we would be able to compensate for such price reductions or conserve our profit margins.
Large
and established internet and technology companies, such as Google and Facebook, play a substantial role in the digital advertising
market and may significantly impair our ability to operate in this industry.
Google
is a substantial player in the digital advertising market along with other players such as Microsoft. In addition, a small number
of social network companies, such as Facebook, account for a large portion of digital advertising budgets. The high concentration
of power among Google, Facebook and some other large market participants causes us to be subject to any unilateral changes they
may make with respect to advertising on their respective platforms, which may be more lucrative than alternative methods of advertising
or partnerships with other publishers that are not subject to such changes. Furthermore, we could have limited ability to respond
to, and adjust for, changes implemented by large market participants.
These
companies, along with other large and established Internet and technology companies, may also leverage their power to make changes
to their web browsers, operating systems, platforms, networks or other products or services in a way that impacts the entire digital
advertising marketplace.
The
advertising/marketing industry is highly competitive. If we cannot compete effectively in this market, our revenues are likely
to decline.
We
face intense competition in the marketplace. We operate in a dynamic market that is subject to rapid development and introduction
of new technologies, products and solutions, changing branding objectives, evolving customer demands and industry guidelines,
all of which affect our ability to remain competitive. There are a large number of companies and advertising technology companies
that offer products or services similar to ours and that compete with us for finite advertising budgets. There is also a large
number of niche companies that are competitive with us, as they provide a subset of the services that we provide. Some of our
existing and potential competitors may be better established, benefit from greater name recognition, may offer solutions and technologies
that we do not offer or that are more evolved than ours, and may have significantly more financial, technical, sales and marketing
resources than we do. In addition, some competitors, particularly those with a larger and more diversified revenue base and a
broader offering, may have greater flexibility than we do to compete aggressively on the basis of price and other contract terms
as well as respond to market changes. Additionally, companies that do not currently compete with us in this space may change their
services to be competitive if there is a revenue opportunity, and new or stronger competitors may emerge through consolidations
or acquisitions. If our platform is not perceived as competitively differentiated or we fail to develop adequately to meet market
evolution, we could lose customers and market share or be compelled to reduce our prices and harm our operational results.
We
may not be able to protect our systems, technology and infrastructure from cyberattacks and cyberattacks.
We
may be under attack by perpetrators of malicious technology-related events, such as the use of botnets, malware or other destructive
or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information and other
similar malicious activities. The incidence of events of this nature (or any combination thereof) is on the rise worldwide. While
we continuously develop and maintain systems designed to detect and prevent events of this nature from impacting our platform,
we have invested (and continue to invest) heavily in these efforts These efforts are costly and require ongoing monitoring and
updating as technologies change and efforts to overcome preventative security measures become more sophisticated.
Any
event of this nature that we experience could damage our systems, technology and infrastructure, prevent us from providing our
services, compromise the integrity of our services, damage our reputation and/or be costly to remedy, as well as subject us to
investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties.
Our
business depends on our ability to collect and use data, and any limitation on the collection and use of this data could significantly
diminish the value of our platform and cause us to lose customers and revenue.
Our
platform receives, collects, stores, processes, transfers and uses certain data about how viewers engaged with videos and helps
companies to leverage that data to become a better story teller and optimize the videos. Our ability to access and utilize such
data is crucial.
Our
ability to either collect or use data could be restricted by new laws or regulations. We are subject to numerous federal, state,
local, and international laws, directives and regulations regarding privacy, data protection, and data security and the collection,
storing, sharing, use, processing, transfer, disclosure and protection of personal information and other data, the scope of which
are changing, subject to differing interpretations, and may be inconsistent among jurisdictions or conflict with other legal and
regulatory requirements. We are also subject to certain contractual obligations to third parties related to privacy, data protection
and data security. We strive to comply with our applicable policies and applicable laws, regulations, contractual obligations
and other legal obligations relating to privacy, data protection and data security to the extent possible. However, the regulatory
framework for privacy, data protection and data security worldwide is, and is likely to remain for the foreseeable future, uncertain
and complex, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that
we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other legal obligations or
our practices. Further, any significant change to applicable laws, regulations or industry practices regarding the collection,
use, retention, security or disclosure of data, or their interpretation, or any changes regarding the manner in which the consent
of users or other data subjects for the collection, use, retention or disclosure of such data must be obtained, could increase
our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete,
and may limit our ability to store and process user data or develop new services and features.
If
we were found in violation of any applicable laws or regulations relating to privacy, data protection or security, our business
may be materially and adversely affected and we would likely have to change our business practices and potentially the services
and features available through our platform. In addition, these laws and regulations could impose significant costs on us and
could constrain our ability to use and process data in manners that may be commercially desirable. In addition, if a breach of
data security were to occur or to be alleged to have occurred, if any violation of laws and regulations relating to privacy, data
protection or data security were to be alleged, or if we had any actual or alleged defect in our safeguards or practices relating
to privacy, data protection, or data security, our solutions may be perceived as less desirable and our business, prospects, financial
condition and results of operations could be materially and adversely affected.
We
also expect that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and
information security proposed and enacted in various jurisdictions. For example, the European Union’s (“EU”),
data protection landscape is currently unstable, resulting in possible significant operational costs for internal compliance and
risks to our business. The EU has adopted the General Data Protection Regulation (“GDPR”), which became effective
in May 2018, and contains numerous requirements and changes from previously existing EU laws, including more robust obligations
on data processors and heavier documentation requirements for data protection compliance programs by companies. Among other requirements,
the GDPR regulates the transfer of personal data subject to the GDPR to third countries that have not been found to provide adequate
protection to such personal data, including the United States. Failure to comply with the GDPR could result in penalties for noncompliance.
In
addition to the GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s
right to conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications (“ePrivacy
Regulation”), would replace the current the current ePrivacy Directive. Originally planned to be adopted and implemented
at the same time as the GDPR, the ePrivacy Regulation is still being negotiated.
Additionally,
in June 2018, California passed the California Consumer Privacy Act (“CCPA”), which provides new data privacy rights
for consumers and new operational requirements for companies. Specifically, the CCPA provides that covered companies must provide
new disclosures to California consumers and afford such consumers new abilities to opt-out of certain sales of personal information.
The CCPA became operative January 1, 2020. 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. We cannot fully predict the impact of the CCPA on
our business or operations, but it may require us to modify our data practices and policies and to incur substantial costs and
expenses in an effort to comply. Some observers have noted the CCPA could mark the beginning of a trend toward more stringent
privacy legislation in the United States, which could increase our potential liability and adversely affect our business. Further
in March 2017, the United Kingdom (“U.K.”) formally notified the European Council of its intention to leave the EU
pursuant to Article 50 of the Treaty on European Union (“Brexit”). The U.K. ceased to be an EU Member State on January
31, 2020, but enacted, a Data Protection Act substantially implementing the GDPR, effective in May 2018, which was further amended
to align more substantially with the GDPR following Brexit. It is unclear how U.K. data protection laws or regulations will develop
in the medium to longer term and how data transfers to and from the U.K. will be regulated. In addition, some countries are considering
or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering
our services.
In
addition, failure to comply with the Israeli Privacy Protection Law 1981, and its regulations as well as the guidelines of the
Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class actions) and in certain
cases criminal liability. Current pending legislation may result in a change of the current enforcement measures and sanctions.
Any
failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other
third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection or data security
may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer
advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially
and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the
laws, regulations, other obligations and policies that are applicable to the businesses of our users may limit the adoption and
use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws,
regulations or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations
or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could
result in significant liability, cause our users to lose trust in us and otherwise materially and adversely affect our reputation
and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection
practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies,
including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or
investigation activities, which may increase our costs and risks.
If
we cannot enforce and protect our intellectual property rights, our business could be adversely affected.
We
rely on patents, copyright, trademark, domain name and trade secret laws in the United States and similar laws in other countries,
as well as licenses and other agreements with our employees, and other parties, to establish and maintain our intellectual property
rights in the technology, products and services used in our operations. These laws and agreements may not guarantee that our intellectual
property rights will be protected and our intellectual property rights could be challenged or invalidated. Amendments to or interpretations
of U.S. patent laws or new rulings around U.S. patent laws may adversely impact our ability to protect our new technologies, content,
products and services and to defend against claims of patent infringement. In addition, such intellectual property rights may
not be sufficient to permit us to take advantage of current industry trends or otherwise to provide competitive advantages, which
could result in costly redesign efforts, discontinuance of offerings, decreased traffic and associated revenue or otherwise adversely
affect our business.
We
may in the future be, subject to claims of intellectual property infringement that could adversely affect our business.
Many
companies (including patent holding companies) and individuals own patents, copyrights, trademarks, and trade secrets and frequently
enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we develop
and offer our platform through various distribution channels we may experience an increase in the number of intellectual property
claims against us. These claims, whether meritorious or not, may result in litigation, may be time-consuming and costly to resolve,
and may require expensive changes in our methods of doing business. These intellectual property infringement claims may require
us to enter into royalty or licensing agreements on unfavorable terms or to incur substantial monetary liability. Additionally,
these claims may result in our being enjoined preliminarily or permanently from further use of certain intellectual property or
may require us to cease or significantly alter certain of our operations.
Some
of our commercial agreements may require us to indemnify third parties against intellectual property infringement claims, which
may require us to use substantial resources to defend against or settle such claims or, potentially, to pay damages. These third
parties may also discontinue the use of our platform, as a result of injunctions or otherwise, which could result in loss of revenues
and adversely impact our business. Additionally, we may be exposed to liability or substantially increased costs if a commercial
partner does not honor its contractual obligation to indemnify us for intellectual property infringement claims made by third
parties or if any amounts received are not adequate to cover our liabilities or the costs associated with defense of such claims.
The occurrence of any of these events could adversely affect our business.
Patent
terms may be inadequate to protect our competitive position for an adequate amount of time.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is
generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions
may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our products are
obtained, once the patent life has expired, we may be open to competition from competitive products, including generics. As a
result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar
or identical to ours.
We
may incur losses as a result of unforeseen or catastrophic events, including the recent outbreak of the novel coronavirus (COVID-19).
The
occurrence of unforeseen or catastrophic events such as terrorist attacks, extreme terrestrial or solar weather events or other
natural disasters, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an
emergency), could create economic and financial disruptions, and could lead to operational difficulties that could impair our
ability to manage our business. In particular, the current outbreak of novel coronavirus (COVID-19) that was first reported from
Wuhan, China, on December 31, 2019, including the resulting travel restrictions and quarantines already imposed by several countries,
present concerns that may dramatically affect our ability to conduct our business effectively. The trajectory of the coronavirus
remains uncertain and it is becoming increasingly plausible that our business, including the livelihood of our employees and customers
upon both of which our business relies, may be directly afflicted.
Risks Related
to Our Common Stock
Shares
of Common Stock issuable upon the conversion of warrants may substantially increase the number of shares of Common Stock
available for sale in the public market and depress the price of our Common Stock.
As of December
31, 2019, we had outstanding: (i) Class G Warrants exercisable to purchase 142,857 shares of Common Stock at an exercise
price of between $4.20 per share of Common Stock; (ii) Class H Warrants exercisable to purchase 50,000 shares of Common
Stock at an exercise price of $2.10 per share of Common Stock; (iii) Class I Warrants exercisable to purchase 38,095 shares
of Common Stock, at an exercise price of $2.10 per share of Common Stock; (iv) Class J Warrants exercisable to purchase
3,649,318 shares of Common Stock at an exercise price between $0.48 per share of Common Stock; and (v) Class K Warrants
exercisable to purchase 3,649,318 shares of Common Stock, at an exercise price of $0.80 per share of Common Stock.
To the extent
any of these warrants are exercised and any additional warrants are issued and subsequently exercised, there will
be further dilution to our stockholders. Until the warrants expire, these warrant holders will have an opportunity to profit
from any increase in the market price of our Common Stock without assuming the risks of ownership. Holders of options and
warrants may exercise these securities at a time when we could obtain additional capital on terms more favorable.
The exercise
price of the warrants will dilute the voting interest of the owners of presently outstanding shares of Common Stock by
adding a substantial number of additional shares of our Common Stock. We have reserved shares of Common Stock for
issuance upon the exercise of the warrants and may increase the shares reserved for these purposes in the future.
The
shares of our Common Stock, which are issuable upon the exercise of any outstanding warrants may be sold in the public
market pursuant to Rule 144, if applicable. The sale of our Common Stock issued or issuable upon the exercise of the warrants
and options described above, or the perception that such sales could occur, may adversely affect the market price of our Common
Stock.
We
are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.
We
have offered and sold our Common Stock to investors pursuant to certain exemptions from the registration requirements of
the Securities Act of 1933, as amended (the “Act”) as well as those of various state securities laws. The basis
for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of
those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that
any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative
facts as the basis for such exemptions, including information provided by investors themselves.
If
any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities
if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation
prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption
from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission,
we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in
fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by
the U.S. Securities and Exchange Commission (the “SEC”) and state securities agencies.
The
availability of a large number of authorized but unissued shares of Common Stock may, upon their issuance, lead to dilution
of existing stockholders.
We
are authorized to issue 490,000,000 shares of Common Stock, of which, as of December 31, 2019, 31,201,669 shares of Common
Stock were outstanding. Additional shares of Common Stock may be issued by our board of directors without further stockholder
approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution
to the interests of other stockholders. In addition, issuances of large numbers of shares of Common Stock may adversely
affect the market price of our Common Stock.
Our
Certificate of Incorporation authorizes 10,000,000 shares of preferred stock, $0.0001 par value per share of which none were issued
and outstanding as of December 31, 2019. The board of directors is authorized
to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares
and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock
which may convert into large numbers of shares of common stock and consequently lead to further dilution of other stockholders.
We
have never paid cash dividends and do not anticipate doing so in the foreseeable future.
We
have never declared or paid cash dividends on our Common Shares. We currently plan to retain any earnings to finance the
growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial
condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.
Our
Common Stock is subject to the “Penny Stock” rules of the SEC and the trading market in our stock is limited,
which makes transactions in our stock cumbersome and may reduce the value of an investment.
The
SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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That
a broker or dealer approve a person’s account for transactions in penny stocks; and
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The
broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
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In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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Obtain
financial information and investment experience objectives of the person; and
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Make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC
relating to the penny stock market, which, in highlight form:
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Sets
forth the basis on which the broker or dealer made the suitability determination; and
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That
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may
make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common
Stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
Since
our common stock is thinly traded, sale of your holding may take a considerable amount of time.
The
shares of our Common Stock are thinly-traded on the OTCQB Market, meaning that the number of persons interested in purchasing
our Common Stock at or near bid prices at any given time may be relatively small or non-existent. As a consequence, there
may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse
effect on share price. We cannot give you any assurance that a broader or more active public trading market for our Common
Stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give
you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire
to liquidate your shares.
Shares
of Common Stock eligible for future sale may adversely affect the market.
From
time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means
of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Act, subject to certain limitations.
In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current
public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity
securities), current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144
may have a material adverse effect on the market price of our Common Stock.
If
we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely
affected.
We
identified a material weakness in our period and our financial reporting process.
Our internal control over financial reporting may have material weaknesses and conditions that could require correction
or remediation, the disclosure of which may have an adverse impact on the price of our Common Stock. We are required to
establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure
of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial
condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may
identify material weaknesses and conditions that need to be addressed in our internal controls over financial reporting
or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed
in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over
financial reporting may have an adverse impact on the price of our Common Stock.
We
are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a
timely manner, our business could be harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls
over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered
public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting
as effective are complex, and require significant documentation, testing, and possible remediation to meet the detailed
standards.
We
expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict
how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial
reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may
not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements
by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements
in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls
over financial reporting. In the event that our Chief Executive Officer and Chief Financial Officer, which currently
is the same individual, determines that our internal control over financial reporting is not effective as defined under Section
404, we cannot predict how the market prices of our shares of Common Stock will be affected; however, we believe that there
is a risk that investor confidence and share value may be negatively affected.
Our
stock price could be volatile, and our trading volume may fluctuate substantially.
The
price of our Common Stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating
from a low of $.025 to a high of $1.12 since January 1, 2018. Many factors could have a significant impact on the future
price of our common shares, including:
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our
inability to raise additional capital to fund our operations;
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our
failure to successfully implement our business objectives and strategic growth plans;
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compliance
with ongoing regulatory requirements;
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market
acceptance of our product;
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changes
in government regulations;
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general
economic conditions and other external factors; and
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actual
or anticipated fluctuations in our quarterly financial and operating results; and the degree of trading liquidity in our common
shares.
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Our
annual and quarterly results may fluctuate, which may cause substantial fluctuations in our Common Stock price.
Our
annual and quarterly operating results may in the future fluctuate significantly depending on factors including the timing of
purchase orders, new product releases by us and other companies, gain or loss of significant customers, price discounting of our
product, the timing of expenditures, product delivery requirements and economic conditions. Revenues related to our product are
required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our
product is dependent on a number of factors, including, but not limited to, the terms of any license agreement and the timing
of implementation of our products by our customers.
Any
unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter
or year, which may cause downward pressure on our common stock price. We expect quarterly and annual fluctuations to continue
for the foreseeable future.
Delaware
law contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace
or remove current management and reduce the market price of our stock.
Provisions
in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our
stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue
up to ten million shares of “blank check” preferred stock. As a result, without further stockholder approval, the
board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock.
With these rights, preferred stockholders could make it more difficult for a third party to acquire us.
We
are also subject to the anti-takeover provisions of the Delaware General Corporation Law (the “DGCL”). Under
these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination”
with that person for three years without special approval, which could discourage a third party from making a takeover offer and
could delay or prevent a change in control of us. An “interested stockholder” is, generally, a stockholder who owns
15% or more of our outstanding voting stock or an affiliate of ours who has owned 15% or more of our outstanding voting stock
during the past three years, subject to certain exceptions as described in the DGCL.
Risks
Related to our Operations in Israel
Political,
economic and military instability in Israel may impede our ability to operate and harm our financial results.
Our
principal executive offices are located in Israel. Accordingly, political, economic and military conditions in Israel and the
surrounding region could directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have occurred between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip)
and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its present trading partners could adversely affect our operations. Ongoing and revived hostilities
or other Israeli political or economic factors, could prevent or delay shipments of our products, harm our operations and product
development and cause any future sales to decrease. In the event that hostilities disrupt the ongoing operation of our facilities
or the airports and seaports on which we depend to import and export our supplies and products, our operations may be materially
adverse affected. Furthermore, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts.
Several countries, principally those in the Middle East, still restrict business with Israel and Israeli companies, and additional
countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability
in the region continues or increases. These restrictive laws and policies may seriously limit our ability to sell our products
in these countries and may have an adverse impact on our operating results, financial conditions or the expansion of our business.
In
addition, political uprisings and conflicts in various countries in the Middle East are affecting the political stability of those
countries. This instability has raised concerns regarding security in the region and the potential for armed conflict. In Syria,
a country bordering Israel, a civil war is taking place. In addition, there are concerns that Iran, which has previously threatened
to attack Israel, may step up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among
extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, as well as a growing presence in Syria. Additionally,
the Islamic State of Iraq and Levant, or ISIL, a violent jihadist group whose stated purpose is to take control of the Middle
East, remains active in areas within close proximity to Israeli borders. The tension between Israel and Iran and/or these groups
may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any potential
future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability
may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries.
Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could
harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may
be disinclined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements
when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel
may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform
their commitments under those agreements pursuant to force majeure provisions in such agreements.
Our
insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East
or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value
of direct damages that were caused by terrorist attacks or acts of war, we cannot be assured that this government coverage will
be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing
such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a
material adverse effect on our business. Any armed conflicts, political instability, terrorism, cyberattacks or any other hostilities
involving or threatening Israel would likely negatively affect business conditions generally and could harm our results of operations.
On
Israel’s domestic front, there is currently a level of unprecedented political instability. The Israeli government has been
in a transitionary phase since December 2018, when the Israeli Parliament, or the Knesset, first resolved to dissolve itself and
call for new general elections. In 2019, Israel held general elections twice, in April and September, and a third general election
took place on March 2, 2020. The Knesset, for reasons related to this extended political transition, has failed to pass a budget
for the year 2020, and certain government ministries, which may be critical to the operation of our business, are without necessary
resources and may not receive sufficient funding moving forward. Given the likelihood that the current political stalemate may
not be resolved during the next calendar year, our ability to conduct our business effectively may be adversely materially affected.
Exchange
rate fluctuations between foreign currencies and the U.S. Dollar may negatively affect our earnings.
Our
reporting and functional currency is the U.S. dollar. Our revenues are currently primarily payable in U.S. dollars and Euros and
we expect our future revenues to be denominated primarily in U.S. dollars and Euros. However, certain amount of our expenses are
in NIS and as a result, we are exposed to the currency fluctuation risks relating to the recording of our expenses in U.S. dollars.
We may, in the future, decide to enter into currency hedging transactions. These measures, however, may not adequately protect
us from material adverse effects.