| (1) | Assumes the sale of all shares of Common Stock offered pursuant to this prospectus.32
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PLAN OF DISTRIBUTION
The selling stockholders of the Shares and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the Nasdaq Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling securities:
•ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
•block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
•an exchange distribution in accordance with the rules of the applicable exchange;
•privately negotiated transactions;
•settlement of short sales;
•in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security;
•through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
•a combination of any such methods of sale; or
•any other method permitted pursuant to applicable law.
The selling stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from each selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders have informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
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The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
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USE OF PROCEEDS
We are not selling any Common Stock under this prospectus and will not receive any of the proceeds from the sale or other disposition of shares by the selling stockholders, however, we will receive proceeds from the exercise of any Warrants for cash.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing elsewhere in Form S-1. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form S-1, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Risk Factors” section of this Form S-1, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Actelis Networks, Inc. (“we,” “the Company”, “Actelis”, “us”, “our”) is a market leader in cyber-hardened, rapid-deployment networking solutions for wide-area IoT applications including federal, state and local government, intelligent traffic systems (“ITS”), military, utility, rail, telecom and campus applications. Our unique portfolio of hybrid fiber-copper, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment.
A primary focus of ours is to provide our customers with a cyber-secure network solution. We currently provide Triple-Shield protection of coding, scrambling and encryption of the network traffic.
When high speed, long reach, reliable and secure connectivity is required, network operators usually resort to using wireline communication over physical communication lines rather than wireless communication that is more limited in performance, reliability and security. However, wireline communication infrastructure is costly, and, based on our internal calculations, often accounts for more than 50% of total cost of ownership (ToC) and time to deploy wide-area IoT projects.
Typically, providing new fiber connectivity to hard-to-reach locations is costly and time-consuming, often requiring permits for boring, trenching, and right-of-way. Connecting such hard-to-reach locations may cause significant delays and budget overruns in IoT projects. Our solutions aim to solve these challenges effectively accelerating deployment of IoT projects, and making IoT projects more affordable and predictable to plan and budget.
Our solutions can also provide remote power over existing copper lines to power up network elements and IoT components connected to them (like cameras and meters). Connecting power lines to millions of IoT locations can be costly and very time consuming (similar to data connectivity). By offering the ability to combine power delivery over the same existing copper lines that we use for high-speed data, we believe our solutions are solving yet another important challenge in connecting hard-to-reach locations. We believe that combining communication and power over the same existing lines is particularly important to help connect many fifth generation, or 5G, small cells and Wi-Fi base stations, as high cost of connectivity and power is often slowing their deployment. Our solutions have been tested for performance and security by the U.S. DoD laboratories, and approved for deployment with U.S. Federal Government and U.S. defense forces as part of APL (Approved Product List) in 2019.
Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, providing connectivity for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications. In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the wide-area IoT markets. Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers.
We currently derive a significant portion of our revenue from our existing Telco customers. For the years ended December 31, 2022 and December 31, 2021, our Telco customers in the aggregate accounted for approximately 35% and 48% of our revenues, respectively.
We derive a significant portion of our revenue from a limited number of our customers. For the years ended December 31, 2022 and December 31, 2021, our top ten customers in the aggregate accounted for approximately 82% and 78% of our revenues.
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We currently have one outstanding loan with Migdalor Business Investments Fund, or Migdalor, in the original principal amount of approximately $6 million which is secured by all our assets, which remains outstanding as of December 31, 2022 of which approximately $5 million remains outstanding. In December 2022, we deposited $2 million to a Company-owned interest bearing bank account, or the “designated account” and an additional $2 million was deposited on or about February 28, 2023. If we cannot generate sufficient cash flow from operations to service our debt, we may need to further refinance our debt, dispose of assets or issue equity to obtain necessary funds. Migdalor consented to allow us to seek additional accounts receivable financing which would be used to partially repay the Migdalor Loan, which would reduce or eliminate the Additional Deposit (as defined in our agreement with Migdalor). We expect to continue repaying the principal and interest of the Migdalor Loan from our operating cash flow. Please refer to the “Liquidity and Financial Condition” section below for further discussion.
Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022
Results of Operations
The table below provides our results of operations for the periods indicated.
| | Three months ended September 30 | | Nine months ended September 30 | | | 2023 | | 2022 | | 2023 | | 2022 | | | (dollars in thousands) | | (dollars in thousands) | Revenues | | 845 | | | 1,348 | | | 4,589 | | | 6,297 | | Cost of revenues | | 619 | | | 813 | | | 3,043 | | | 3,258 | | Gross profit | | 226 | | | 535 | | | 1,546 | | | 3,039 | | Research and development expenses, net | | 691 | | | 723 | | | 2,117 | | | 2,049 | | Sales and marketing, net | | 691 | | | 790 | | | 2,332 | | | 2,357 | | General and administrative, net | | 971 | | | 1,028 | | | 2,805 | | | 2,730 | | Operating loss | | (2,127 | ) | | (2,006 | ) | | (5,708 | ) | | (4,097 | ) | Interest expenses | | (161 | ) | | (198 | ) | | (512 | ) | | (622 | ) | Other Financial income (expenses), net | | 1,421 | | | (3 | ) | | 1,865 | | | (3,781 | ) | Net Comprehensive Loss for the period | | (867 | ) | | (2,207 | ) | | (4,355 | ) | | (8,500 | ) |
Revenues
Our revenues for the three months ended September 30, 2023 amounted to $0.85 million compared to $1.35 million for the three months ended September 30, 2022. The decrease from the corresponding period was primarily attributable to a decrease of $0.2 million of revenues generated from North America and a decrease of $0.3 of revenues generated from Asia Pacific and Europe, the Middle East and Africa.
Our revenues for the nine months ended September 30, 2023 amounted to $4.6 compared to $6.3 million for the nine months ended September 30, 2022. The decrease from the corresponding period was primarily attributable to a decrease of $1.4 million in revenues generated from North America and a decrease of $0.4 million in revenues generated from Europe, the Middle East and Africa, offset by an increase of $0.1 million in revenues generated from Asia Pacific.
Cost of Revenues
Our cost of revenues for the three months ended September 30, 2023, amounted to $0.6 million compared to $0.8 million for the three months ended September 30, 2022. The decrease from the corresponding period was primarily attributable to the decrease in revenues as well as change in the product mix.
Our cost of revenues for the nine months ended September 30, 2023, amounted to $3.0 million compared to $3.3 million for the nine months ended September 30, 2022. The decrease from the corresponding period was mainly due to the decrease in revenues as well as change in the product mix, partially offset by the higher effect of fixed costs as the percent of the lower revenues.
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Research and Development Expenses
Our research and development expenses for the three months ended September 30, 2023, amounted to $0.7 million compared to $0.7 million for the three months ended September 30, 2022.
Our research and development expenses for the nine months ended September 30, 2023, amounted to $2.1 million compared to $2.0 million for the nine months ended September 30, 2022. The increase was mainly due to an increase in professional services related to research and development.
Sales and Marketing Expenses
Our sales and marketing expenses for the three months ended September 30, 2023, amounted to $0.7 million compared to $0.8 for the three months ended September 30, 2022. The decrease was mainly due to a decrease in commission and travel expenses.
Our sales and marketing expenses for the nine months ended September 30, 2023 amounted to $2.3 million compared to $2.4 for the nine months ended September 30, 2022. The decrease was mainly due to a decrease in commission and travel expenses.
General and Administrative Expenses
Our general and administrative expenses for the three months ended September 30, 2023, amounted to $1.0 million compared to $1.0 million for the three months ended September 30, 2022. There was a decrease driven by cost reduction measures, offset by one time financing related expenses.
Our general and administrative expenses for the nine months ended September 30, 2023, amounted to $2.8 million compared to $2.7 million for the nine months ended September 30, 2022.The increase was driven by financing related expenses, partially offset by cost reduction measures.
Operating Loss
Our operating loss for the three months ended September 30, 2023, was $2.1 million, compared to an operating loss of $2.0 million for the three months ended September 30, 2022. The increase was mainly due to the decreases in revenues and gross margin.
Our operating loss for the nine months ended September 30, 2023, was $5.7 million, compared to an operating loss of $4.1 million for the nine months ended September 30, 2022. The increase was mainly due to the decreases in revenues and gross margin while continuing to invest in Sales and Marketing.
Financial Expenses, Net
Our financial income, net for the three months ended September 30, 2023, was $1.3 million (including $0.2 million interest expenses) compared to financial expenses, net of $0.2 million (including $0.2 million interest expenses) for the three months ended September 30, 2022. The increase in financial income was due to the decrease in fair value of warrants in the amount of $1.3 million, as well as exchange rate differences in the amount of $0.2 for the three months ended September 30, 2023, compared to $0.05 in the three months ended September 30, 2022.
Our financial income, net for the nine months ended September 30, 2023, was $1.3 million (including $0.5 million interest expenses) compared to financial expenses, net of $4.4 million (including $0.6 million interest expenses) for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company recorded financial income in connection with a decrease in fair value of warrants in the amount of $1.7 million, compared to an increase in fair value of various financial instruments prior to the IPO completed in May 2022, such as a convertible loan, note and warrants in the amount of $4.5 million. In addition, the Company recorded income in the amount of $0.4 million from exchange rate differences, compared to $0.7 during the nine months ended September 30, 2022.
Net Loss
Our net loss for the three months ended September 30, 2023, was $0.9 million, compared to net loss of $2.2 million for the three months ended September 30, 2022. This decrease was primarily due to the increase in financial income, net related to the decrease in fair value of warrants.
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Our net loss for the nine months ended September 30, 2023, was $4.4 million, compared to net loss of $8.5 million for the nine months ended September 30, 2022. This decrease was primarily due to the decrease in revenues and gross margin offset by a decrease in financial expenses, net resulting from the conversion of the financial instruments the Company had such as a convertible loan, note and warrants from the IPO completed in May 2022.
Non-GAAP Financial Measures
(U.S. dollars in thousands) | | Three months Ended September 30, 2023 | | Three months Ended September 30, 2022 | | Nine months Ended September 30, 2023 | | Nine months Ended September 30, 2022 | Revenues | | $ | 845 | | | $ | 1,348 | | | $ | 4,589 | | | $ | 6,297 | | GAAP net loss | | | (867 | ) | | | (2,207 | ) | | | (4,355 | ) | | | (8,500 | ) | Interest Expense | | | 161 | | | | 198 | | | | 512 | | | | 622 | | Other Financial expenses (income), net | | | (1,421 | ) | | | 3 | | | | (1,865 | ) | | | 3,781 | | Tax Expense | | | 18 | | | | 28 | | | | 58 | | | | 102 | | Fixed asset depreciation expense | | | 7 | | | | 9 | | | | 20 | | | | 29 | | Stock based compensation | | | 106 | | | | 13 | | | | 298 | | | | 41 | | Research and development, capitalization | | | 113 | | | | 143 | | | | 371 | | | | 423 | | Other one-time costs and expenses | | | 120 | | | | 115 | | | | 343 | | | | 916 | | Non-GAAP Adjusted EBITDA | | | (1,763 | ) | | | (1,698 | ) | | | (4,618 | ) | | | (2,586 | ) | GAAP net loss margin | | | (102.60 | )% | | | (163.72 | )% | | | (94.90 | )% | | | (134.98 | )% | Adjusted EBITDA margin | | | (208.64 | )% | | | (125.96 | )% | | | (100.63 | )% | | | (41.07 | )% |
Use of Non-GAAP Financial Information
Non-GAAP Adjusted EBITDA and Adjusted EBITDA margin are Non-GAAP financial measures. In addition to reporting financial results in accordance with GAAP, we provide Non-GAAP supplemental operating results adjusted for certain items, including: financial expenses, which are interest, financial instrument fair value adjustments, exchange rate differences of assets and liabilities, stock based compensation expenses, depreciation and amortization expense, tax expense, and impact of development expenses ahead of product launch. We adjust for the items listed above and show non-GAAP financial measures in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments but not for comparison to budgeted operating results.. We believe the supplemental adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees and optimizes our business operations on a day-to-day basis. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight to our financial performance. Adjusted results should be considered only in conjunction with results reported according to GAAP.
(U.S. dollars in thousands) | | For the three months ended September 30 | | For the nine months ended September 30 | 2023 | | 2022 | | 2023 | | 2022 | Revenues | | $ | 845 | | | $ | 1,348 | | | $ | 4,589 | | | $ | 6,297 | | Non-GAAP Adjusted EBITDA | | | (1,763 | ) | | | (1,698 | ) | | | (4,618 | ) | | | (2,586 | ) | As a percentage of revenues | | | (208.64 | )% | | | (125.96 | )% | | | (100.63 | )% | | | (41.07 | )% |
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the sale of equity securities, debt financing, convertible loans and royalty-bearing grants that we received from the Israel Innovation Authority. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes.
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Our future capital requirements will be affected by many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative costs, repayment of principal of our existing credit line, working capital to support securing raw material supply and many other factors as described under “Risk Factors.”
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the repercussions from the COVID 19 pandemic, as well as the war in Israel and the war between Russia and the Ukraine, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.
As discussed in Note 1(c) to the condensed consolidated financial statements appearing elsewhere in this Quarterly report on Form 10-Q, we have incurred significant losses and negative cash flows from operations and incurred losses of $4,355 and $10,982 for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively. During the nine months ended September 30, 2023 and the year ended December 31, 2022, we had negative cash flows from operations of $5,194 and $7,768, respectively. As of September 30, 2023, we had negative working capital and an accumulated deficit of $37,757.
As of September 30, 2023, we had cash on hand (including short term deposits and restricted bank deposits) of $1,386 and long-term deposits, restricted bank deposits and restricted cash of $4,457. We monitor our cash flow projections on a current basis and take active measures to obtain the funding we require to continue our operations, as well as make adjustments to our cost structure that were done year to date. However, these cash flow projections are subject to various uncertainties concerning their fulfilment, such as the ability to increase revenues by attracting and expanding our customer base or reducing cost structure. If we are not successful in generating sufficient cash flow or completing additional financing, then we will need to execute additional cost reduction actions that have been planned. Our transition to profitable operations is dependent on generating a level of revenue adequate to support our cost structure. We expect to fund operations using cash on hand, through operational cash flows and raising additional proceeds. There are no assurances, however, that we will be able to generate the revenue necessary to support our cost structure or that we will be successful in obtaining the level of financing necessary for our operations. Management has evaluated the significance of these conditions and has determined that we do not have sufficient resources to meet our operating obligations for at least one year from the issuance date of these condensed consolidated financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments that might result from the outcome of this uncertainty.
Cash Flows
The table below, for the periods indicated, provides selected cash flow information:
(U.S. dollars in thousands) | | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 | Net cash used in operating activities | | $ | (5,194 | ) | | $ | (5,776 | ) | Net cash provided by (used in) investing activities | | | 1,430 | | | | (102 | ) | Net cash provided by financing activities | | | 2,586 | | | | 16,028 | | Net change in cash | | $ | (1,190 | ) | | $ | 10,150 | |
As of September 30, 2023, we had cash, cash equivalents, and restricted cash of $3.1 million compared to $10.9 million of cash, cash equivalents and restricted cash as of September 30, 2022.
Cash used in operating activities amounted to $5.2 million for the nine months ended September 30, 2023, compared to $5.8 for the nine months ended September 30, 2022. The decrease in cash used in operating activities was mainly due to decrease in trade receivables.
Net cash provided by investing activities was $1.4 million for the nine months ended September 30, 2023, compared to cash used in investing activities of $0.1 for the nine months ended September 30, 2022. The increase from the corresponding period was mainly due to changes in short term deposits.
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Net cash provided by financing activities was $2.6 million for the nine months ended September 30, 2023, compared to $16.0 million for the nine months ended September 30, 2022. The cash flow from financing activities for the nine months ended September 30, 2023, resulted from proceeds from a private placement which closed on May 4, 2023 — see note 11(d) to the condensed consolidated financial statements. The cash flow from financing activities for the nine months ended September 30, 2022, resulted from proceeds from the Company’s IPO in the amount of $15.4, net of underwriting discounts and commissions and other offering costs of $1.0 million. In addition, the increase is related to the private placement first and second closing. See notes 2 to the condensed consolidated financial statements.
Year Ended December 31, 2022, Compared to Year Ended December 31, 2021
Results of Operations
The table below provides our results of operations for the periods indicated.
| | Year ended December 31 | | | 2022 | | 2021 | | | (dollars in thousands) | Revenues | | 8,831 | | | 8,545 | | Cost of revenues | | 4,721 | | | 4,575 | | Gross profit | | 4,110 | | | 3,970 | | Research and development expenses, net | | 2,766 | | | 2,443 | | Sales and marketing, net | | 3,282 | | | 2,204 | | General and administrative, net | | 4,163 | | | 1,183 | | Operating loss | | (6,101 | ) | | (1,860 | ) | Interest expenses | | (830 | ) | | (690 | ) | Other financial expenses, net | | (4,051 | ) | | (2,701 | ) | Net Comprehensive Loss for the year | | (10,982 | ) | | (5,251 | ) |
Revenues
Our revenues for the year ended December 31, 2022 amounted to $8.8 million, compared to $8.5 million for the year ended December 31, 2021. The increase from the corresponding period was primarily attributable to an increase of $626,000 of revenues generated from Europe, the Middle East and Africa, offset by a decrease of $340,000 in revenues generated from North America and Asia Pacific, of which is primarily attributed to a decline in Telcom customers’ revenues.
Cost of Revenues
Our cost of revenues for the year ended December 31, 2022, amounted to $4.7 million compared to $4.6 million for the year ended December 31, 2021.
Research and Development Expenses
Our research and development expenses for the year ended December 31, 2022, amounted to $2.8 million compared to $2.4 million for the year ended December 31, 2021. The increase was mainly due to an increase in payroll expense for research and development personnel in the amount of $256,000, and an increase in professional services related to research and development in the amount of $64,000.
Sales and Marketing Expenses
Our sales and marketing expenses for the year ended December 31, 2022, amounted to $3.3 million compared to $2.2 for the year ended December 31, 2021. The increase from the corresponding period was mainly a result of our increased investments in sales and marketing, including in payroll expenses for additional personnel in the amount of $595,000, and increase in commission expenses in the amount of $249,000. We also had an increase in travel expenses in the amount of $181,000.
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General and Administrative Expenses
Our general and administrative expenses for the year ended December 31, 2022, amounted to $4.2 million compared to $1.2 million for the year ended December 31, 2021. This increase was mainly due to payroll, insurance expenses and professional services expenses, in connection with the IPO completed in May 2022 and our status as a public company thereafter.
Operating Loss
Our operating loss for the year ended December 31, 2022, was $6.1 million, compared to an operating loss of $1.9 million for the year ended December 31, 2021. The increase was mainly due to higher expenses associated primarily with investment in sales and marketing and expenses attributed to the IPO completed in May 2022 and costs associated with our status as a public company.
Financial Expenses, Net
Our financial expense, net for the year ended December 31, 2022, was $4.9 million (including $0.8 million interest expenses) compared to $3.4 million (including $0.7 million interest expenses) for the year ended December 31, 2021. This increase during the year ended December 31, 2022 is due to us incurring financial expenses in connection with increases in fair value of various financial instruments, such as convertible loan, note and warrants in the amount of $4.5 million up until the IPO when such instruments converted to equity. Additionally, during the year ended December 31, 2022, we had income in the amount of $0.5 million from exchange rate differences. Since all convertible loans and nearly all warrants we had outstanding converted to equity in connection with the IPO, we do not expect additional material financial expenses going forward for these loans and warrants.
Net Loss
Our net loss for the year ended December 31, 2022 was $11 million, compared to a net loss of $5.3 million for the year ended December 31, 2021. This increase was primarily due to the increase in financial expenses, resulting from the increases in fair value of various financial instruments, as well as an increase in operating expenses mainly due to investment in sales and marketing, as well as expenses attributed to our IPO in May 2022 and being a public company.
Non-GAAP Financial Measures
(U.S. dollars in thousands) | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | Revenues | | $ | 8,831 | | | $ | 8,545 | | GAAP net loss | | | (10,982 | ) | | | (5,251 | ) | Interest Expense | | | 830 | | | | 690 | | Other financial expenses, net | | | 4,051 | | | | 2,701 | | Tax Expense | | | 94 | | | | 87 | | Fixed asset depreciation expense | | | 23 | | | | 37 | | Stock based compensation | | | 220 | | | | 53 | | Research and development, capitalization | | | 525 | | | | 586 | | Other one-time costs and expenses | | | 1,714 | | | | — | | Non-GAAP Adjusted EBITDA | | | (4,065 | ) | | | (1,097 | ) | GAAP net loss margin | | | (124.36 | )% | | | (61.45 | )% | Adjusted EBITDA margin | | | (46.03 | )% | | | (12.84 | )% |
Use of Non-GAAP Financial Information
Non-GAAP Adjusted EBITDA, Adjusted EBITDA margin are Non-GAAP financial measures. Their most directly comparable financial measures prepared in accordance with GAAP are GAAP net loss and GAAP net loss margin. In addition to reporting financial results in accordance with GAAP, we provide Non-GAAP supplemental operating results adjusted for certain items, including: financial expenses, which are interest, financial instrument fair
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value adjustments, exchange rate differences of assets and liabilities, stock based compensation expenses, depreciation and amortization expense, tax expense, and impact of development expenses ahead of product launch. We adjust for the items listed above and show non-GAAP financial measures in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments but not for comparison to budgeted operating results. We believe the supplemental adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees and optimizes our business operations on a day-to-day basis. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight to our financial performance. Adjusted results should be considered only in conjunction with results reported according to GAAP.
The non-GAAP financial measures are presented for supplemental informational purposes only. They should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided above for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
(U.S. dollars in thousands) | | For the year ended December 31 | 2022 | | 2021 | Revenues | | $ | 8,831 | | | $ | 8,545 | | Non-GAAP Adjusted EBITDA | | | (4,065 | ) | | | (1,097 | ) | As a percentage of revenues | | | (46.03 | )% | | | (12.84 | )% |
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the sale of equity securities, debt financing, convertible loans and royalty-bearing grants that we received from the Israel Innovation Authority. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. We also received proceeds of $15.4 million, net of underwriting discounts and commissions and other offering costs of $1.0 million, following our IPO in May 2022.
The Company has incurred significant losses and negative cash flows from operations and incurred losses of $10.98 million and $5.25 million for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company had negative cash flows from operations of $7.8 million and $2.7 million, respectively. As of December 31, 2022, the Company’s accumulated deficit was $33.4 million. The Company has funded its operations to date through equity financing and has cash on hand (including short term deposits and restricted cash) of $6.0 million and long-term deposits and restricted cash of $2.4 million as of December 31, 2022. The Company monitors its cash flow projections on a current basis and takes active measures to obtain the funding it requires to continue its operations. However, these cash flow projections are subject to various uncertainties concerning their fulfilment such as the ability to increase revenues by attracting and expanding its customer base or reducing cost structure. If the Company is not successful in generating sufficient cash flow or completing additional financing, including debt refinancing which shall release restricted cash, then it will need to execute a cost reduction plan that has been prepared. The Company’s transition to profitable operations is dependent on generating a level of revenue adequate to support its cost structure. The Company expects to fund operations using cash on hand, through operational cash flows and raising additional proceeds. There are no assurances, however, that the Company will be able to generate the revenue necessary to support its cost structure or that it will be successful in obtaining the level of financing necessary for its operations. Management has evaluated the significance of these conditions and has determined that the Company does not have sufficient resources to meet its operating obligations for at least one year from the issuance date of these consolidated financial statements. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
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Our future capital requirements will be affected by many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative costs, repayment of principal of our existing credit line, working capital to support securing raw material supply and many other factors as described under “Risk Factors.”
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, and cannot generate significant recurring revenues, profit and cash flow provided by operating activity, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. However, such financing may not be available on favorable terms, or at all. In particular, the repercussions from the COVID 19 pandemic, inflation, economic uncertainty, as well as the war between Russia and the Ukraine, and the hostilities in the Middle East since October 7, 2023, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected.
Our revenues for the year ended December 31, 2022, increased by 3.3%, as we increased product and service delivery to our customers and successfully reduced our supply shortages.
Cash Flows
The table below, for the periods indicated, provides selected cash flow information:
(U.S. dollars in thousands) | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | Net cash used in operating activities | | $ | (7,768 | ) | | $ | (2,726 | ) | Net cash used in investing activities | | | (4,034 | ) | | | (54 | ) | Net cash provided by financing activities | | | 15,286 | | | | 2,904 | | Net change in cash | | $ | 3,484 | | | $ | 124 | |
As of December 31, 2022, we had cash, cash equivalents, and restricted cash of $4.3 million compared to $0.8 million of cash, cash equivalents and restricted cash as of December 31, 2021.
Cash used in operating activities amounted to $7.8 million for the year ended December 31, 2022, compared to $2.7 million for the year ended December 31, 2021. The increase in cash used in operating activities was mainly due to increase in operating expenses, as well as expenses associated with our IPO and from operating as a public company.
Net cash used in investing activities was $4.0 million for the year ended December 31, 2022, compared to cash used in investing activities of $0.1 million for the year ended December 31, 2021. The increase from the corresponding period was mainly due to change in short and long-term deposits, related to depositing cash into company interest bearing bank deposits in part due to increased collateral provided to our manufacturers.
Net cash provided by financing activities was $15.3 million for the year ended December 31, 2022, compared to $2.9 million for the year ended December 31, 2021. The cash flow from financing activities for the year ended December 31, 2022, resulted from proceeds from the Company’s IPO in the amount of $15.4 million, net of underwriting discounts and commissions and other offering costs of $1.0 million. In addition, the increase is related to the $1.85 million raised from the private placement first and second closings.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management has conducted an evaluation of the effectiveness of our internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP.
A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. An effective internal control system, no matter how well designed,
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has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
In connection with the preparation of our financial statements as of and for the years ended December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting in the lack of sufficient finance personnel in the segregation of duties. As such, there is a reasonable possibility that a misstatement of our financial statements will not be prevented or detected on a timely basis.
As we have thus far not needed to comply with Section 404 of the Sarbanes-Oxley Act, neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. In light of this, we believe that it is possible that additional control deficiencies and material weaknesses may have been identified if such an evaluation had been performed.
We are working to remediate the material weakness. Our remediation efforts are ongoing, and we will continue our initiatives to strengthen our finance personnel and implement and document policies, procedures, and internal controls. We have taken steps to enhance our internal control environment and plan to take additional steps to remediate the deficiencies and address material weaknesses. Specifically:
•We have hired new qualified personnel in our accounting department. We will continue to evaluate the structure of the finance organization and add resources as needed;
•We are implementing additional internal reporting procedures, including those designed to add depth to our review processes and improve our segregation of duties; and
•We are redesigning and implementing common internal control activities; and we will continue to establish policies and procedures and enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility and accountability to enable remediating our material weaknesses.
In addition to the items noted above, as we continue to evaluate, remediate and improve our internal control over financial reporting, executive management may elect to implement additional measures to address control deficiencies or may determine that the remediation efforts described above require modification. Executive management, in consultation with and at the direction of our Audit Committee, will continue to assess the control environment and the above-mentioned efforts to remediate the underlying causes of the identified material weaknesses.
Although we plan to complete this remediation process as quickly as possible, we are unable, at this time to estimate how long it will take; and our efforts may not be successful in remediating the deficiencies or material weaknesses. Notwithstanding the material weakness discussed above, we have performed additional procedures to ensure the consolidated financial statements included in this Form 10-K, fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on the audited consolidated financial statements of which are included elsewhere in this prospectus. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actelis bases its estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.
Management considers accounting estimates to be critical if both (i) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimate and assumption is material to the Actelis financial condition.
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Management believes the following addresses the most critical accounting policies and estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments:
Critical judgement and estimates
Critical judgement and estimates have been used primarily in estimating the fair value of our financial instruments (for example, warrants, notes and stock options), as well as the estimate of future usage of existing inventory to determine the net value of our inventory (see notes in financial statements).
Estimating the fair value of financial instruments such as warrants, notes and stock options are influenced by assessments of our future financial performance. Such assessments are forward-looking in nature and therefore, subject to significant uncertainty. Estimating the value of net inventory is also influenced by assessments of future usage of such inventory which is also forward looking in nature and therefore subject to significant uncertainty.
Accounting standards updates not yet adopted
Please see Note 2(ii) to our consolidated financial statements included elsewhere in this prospectus for information.
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DIVIDEND POLICY
We have never declared or paid dividends on our common stock and we do not anticipate paying any cash dividends on our common stock 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 applicable law and 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. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.
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BUSINESS
Company Overview
Actelis Networks, Inc. (“we,” “the Company”, “Actelis”, “us”, “our”) is a market leader in cyber-hardened, rapid-deployment networking solutions for wide-area IoT applications including federal, state and local government, intelligent traffic systems (“ITS”), military, utility, rail, telecom and campus applications. Our unique portfolio of hybrid fiber, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment.
Our networking solutions use a combination of newly deployed fiber infrastructure and existing copper and coaxial lines which our patented technology can upgrade to Fiber-grade to jointly create what we believe to be a highly cost-effective, secure and quick-to-deploy network. Our patent protected hybrid fiber networking solutions deliver excellent communication over fiber to locations that may be easy to reach with new fiber. However, for locations that are difficult, or too costly to reach with fiber, we can upgrade existing copper lines to deliver cyber-hardened, high-speed connectivity without needing to replace the existing copper infrastructure with new fiber. We believe that such hybrid fiber-copper networking solution has distinct advantages in most real-life installations, while providing significant budget savings and accelerating deployment of modern IoT networks, as based on our experience, most IoT projects have challenging, hard to reach with fiber locations which may explode such projects’ timeline and budgets. We believe that our solutions can provide connectivity over either fiber or copper with speeds of up to multi-Gigabit communication, while supporting Fiber-grade reliability and quality.
A primary focus of ours is to provide our customers with a cyber-secure network solution. We currently offer Triple-Shield protection of data delivered with coding, scrambling and encryption of the network traffic. We also provide secure, encrypted access to our network management software, and are working to further enhance system-level and device-level software protection. We are also working to introduce additional capabilities for network-wide cyber protection software as an additional SW and license-based service.
When high speed, long reach, reliable and secure connectivity is required, network operators usually resort to using wireline communication over physical communication lines such as fiber, coax and copper, rather than wireless communication that is more limited in performance, reliability, reach and security. However, new fiber wireline infrastructure is costly to deploy, involves lengthy civil works to install, and, based on our internal calculations, often accounts for more than 50% of total cost of ownership (ToC) and time to deploy wide-area IoT projects.
Providing new fiber connectivity to hard-to-reach locations is especially costly and time-consuming, often requiring permits for boring, trenching, and right-of-way, sometimes done over many miles. Connecting such hard-to-reach locations may cause significant delays and budget overruns in IoT projects. Our solutions aim to solve these challenges by instantly enhancing performance of such existing copper and coax infrastructure to fiber-grade performance, through the use of advanced signal processing an unique, patented network architecture, without the need to run new fiber to hard-to-reach locations; thus, effectively accelerating deployment of many IoT projects, as we estimate, sometimes from many months to only days. The result for the network owner isa hybrid network that optimizes the use of both new Fiber (where available) as well as upgraded, fiber-grade copper and coax that is now modernized, digitized and cyber-hardened. This unique hybrid network approach is making IoT projects often significantly more affordable, fast to deploy and predictable to plan and budget.
In addition, our solutions can also provide power over existing copper and coax lines to remotely power up network elements and IoT components connected to them (like cameras, small cell and Wi-Fi base stations sensors etc.). Connecting power lines to millions of IoT locations can be costly and very time consuming as well (similar to data connectivity, for the same reason-need for civil works). By offering the ability to combine power delivery over the same existing copper and coax lines that we use for high-speed data, we believe our solutions are solving yet another important challenge in connecting hard-to-reach locations. We believe that combining communication and power over the same existing lines is particularly important to help connect many fifth generation, or 5G, small cells and Wi-Fi base stations, as high cost of connectivity and power is often slowing their deployment.
Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, to provide connectivity for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile
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base station connectivity applications. In recent years, as we have further developed our technology and introduced additional products, we turned our focus on serving the wide-area IoT markets. Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. In 2023, we expect to introduce new product offering, some of which could serve both the IoT markets and our Telco customers.
We derive a significant portion of our revenue from our existing Telco customers. For the years ended December 31, 2022 and December 31, 2021, our Telco customers in the aggregate accounted for approximately 35% and 48% of our revenues, respectively.
We derive a significant portion of our revenue from a limited number of our customers. For the years ended December 31, 2022 and December 31, 2021, our top ten customers in the aggregate accounted for approximately 82% and 78% of our revenues.
We have incurred significant losses and negative cash flows from operations and as of December 31, 2022, we had an accumulated deficit of $33.4 million. We have funded our operations to date through equity financing and we had cash on hand (including short term deposits and restricted cash) of $6 million, and long-term deposits and restricted cash of $2.4 million, as of December 31, 2022. We continue to invest in sales and marketing resources to fuel our growth.
As of December 31, 2022, we have one outstanding loan with Migdalor Business Investments Fund (“Migdalor”) in the original principal amount of approximately $6 million which is secured by all our assets (the “Migdalor Loan”), and of which approximately $4.9 million remains outstanding. In December 2022, we deposited $2 million to a Company-owned interest bearing bank account, or the “designated account” and an additional $2 million was deposited on or about February 28, 2023. Migdalor consented to allow us to seek additional accounts receivable financing which would be used to partially repay the Migdalor Loan, which would reduce or eliminate the Additional Deposit (as defined in our agreement with Migdalor) and increase free operating cashflow.
In 2024, we entered into a new credit line facility from an Israeli bank of up to $1.5million that increases the Company’s operating liquidity while not increasing the Company’s total debt, as the Company will perform an early repayment of its existing debt using its restricted cash in a similar amount. The new credit line will be secured by customer invoices and will incur interest at a Federal SOFR rate plus 5.5% and is available until the end of 2024, with possible extension. At the same time, the Company plans to perform a partial early repayment of its existing debt facility with Migdalor under the Loan Agreement using its restricted cash at an amount equal to the amount of funding from the new credit line, therefore leaving the total debt amount at a similar level.
To address many of the most difficult wide-area IoT connectivity challenges, we combine the benefits of fiber-optic infrastructure, where available, with the hidden potential in existing legacy copper/coax wires that already connect billions of locations and devices globally (often at low speed, experiencing interruptions and presenting poor information security, delivering mostly voice, or low speed control signals). However, these lines are readily available at no additional deployment cost and can reach, as we believe, most locations. Using our patented signal-processing software and hardware technology and system architecture, we can “upgrade” these lines, by deriving fiber-grade performance from them, and integrate them with new fiber installations, where available, to create a seamless end-to-end hybrid-fiber network, enabling fast, reliable, and safe fiber-grade connectivity that is rapid to deploy and highly cost effective.
Our technology is both powerful and compact and is built as a relatively small set of feature-rich network elements, that serve as building block in many IoT verticals. These elements include switches, typically enhanced with signal processing SW, concentrators, reach extenders, data encryption elements, power sources and a smart networking software that allows for remote management and monitoring down to the single element and line performance, configuration management making complex network topologies easy to deploy, analyze, debug and remote SW download to help with remote handling of large and small networks.
Our solutions can also provide remote power over the same existing copper lines to power up network elements and IoT components connected to them (like cameras and meters). Connecting power lines to millions of IoT locations can be costly and very time consuming (similar to data connectivity). By offering the ability to combine power delivery over the same copper lines used for high-speed data, we believe our solutions are solving yet another important challenge in connecting hard-to-reach locations. We believe that combining communication and power over the same existing lines is particularly important to help connect many fifth generation, or 5G, small cells and Wi-Fi base stations, as high cost of connectivity and power is often slowing their deployment.
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Rapid Deployment and Lower Cost of Critical Connectivity for IoT
We aim to become the global leading provider of cyber-secure, cost-effective and quick-to-deploy hybrid networking for all wide-area IoT applications. Our products work over all types of wireline media on the global data network, whether owned or operated by telecom service providers or a private network operated by enterprises or government organizations. Our products are structured as building blocks for most IoT applications and are feature-rich. This allows for one Actelis platform to often replace multiple other platforms available in the market, allowing for space-saving installation, energy conservation (which we believe results in a greener network), and making network planning easier for our customers. We aim at having our products installed and help accelerate deployment of wire-area IoT projects and applications everywhere.
For example, in one of the projects where our solutions are deployed, we found that 70% of locations are easy-to-reach with new fiber optic installation. Connectivity for such easy-to-reach locations may, as we believe, average $26,000 per mile for new fiber laid on poles, and can take between days to weeks to connect. However, the remaining 30% of locations were hard-to-reach with new fiber optics, and accordingly may require boring or trenching to reach IoT sensors or camera locations. Getting fiber to those 30% of hard-to-reach would require potentially connecting over obstacles, roads, long distances, and may also require obtaining the right of way and permits for extensive civil works. We believe this aspect of the deployment of new fiber optics may cost up to $400,000 per mile, which for this particular project would have impacted thousands of miles of roads, resulting in enormous cost, delay and interruption to traffic..
In another project, we have been selected to provide networking for a major city that has fiber installed to 15% of its traffic junctions, however 85% of its junctions are connected to low performance copper lines susceptible for bad actors to tamper with. Upgrading the entire city’s infrastructure to Fiber would have involved major civil works, permit delays and traffic interruptions for months or years, with a cost that would greatly exceed city’s budget. Our hybrid fiber-copper network allowed for the city to use its 15% fiber deployment, upgrade instantly the performance of its existing 85% copper lines to fiber-grade and join the two under a comprehensive management and security software package from Actelis to create one seamless network, while providing major savings of both time and money.
In another project, we provided our hybrid networking connectivity solution with remote powering over the data lines to 3G and 4G base stations. Looking forward, we believe that a dense grid of 5G small cells would be required to enable global 5G coverage, which, may accelerate IoT deployment in many smart city projects and other dense areas. We believe that connecting and powering these 5G small cells to the network cost effectively and rapidly, in both hard-to-reach and easy-to-reach locations is key to successful and timely deployment for such network.
In 2022, we released our first product family of hardened, hybrid, encrypted fiber-copper product family with 10Gbps switching capacity.
In 2023, we expect to further release, multi-Gigabit, encrypted and cyber-hardened, hybrid fiber-copper product families higher performance for cities, campuses, roads and rail, airports and 5G base stations backhaul.
Cybersecurity
IoT networks are vulnerable to cyber-attacks as they often carry data related to critical processes and applications, such as provision of energy, water, gas and transportation services, to large populations. We believe that this data requires enhanced security within the network.
Our products all include cyber safety features that we are constantly developing. They currently include network traffic encryption and coding. We have developed and implemented a multi-layered “Triple Shield” technology that includes (i) information coding for resilience and security (for copper wires); (ii) multi-line information scrambling for increased resilience and added security (for copper wires); and (iii) an additional 256-bit hardware-based real-time encryption of data running over fiber, coax or copper — creating end-to-end protection for the entire hybrid network. Our network management software is also cyber-hardened and helps protect the system. Our systems have been selected for deployment in sensitive applications with U.S. DoD and other governments and military organizations, airports, utility companies, oil and gas companies, smart cities, rail and traffic applications globally.
We continue to invest in further strengthening our focus on cybersecurity capabilities and solutions for our customers. We have invested in software and hardware capabilities enhancing encryption of the data carried by our systems; we have introduced encrypted, cyber-hardened network management protocols; we have also introduced encryption of operating systems running on our devices. Furthermore, we successfully completed the certification of our product lines for Federal
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Intelligence Protocol Standards (FIPS) and were approved by the DoD’s Joint Interoperability Test Command (JITC) for interoperability and cybersecurity approved product list (APL) in 2024. We are exploring directions to provide software services to our customers that would allow them to flexibly safeguard their critical networks, and intelligently isolate and protect from bad actors attacking their networks. We refer to such objective as Cyber-Aware Networking.
Market Verticals We Address
We execute our vision through a multi-channel, global approach that combines our expertise, with the expertise of our trusted business partners, system integrators, distributors, and consultants.
We operate a vertical based marketing plan where we dedicate efforts and resources to each vertical. The IoT verticals that we have focused on include: (1) ITS; (4) rail; (2) federal and military; (3) airports; (5) energy and water; (6) smart city; (7) education campuses; and (8) industrial campuses. Our products are utilized within networks that have been deployed, for example by the City of Los Angeles, Highways England, Federal Aviation Administration, the US military, including Air Force and Navy, and Stanford University. Our customers benefit from rapidly and cost-effectively enabling their critical IoT functions such as traffic cameras and smart signaling, security cameras, smart parking meters and ticketing, rail signaling and control, electrical substation management and protection, military operations, and many more. To date, we have been most successful in selling to customers in the intelligent transportation systems, rail, federal and military, and airports markets, primarily in the US, Canada, Europe, and Japan.
State of IoT Connectivity Market
IoT infrastructure connectivity demand is growing rapidly. We believe there is an urgent need to connect tens of millions of locations with a fast and secure connection. A huge challenge for IoT projects is that implementing connectivity between different IoT points in a network can consume the majority of a project’s cost and time to implement, including unpredictable and unanticipated challenges that arise in each individual project.
According to a report by Facts and Factors (January 2022) Global Internet of Things (IoT) market is expected to grow to $1.8 trillion by 2028, at a Compounded Average Growth Rate (CAGR) of 24.5%.
According to a report by Grand View Research (December 2022), the smart city market for connectivity infrastructure alone is expected to reach to $6,965.02 billion by 2030 at a CAGR of 25.8%. Accordingly, we believe that the number of IoT applications requiring our fast, smart, and secure connectivity is immense and provides us with a great market opportunity to grow our business. From smart transportation systems (smart cameras, smart lights and signals, Vehicle to Everything, or V2X communication) and smart security (cameras and radars), to smart parking, smart rail, power station monitoring, and industrial and warehouse automation, we believe that we are uniquely positioned to address all of these applications in a versatile and flexible manner.
We believe that there is an unserved segment that is extremely large within that market pertaining to the challenges in protecting the interface between the physical security and the cybersecurity of campuses, enterprises, industrial IoT (IIoT), government facilities, Smart Cities and utility plants.
We believe that 5G mobile technology will play a major role in the implementation and scaling of IoT networks. According to research published by ABI Research in January 2021, 5G technology is expected to grow at a CAGR of 41.2% between 2021 and 2027 with a major part of that growth coming from servicing IoT networks. According to Grand View Research, the global small cell 5G network market size was valued at $999.43 million in 2021. The market is expected to grow at a CAGR of 72.7% between 2022-2030.
5G base stations and small cells need to be deployed in a dense grid of millions of locations and need to be connected to Gigabit speed communication and power. We are addressing these needs for the rapid connectivity and power, aiming at enabling faster and more cost-effective deployment of 5G in IoT.
Recent Developments
December 2023 Private Placement Offering
On December 17, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which we agreed to issue and sell to the Investor in a private placement (the “Offering”) (i) 301,000shares (the “Shares”) of common stock of the Company, $0.0001 par value (the “Common
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Stock”), (ii) 970,187 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 970,187shares of Common Stock and (iii) warrants to purchase up to 1,271,187shares of Common Stock (“Common Warrants” and collectively with the Shares and the Common Warrants, the “Securities”) for a purchase price of $1.18 per share of Common Stock and related Common Warrant or $1.1799 per Pre-Funded Warrant and related Common Warrant, for a total aggregate gross proceeds of approximately $1.5 million. The Offering closed on December 20, 2023.
Nasdaq Listing Compliance
On August 25, 2023, we received a notification letter (the “Notice”) from The Nasdaq Stock Market LLC (the “Nasdaq”) indicating that we were not in compliance with Nasdaq’s Listing Rule 5550(b)(1) because our shareholders’ equity for the quarter ended June 30, 2023 (the “Quarter”), as reported in the Company’s Form 10-Q for the Quarter, was below the minimum shareholders’ equity requirement of $2,500,000 (the “Shareholders’ Equity Requirement”).
The Notice had no immediate effect on our continued listing on Nasdaq, subject to our compliance with the other continued listing requirements. In accordance with Nasdaq rules, we have been provided 45 calendar days, to submit a plan to regain compliance with the Shareholders’ Equity Requirement (the “Compliance Plan”). If the Compliance Plan is accepted, Nasdaq may grant up to 180 calendar days from the date of the Notice for the Company to regain compliance with the Shareholders’ Equity Requirement. We submitted the Compliance Plan to Nasdaq to regain compliance with the Shareholders’ Equity Requirement.
May 2023 Private Placement Offering
On May 4, 2023, we entered into a securities purchase agreement with an accredited investor (the “Investor”), pursuant to which we agreed to issue and sell to the Investor in a private placement (the “May 2023 Private Placement”) (i) 190,000shares (the “Shares”) of Common Stock, (ii) 754,670 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 754,670shares of Common Stock and (iii) warrants to purchase up to 944,670shares of Common Stock (“Common Warrants” and collectively with the Shares and the Common Warrants, the “Securities”) for a purchase price of $3.705 per share of Common Stock and related Common Warrant or $3.7049 per Pre-Funded Warrant and related Common Warrant, for a total aggregate gross proceeds of approximately $3.5 million. The Offering closed on May 8, 2023. The Common Warrants have an exercise price of $3.58 per share, are exercisable immediately upon issuance and expire five and one-half years following the issuance.
Our Solutions
We have invested nearly $100 million over the years to develop our patented, multi-layered “Triple Shield” technology, which can serve all connectivity markets. Our Triple Shield technology includes signal processing SW that is implementing optimization of multi-line signal coordination, the elimination of interference to boost connectivity performance, the optimization of coding for resilience and security, multi-line data scrambling for low latency, increased resilience, and added security. Our solutions also offer implementation of 256-bit encryption of transmission for data running over fiber or copper for network-wide protection of data. Our technology is packaged into a small set of compact, hardened, feature-rich network elements (such as switches, concentrators and reach extenders) — the MetaLIGHT product family — that are used as building blocks addressing the needs of most wide-area IoT verticals and applications, in a space-and energy-saving fashion. The ability to drive remote powering and synchronization signals to network ends over existing copper transmission lines provides additional significant cost-and-time benefits to network operators.
In 2023, we introduced sthereenext-generation product families for hybrid-fiber-copper (or in short “hybrid-fiber”) Gigabit grade connectivity under the product family name, “Gigaline” or GL. Under the Gigaline families of hybrid-fiber networking solutions for fiber, copper and coax environments, we solved new challenges faced by our IoT and telecm customers and expanded our offerings.
One such product line, the GL800 aims at extending multi-gigabit fiber-grade connectivity to buildings, enterprises, IoT installations, campuses, and 5G/4G base stations.
A second product line, the GL900, extends Gigabit connectivity from fiber installations outside buildings (“homes passed” by fiber) into individual offices and apartments within MDUs and MTUs, without the need for landlord investment in re-wiring buildings with fiber. MDU/MTU market in the US alone is estimated by the company to include more than 18M buildings.
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A third product group, GL5000 and GL6000, that was introduced in 2023 includes over 40 variants of hardened, 10Gbps fiber switches to expand our fiber offering into the IoT market.
Our product offering includes our EMS network management software, providing built-in automation to help configure, manage, monitor, safeguard, install and maintain complex, hybrid networks of thousands of elements remotely. Our EMS management Software was enhanced to support these new products and strengthened with advanced security features to support better cyber production and meet DoD demands. Our products are also built for future integration with enhanced security services we may introduce in the future.
We aim to continue developing our technology to include more system-wide security and further hybridity across all types of infrastructure. We will also seek to include cutting-edge computing capabilities to serve all connectivity needs for our IoT customers, in an effective and easily deployable way, while maintaining our commitment to serve our existing Telco customers.
We believe that our strong reputation as a provider of high-quality solutions, and the trust we gain from being recognized as a solid solution provider by prominent customers (such as the U.S. DoD) help us execute our strategy.
Products
•Gigaline 800/900/5000/6000 Series. Advanced, software managed, temperature and cyber-hardened, layer 2 and layer3, hybrid-fiber-copper switching devices, at multi-gigabit speeds of up to 10Gbps. These devices deliver a much broader selection of solutions for large and small networks, at higher speeds, and better security, in support of hybrid-fiber networks that contain more fiber, and covering IoT, MDU and MTU markets.
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| •MetaLight ML500/600/700/Series. EADs (Ethernet Access Devices) are a series of products which are cost efficient, compact and hardened Ethernet switches for long-distance hybrid-fiber networks, located near the IoT devices connected to the network. For example, our EAD is used to connect street traffic lights and nearby controllers, cameras and IoT devices to the traffic control center, where either fiber, copper or coax infrastructure cabling exists. This product family can be installed either indoors or outdoors, including under extreme weather conditions.
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| •ML2300 Aggregator Series. This product is designed for large, medium, and small aggregation/operating and control centers. Network aggregators can connect hundreds of locations or elements. For example, control centers of highways could use such aggregators to communicate with hundreds of EADs installed in cabinets along highways in order to securely connect IoT devices (e.g. security cameras) to the highway network.
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| •XR239 Series. This product is installed on long copper lines and can be remotely powered from the data lines themselves, while a special algorithm (Dynamic Spectral Software) is ensuring minimal interference with other signals running on adjacent conduits in the same cable. It featuresSelling Stockholder and its affiliates owning, after exercise, a repeater to extend connectivity range to long distances,number of shares of common stock in some cases up to 100Km. The repeater is installed outdoors and is resistant to cold, hot, rain, ice or snow. Our repeaters have been installed along rail systems in Alaska and Canada and have been safely performing for more than five years.
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•Advanced MetaLIGHT/Gigaline EMS software. Our EMS (Element Management Systems) software enable remote management, monitoring, maintenance, and configurationexcess of the installed equipmentbeneficial ownership limitation. The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
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| (2) | Consists of (i) 301,000 shares of common stock issued in the network. It is designed to monitor, control and configure our network elementsDecember 2023 Private Placement, (ii) 970,187 shares of common stock issuable upon the exercise of pre-funded warrants in the field, locally or remotely, for networksDecember 2023 Private Placement, and (iii) 1,271,187 shares of various scales upcommon stock issuable upon the exercise of warrants issued in the December 2023 Private Placement, (iv) 944,670 shares of common stock issuable upon the exercise of warrants issued in the May 2023 Private Placement, and (v) 55,000 shares of common stock issuable upon the exercise of warrants issued in September 2023. All of these warrants are subject to thousandsa beneficial ownership limitation of elements. Our implementation during 20214.99%, which such limitation restrict the Master Fund from exercising that portion of the warrants that would result in the Master Fund and 2022 for our endits affiliates owning, after exercise, a number of shares of common stock in excess of the beneficial ownership limitation. |
| -user(3) customer Highways England, | H.C. Wainwright & Co., LLC is a registered broker dealer and has a registered address of c/o H.C. Wainwright & Co., LLC 430 Park Ave, 3rd Floor, New York, NY 10022. H.C. Wainwright & Co., LLC has sole voting and dispositive power over the securities held. The number of shares beneficially owned prior to this offering consist of shares of common stock issuable upon exercise of Placement Agent Warrants, which were received as an example, is using such EMS systems to control thousands of EADs connecting IoT devices along thousands of highway miles. It includes detailed monitoring, logging and tracking of functions both locally and remotely, to allow for easy debugging and configuration of networks, security management, graphical display of network topologies, management of licenses, remote software download, and connectivity to other network and management systems. EMS may also manage other software keys and elements (for example, for encryption or other cyber-safety functions), for which customers may pay separatelycompensation for the licenses. | | Offering. H.C. Wainwright & Co., LLC acquired the Placement Agent Warrants in the ordinary course of business and, at the time the Placement Agent Warrants were acquired, H.C. Wainwright & Co., LLC had no agreement or understanding, directly or indirectly, with any person to distribute such securities. |
We also offer support and maintenance services together with the sales of our product. This includes consulting, telephone troubleshooting and remote support, training, product repairs, and software updates.
Product Specifications
Our products use advanced signal processing implemented at the system level, with an approach that treats multiple copper lines as one multi-line channel, which we believe to achieve the following benefits:
•Speeds ranging from 10MB to 10GBPS; distances up to 100Km (speeds a lower for longer distances) infrastructure
Supporting any hybrid combination of new Fiber infrastructure and existing copper and coax infrastructure, supporting data security an encryption protocols, certified for FIPS by US DoD labs; supporting outdoor hardened environmental requirements dense and compact to save space and allow for flexible location setting.
•Automatic calibration tools and automated management SW enable hassle-free installation withing hours vs. weeks over existing wiring.
•Improve communication reliability even if copper lines are of poor quality, so that network operators can, in most cases, guarantee their customers what we believe are Service Level Availabilities (SLAs) and uptime similar to that of fiber optic infrastructure regardless of the media used, and uptime that allows our customers to support mission-critical applications.
In addition to these main benefits, we have focused our efforts and implemented technologies in our products in order to achieve the following:
•Transmission in the copper lines to take into account signals in neighboring lines to minimize crosstalk interference and be “Spectrally Friendly”;
•Multi-line spatial coding scrambling of data in a way that enhances connection immunity to interference, and makes tapping into the data very difficult;
•Integration of remote powering and data on the same copper pairs;
•Minimizing transmission delay to support delay-sensitive applications; and
•Ability to safely, and accurately transmit clock signals for cellular base station synchronization (not available yet for 5G).
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Since our inception, our business was focused on serving telecommunication service providers (Telecom), also known as Telcos, for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications. In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the IoT markets. Our operations are focused on our fast-growing IoT business while maintaining our commitment to our existing Telecom customers.
Our Competitive Advantage
We have invested heavily and over more than 10 years in the development of copper technologies and hybrid-fiber communication systems to create a solution that enables high-speed communication over real-life networks of mixed media, securely, reliably, and with Gigabit-grade resilience.
Copper and coax lines are readily available in billions of locations. They are often buried in the ground, running in the walls of buildingsor hanging from telephone poles, in bundles of tens or hundreds of wires.
Copper wires never designed for long-reach, secure, high-speed communication. Attempts to deliver high-speed would encounter many problems, including signal attenuation, cross-talk interference from other lines in the Bundle and from any external electrical sources, variable quality and signal interruptions, and variable latency. Such wires are also relatively easy to tap into physically, and the information is also radiated outside of the cable and may be exposed to security threats.
In order to correct the issues with providing high speed communications over copper wiring, we developed technologies utilizing a multi-line approach, encoding, scrambling and processing the signals at system level (rather than at the single lines level), and finally also offering data encryption, to combat interference, electromagnetic noise, and issues with copper line quality and data security.
The next step was to integrate our existing technologies into hybrid-fiber building blocks, that provide seamless communication over mixed, real-life fiber-copper-coax networks, and many other advantages.
We believe our products offer a unique solution on the market in terms of value, by providing the following:
•High performance hybrid-fiber communication system
•Speeds from 10Mbps to 10Gbps
•Reach of up to 100Km (speed declines over long distances in copper)
•Robust connectivity allowing Gigabit-grade service SLAs in various harsh environments over copper, coax or fiber
Rapid installation in hours vs. weeks or months if new infrastructure is needed
•Cyber-protection on several levels, including Triple Shield Protection:
•Multi-line data scrambling and coding (copper)
•256-bit system-wide encryption
•System level protection (encryption and other protections) of management software, operating system and traffic flow
Military — grade, DoD certified FIPS cyber protection
•Dense, feature-full design to replace multiple alternative elements in the market, and allow for installation that is compact, lower cost and power saving:
•Advanced switching functions supporting complex network topologies
•Support for both advanced, digital IoT devices as well as existing analog devices with serial interfaces — to save the need to replace these devices while allowing them to join the digital network
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•Power feeding for cameras and other IoT devices with the data cable
•Ability to install our IoT building blocks in remote locations with no power. Power can be provided from the communication line
•Ability to provide precise synchronization over the communication lines to base stations
•Routing functions
•Support for spectrally-friendly reach extenders up to 100Km with minimal impact on other communication lines
•Automated software tools for installation and management (including automated line calibration and configuration recognition during installation to avoid manual work, advanced management systems that allow remote troubleshooting of any line connected to the system to save on operation and management time)
We believe that the combination of these advantages provides our customers with a highly cost-effective solution to quickly obtain IoT connectivity anywhere in their network.
We believe that our hybrid-fiber solutions have a significant competitive advantage in several layers: (a) copper performance (speed, reach, link stability and data security); (b) seamless fiber-copper-coax integration and end-to-end data encryption; (c) overall system cyber-hardened design; (d) versatile, compact and feature-dense products with a good fit to the vast majority of applications; (e) very high product and transmission reliability; automatic configuration tools and advanced management of every element in the field; and (f) highly cost-effective when compared to alternatives. We believe that these advantages lead to very good value for our customers for both rapid deployment to all locations, regardless of whether these locations are hard to reach. We also believe that these characteristics provide us with a competitive advantage against many, if not all, companies in our space, such as Cisco, Rad, Nokia, Siemens, Belden and others.
We have hundreds of large, medium and small network operators as end users of our products, including municipalities, railway, airports, electricity, water infrastructure companies as well as other governmental agencies and military customers. We believe that we enjoy a strong reputation for offering reliable, high-performance and high-end products. We expect that the acceptance process for our new products for existing customers will become simpler due to customers positive accumulated experience working with us. We also have many non-exclusive third-party distributors, resellers and system integrators and partners around the world, located in the U.S., Canada, Philippines, Germany, Italy, Spain, Scandinavian countries, Greece, Netherlands, Japan and India. These non-exclusive third-party distributors are used to selling our products, and we believe that they appreciate the reliability of our products and the quality of service and support that we provide. All of these advantages constitute an entry barrier, which we believe may make it more difficult for a competitor to reach a similar status.
We believe that over the past years, we have built a reputation for providing, according to our customers, reliable, high-quality communication solutions with better copper and hybrid fiber performance than other alternatives on the market. A competitor who wants to enter the market will have to compete with our reputation, which has been acquired over a long period by providing long-term quality service to hundreds of network operators and hundreds of thousands of end customers and IoT elements.
Our Sales and Marketing Strategy
We operate through two regions — Americas and International (consisting of EMEA, or Europe, Middle East and Africa, and APAC, or Asia Pacific) in a matrix with a vertical structure that is described below. Our sales and support teams are currently located in the United States, Mexico, Germany, Israel, and India. We also execute our sales and marketing plan through a multi-channel by vertical global approach that combines our expertise with the expertise of our trusted business partners. Our current business partners, as well as the partners we will seek in the future, are system integrators, distributors, contractors, resellers, and consultants. Our business partners are currently located in North America, Central America, Europe, India, Singapore, China, Australia, Vietnam and Japan. Once we identify a relevant business opportunity in a new territory, we seek to partner with local business partners or agents. We believe our strong brand name of high-quality communication solutions, as well as the credibility we gain with esteemed customers such as the U.S. DoD, enhances our ability to provide our products and services. For example, we achieved
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UL laboratories compliance with FIPS 140-2 cybersecurity standard required by the United States Department of Defence (DoD) and the Joint Interoperability Test Command (JITC) labs approval of the Company’s products for cybersecurity and interoperability, putting the products in the DoD Approved Products List (APL).
We operate a vertical-based marketing plan where we dedicate tailored solutions and individual resources to each specific vertical. Our verticals include Intelligent Traffic Systems (ITS), rail, smart city, Telecom, utilities, federal and military.
ITS
ITS include customers who manage road systems such as departments of traffic on either the municipality, county, state, or national level. The types of applications in this vertical that require communication include road cameras, lane management systems, and road signs.
Rail
Rail systems include customers who own and operate traditional inter-city rail lines as well as light rails. Some applications requiring communication in this vertical are central train control systems, rail signals, safety cameras and alert sensors, and rail station communication. We currently have projects within this vertical in North America, Europe, and Asia Pacific.
Federal and Military
Our current and future federal and military federal aviation authorities, US military, Air Force and Navy bases, and other government and military facilities. For example, during 2022, we were selected by Norseman Defense Technologies as an authorized sales partner to provide our solutions to all branches of the US Military and Government. The types of applications within this vertical that requiring communication include radars, perimeter security systems, energy systems, offices, laboratories and residences. We currently have projects within this vertical in North America, Europe and Asia Pacific.
Airports
Airports include customers who are either a State or Federal airport agency, or a service provider to the airport industry. The types of applications within this vertical requiring communication are airport security, baggage management, and airport Wi-Fi. Since 2022, we are delivering to our airport integration customer, who is a worldwide market-leader in airport operation technology, with which we signed an agreement to provide our solutions to hundreds of airports in 39 countries.
Energy and Water
Energy and water include customers such as electric utilities, oil companies and water utilities. The types of applications within this vertical that require communication are sub-station monitoring, oil and gas pipeline and refineries, electric and water flow monitoring, and perimeter security. We have projects within this vertical in North America and Europe.
Smart City
We believe the goal of nearly any city worldwide is to become smarter and better serve its residents and visitors. Smart city customers include such municipalities. The types of applications in this vertical requiring communication include security cameras, parking management, energy and water management, waste management, digital signs, and provision of Wi-Fi connectivity. We currently have projects in more than 100 cities, mostly in North America and Europe.
Telco
Telco customers include communication service providers of both wired and wireless services (including 4G and 5G). The types of applications within this vertical requiring communication include enterprise offices, branch offices, residential buildings, educational facilities and back-haul for mobile base stations.
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Channel and Territory coverage
The majority of our business is conducted indirectly through various types of business partners, namely system integrators, distributors, contractors, resellers and consultants. Nevertheless, our team often accompanies a channel partner during the selling process to help secure a deal with an end-user. We seek to cover the geographic territories in which we sell, in combination with the target verticals described above. In this effort, we take advantage of existing strong relationships with business partners in the United States, Canada, Europe, Latin America, and Asia Pacific and also seek to recruit new business partners that can help us expand our coverage.
In addition, we maintain a website (at www.actelis.com) tailored to the IoT strategy and is expanding our marketing initiatives (professional organizations, shows, online targeting, online campaigns and lead generation) to grow our opportunity pipeline.
We operate through two main regional sales teams — Americas and International (consisting of EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific)) in a vertical model similar to that which was described in our marketing strategy above and generates its pipeline of leads and opportunities through a combination of channel presence, on-line presence as well as direct touch. Our sales teams are very experienced in the target verticals and have significant competencies in the target networks of decision makers. We intend to invest in expanding this presence and strength.
Software and Services
Our products consist of hardware and an embedded software that function together to deliver the product’s essential functionality. Our products are sold with a two-year warranty for repairs or replacements of the product in the event of damage or failure during the term of the support period, which is accounted for as a standard warranty. Services relating to repair or replacement of hardware beyond the standard warranty period are offered under renewable, fee-based contracts and include telephone support, remote diagnostics, and access to on-site technical support personnel.
We also offer our customers our EMS management software, either as perpetual or term-based. EMS is optional and is being sold separately from our hardware products, and has been sold either as a per-element license, or as a license for a whole network.
Our customers may request added functions and features for their specific need which we can customize for an additional fee.
We also offer our customers product support services which include telephone support, remote diagnostics, and access to on-site technical support personnel. Such support service is sold as a standalone contract or in combination with EMS management software and is offered for a term, usually 12 months with a renewal option.
Additionally, our customers can purchase software support service which allow them to receive some additional features or free upgrades. Such support service is sold as a separate contract.
We offer service contracts at different levels (Silver, Gold, Platinum), which may include different levels of support (remotely or in the field), hardware repairs, spare parts, help with network design, and SW/HW upgrades. Such service contracts are sold separately from the sale of hardware products and may be sold combined with our EMS software licenses. It usually covers periods post the expiration of our warranty period and would be renewed on an annual basis. The cost of the service is derived from the size of the network, and the level of support required.
Competition
We compete in markets for networking and communications services and solutions for service providers, businesses, government agencies and other organizations worldwide. While our hybrid-fiber offerings are unique in our opinion, providing the highest value to network operators, our customer may still elect to implement their networks in other ways.
As such we compete with a number of companies in the markets we serve. Our key competitors include Moxa Technologies, , FlexDSL Telecommunications AG, EtherWAN Systems, Inc. and Belden Inc.
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We believe the following competitive attributes are necessary for our solutions to successfully compete in IoT and Telecom networking markets, and likewise we believe that we are providing leading products in all the categories below:
•the performance and reliability of our solutions over any wireline (non-wireless) medium;
Rapid deployment/implementation
•cost of deployment and return on investment in terms of cost savings;
•sophistication, novel and innovative intellectual property and technology, and functionality of our offerings;
•cross-platform operability;
•security;
•ease of implementation and use of service;
•management capabilities;
•high-quality customer support; and
•price.
We believe that we compare favorably on the basis of the factors listed above. However, many of our competitors have substantially greater financial, technical, and marketing resources; relationships with large vendor partners; larger global presence; larger customer bases; longer operating histories; greater brand recognition; and more established relationships in the industry than we do. Furthermore, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. See “Risk Factors — New competitors may enter the marketplace and begin to compete with the Company.”
Manufacturing, Procurement and Logistics
We take advantage of the combination of our inhouse skills and those of the third parties we partner with to execute our operational tasks which are planning and manufacturing finished goods inventory, planning and procuring raw materials and delivering products to our customers based on promised delivery schedules.
Our raw material consists of electronic chipsets, FPGA components, modems, and other electronic and mechanical components. Most of those components are procured by our contract manufacturers and we assist them as needed in specific cases. For example, since the breakout of COVID19, as the world is experiencing shortages of electronic components, we have assisted our manufacturers in acquiring components that are harder to find. We also secure components as have been designationed to be the close to end of life by their manufacturers to ensure adequate quantities of future product shipments.
Our products are assembled by various contract manufacturers, located in Israel and in Taiwan who possess the expertise of assembly and quality control required for electronic manufacturing in a turn-key fashion. Some of our products are manufactured to our specifications under an OEM arrangement. The company uses state-of-the-art logistics services from the best providers worldwide and also has in-house expertise in executing such required processes.
We believe that we can add and/or replace our contract manufacturer if necessary. We have successfully transitioned from one contract manufacturer to another in the past, and we believe that a transition would be achievable, if necessary, in the future typically within three to six months.
Warranty
Our products are generally sold with a standard warranty of two years for product defects, as well as technical center support with properly trained personnel, during normal business hours, to address incidents raised customers. Within the warranty agreement, we offer to repair or replace defective products, or software bug fixes. Upon expiration of the warranty period, the customer has an option to purchase an extended warranty contract for an additional fee, typically for one or more periods of 12 months.
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Growth Strategy
Global Expansion and Recognition
We intend to leverage (a) the customers, partners, and representatives’ presence in over 30 countries including the Americas, Europe and Asia, (b) brand recognition developed over more than 10 years, and (c) the fact that our products are differentiated, as we believe, and offer unique value — to expand into virtually all IoT verticals, and become the vendor of choice for cyber-protected building blocks for all IoT networking globally.
In order to achieve the right level of global coverage, we continue to expand our network of partners and representatives, as well as reputable advisors, and aim increasingly at partnering with larger numbers of companies with global presence. These can be system-integrators, value-added resellers, contractors, distributors, and consultants. For example, in 2022, we selected Norseman Technologies to serve as a business partner integrator of our products to the Federal and military markets in the US through their acquisition contracts. Additionally, we signed up new business partners in Europe and Asia Pacific, such as in Singapore, China, Vietnam and Malaysia.
We are investing in growing our sales, channel management and support teams, and dedicate resources which specialize in specific verticals in each of the theaters. In July 2023, we hired a new SVP of Sales, Americas who is executing campaigns our sales strategy in the United States, Canada, Central and South America. We continued in 2023 to invest in marketing activities through social media, industry shows and conferences and other online means. We also are investing in lead-generation and management intenrally and through third-parties who specialize in this practice.
Expansion of Multi-year deals
Over the past years, we entered into several large multi-year contracts with ITS, military, airports, and more that will generate more predictable sales for the next several years. For example, since the IPO, we announced several new deals we won or started to deliver, such as the worldwide airport technology provider, a provider of energy services to a major European city in a major European country, the city of San Jose, California and Northern Ireland railways. We intend to expand this strategy by investing in sales and marketing presence to extend the length these contracts and add many others.
Expansion into Cybersecurity, Recurring Revenue Model
Cybersecurity is essential for IoT infrastructure. Such security must be addressed at the data traffic, switching, and network management level. Encryption is a fundamental building block to achieve the necessary protection, preferably at a low networking layer. Our products are already capable of delivering sensitive information for many critical IoT applications, and we are investing more in making this a strong differentiator, and to have our products recognized as the most cyber-safe IoT building blocks in the growing secure IoT communication market.
Beyond that, we are expanding our cyber-protection capabilities to provide protection not only of the data that is running in the system but also to help protect elements and devices connected to the network, especially in the interface between the physical and cybersecurity systems. We are refering to such objective as Cyber-Aware Networking.
Adding the 5G Connectivity for IoT
A dense grid of 5G small cells is required in order to build a global 5G coverage, which, as we believe, may be key to IoT deployment in many smart cities and other dense areas. We believe that connecting these 5G small cells to the network cost effectively and rapidly, in both hard-to-reach and easy-to-reach locations, as well as powering them cost-effectively is key to successful and timely deployment.
5G networks deployment is slowed down, as we believe, by the challenge to provide connectivity and power to millions of base station locations that are required for an effective 5G network.
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Adding Edge Computing Capabilities
Once mass deployment of our IoT connectivity building blocks is achieved, we are planning to leverage our presence in the field to offer our customers the option to host and integrate various applications into our building blocks, many of which will be installed in critical information junctions for IoT networks. Such applications may include video analysis, data monitoring and extraction, firewalls and many others, and would enable our customers, as we believe, to develop recurring revenue models for them as well as for us.
Some examples for such applications that we have been evaluating are:
•Enhanced cyber-protection for devices and users;
•Video processing and machine vision (serving the AI ecosystem such as, intruder detection, road safety and robotics); and
•Smart video transmission/compression for delivery of video over 5G/mobile networks.
We began working on such capabilities in 2023, and expect applications to be released starting late 2024.
United States’ Bipartisan Infrastructure Law
In November 2021, President Biden signed the Bipartisan Infrastructure Law to invest approximately $1.2 trillion to significantly upgrade the United States’ infrastructure. Specifically, the Bipartisan Infrastructure Law mandates investing the following amounts: $110 billion to rebuild many of America’s roads and bridges; $39 billion in public transit; $66 billion in high-speed rail; $108 billion to upgrade the nation’s electricity grid; $55 billion to expand access to clean drinking water; $25 billion to modernize several US airports; $650 billion in previous authorized funding for roads including nearly $300 billion for the Highway Trust Fund; and $65 billion to ensure that every American has access to high-speed internet through deploying broadband infrastructure.
We believe that this significant increase in infrastructure spending by the United States Government will likely result in investments in our communication infrastructure solutions, as these spending initiatives are aimed at our targeted verticals.
Growth through Mergers and Acquisitions
We continue to evaluate potential growth through mergers and acquisitions opportunities in situations where we believe that a transaction will fill business gaps or add key business operations without requiring us to wait years for marketing and sales cycles to materialize. The resulting combination of our existing products and services, new key personnel, and strategic partnerships through M&A could provide new offerings to our existing market.
If we target businesses in the same sector or location, we hope to combine resources to reduce costs, eliminate duplicate facilities or departments and increase revenue. We believe this strategy will provide for accelerated growth and maximize investor returns.
Environmental
We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that impact issues specific to our business.
Human Capital Resources
As of December 31, 2023, we had approximately 49 employees and contractors, of which 43 were full-time employees, including 19 in sales and marketing, 22 in research development, engineering, and operations and 8 in general and administration. We have approximately 34 employees and contractors in Israel, 11 in the U.S., 3 in Europe and 1 in Asia. Our U.S.-based employees are employed through a Professional Employer Organization, providing employee benefits and services.
We believe our culture and principles enable us to attract, retain, motivate and develop our workforce as well as drive employee engagement. We believe an engaged workforce leads to a more innovative and productive company that serves its customers better. Our employees work to ensure that our products and services connect and protect our
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customers critical infrastructure. A testament to that is the long-term retention of many of our employees and their loyalty to us. We measure each one through a goal setting and measurement system to maximize our enterprise value and employee career potential.
We support and strive for ethnic and gender diversity.
Legal Proceedings
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material adverse effect on our business, financial position, results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Government Regulation
Our products are required to be certified for safety and local standards in each country that we sell in as needed. In the United States, Canada, Europe, and Japan our products are UL certified (safety), EN (emissions Regulation), VCCI (Japanese emissions standard), CISPR (European emission standard), ICES (Canadian radio frequency emissions standards), ETSI (European electromagnetic compatibility standard), CFR (US Federal Broadcasting Regulation), as well as IEC (European Safety Standard). We have also received the JITC (Joint Interoperability Test Command) certification of meeting certain cybersecurity standards required by the U.S. Department of Defense.
We are subject to numerous federal, state, provincial, local, and foreign laws and regulations relating to the storage, handling, emission, and discharge of materials into the environment, including the Comprehensive Environmental Response, Compensation, and Liability Act; the Clean Water Act; the Clean Air Act; the Emergency Planning and Community Right-To-Know Act; the Resource Conservation and Recovery Act; and similar laws in the other countries in which we operate. While we believe that our existing environmental control procedures are adequate, we will continue to evaluate and update our procedures as needed to address new or changing aspects of environmental matters.
Intellectual Property
We rely on a combination of trade secrets, patent, trademark and copyright laws in the United States, as well as intellectual property licenses and other contractual rights (including confidentiality procedures, contractual provisions, and non-disclosure and assignment-of-intellectual property agreements with our employees, independent contractors, consultants and companies with which we conduct business) to establish and protect our A.I. technology, intellectual property and proprietary rights, trade secrets, databases, and our brand.
We have registered Actelis Networks as a service trademark in the United States, and we are the registered holder of the domain name Actelis.com that includes “Actelis Networks, Inc.”. We also have 17 registered patents in the United States; 5 registered patents in Europe, 1 registered patent in Mexico, 1 registered patent in Indonesia, and 1 WIPO patent application, all of which in the general area of high-speed carrier class Ethernet service and transport over bonded VDSL2, G.SHDSL as well as Fiber covering various aspects of our technology. While we continue to consult with counsel on the advisability to seek patent protection of some of our algorithms, we rely heavily on trade secrets to protect our intellectual property around our technology.
Without accounting for any potential patent term adjustments or extensions or other forms of exclusivity with respect to our U.S. issued patents, 4 expire between 2024 and 2026, 5 expire between 2027 and 2030, and 8 expire between 2031 and 2038. Any patent issuing from the pending WIPO patent application will begin to expire in 2041. With respect to our European patents, 3 European patents are expected to expire between 2024 and 2026, and 2 European patent is expected to expire between 2027 and 2038. Our Mexican patent is expected to expire in 2026 and our Indonesian patent is expected to expire in 2028.
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We continue to maintain our intellectual property and confidential business information in a number of ways. For instance, we have a policy of requiring all employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. Our employee agreements also require relevant employees to assign to us all rights to any inventions made or conceived during their employment with us in accordance with applicable law. In addition, we have a policy of requiring individuals and entities with which we discuss potential business relationships to sign non-disclosure agreements. Lastly, our agreements with clients include confidentiality and non-disclosure provisions.
Corporate Information
We were incorporated in Delaware in 1998. We completed our initial public offering on May 17, 2022 and our common stock is currently listed on the Nasdaq Global Select Market under the symbol “ASNS.” Our principal executive offices are located at 4039 Clipper Court, Fremont, CA94538, and our telephone number is (510)-545-1040.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge on the SEC’s website at www.sec.gov. or on our website at https://actelis.com/when such reports are available on the SEC’s website. We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The contents of the websites referred to above are not incorporated into this filing.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors, including their ages as of the date of this prospectus:
| Name(4) | Consists of 66,127 shares of common stock issuable upon exercise of Placement Agent Warrants issued in connection with the May 2023 Private Placement. |
| (5) | Age
| | Position
| Tuvia Barlev
| | 62
| | Chief Executive Officer, Secretary and ChairmanEach of the Board
| Yoav Efron
| | 55
| | Chief Financial Officer
| Eyal Aharon
| | 51
| | Vice President R&D
| Michal Winkler-Solomon
| | 56
| | Vice President Marketing
| Yaron Altit
| | 54
| | EVP Sales Intl.
| Hemi Kabir
| | 54
| | Vice President, Operations
| Brett Harrison
| | 59
| | Senior Vice Presidentselling stockholders is affiliated with H.C. Wainwright & Co., LLC, a registered broker dealer with a registered address of Sales, North Americas
| Elad Domanovitz
| | 45
| | Chief Technology Officer
| Israel Niv(1)(2)(3)H.C. Wainwright & Co., LLC, 430 Park Ave, 3rd Floor, New York, NY 10022, and has sole voting and dispositive power over the securities held. The number of shares beneficially owned prior to this offering consist of shares of common stock issuable upon exercise of placement agent warrants, which were received as compensation. The selling stockholder acquired the placement agent warrants in the ordinary course of business and, at the time the placement agent warrants were acquired, the selling stockholder had no agreement or understanding, directly or indirectly, with any person to distribute such securities.
| | 70
| | Director
| Joseph Moscovitz
| | 69
| | Director
| Dr. Naama Halevi-Davidov(1)(2)(3)
| | 53
| | Director
| Noemi Schmayer(1)(2)(3)
| | 56
| | Director
|
____________
| (6) | Consists of 890 shares of common stock issuable upon exercise of Placement Agent Warrants issued in connection with the December 2023 Private Placement. |
(1)Member of the Audit Committee
| (7) | Consists of 3,003 shares of common stock issuable upon exercise of Placement Agent Warrants issued in connection with the December 2023 Private Placement. |
(2)Member of the Compensation Committee
| (8) | Consists of 57,060 shares of common stock issuable upon exercise of Placement Agent Warrants issued in connection with the December 2023 Private Placement. |
(3)Member of Nominating and Corporate Governance Committee
| (9) | Consists of 28,030 shares of common stock issuable upon exercise of Placement Agent Warrants issued in connection with the December 2023 Private Placement. |
Tuvia Barlev, Chief Executive Officer, Chairman of the Board, and Secretary
Mr. Barlev serves as our Chief Executive Officer and Secretary since January 2013 and has served as the Chairman of the Board since 2010. Previously, Mr. Barlev founded our company in 1998 and served as the Chief Executive Officer until January 2010. Mr. Barlev is a seasoned serial entrepreneur with more than 25 years of experience in high-technology leadership in military, telecommunications, e-commerce, Big Data and clean energy. Prior to joining Actelis, he was head of the R&D organization at Teledata (acquired by ADC in 1998), a global supplier of advanced digital loop carrier (DLC) equipment from 1996 to 1998. Previously, Mr. Barlev served as a senior research officer with the Israeli government, and he was also founder, Chairman/Acting CEO at companies including Superfish Inc., a leading provider of visual search technology, from 2007 to 2015; Leyden Energy, a leading supplier of breakthrough battery technology from 2010 to 2012; Adyounet Inc., provider of advanced direct marketing services over the Web from 2006 to 2009; and SafePeak LTD., provider of hot data acceleration platform for Big Data across the cloud from 2011 to 2012. Mr. Barlev holds BSC and MSEE degrees from Tel Aviv University, both Summa Cum Laude.
Yoav Efron, Chief Financial Officer
Mr. Efron serves as our Chief Financial Officer since January 2018. Mr. Efron is responsible for all financial aspects of our business and for strategy, as well as Information Technology and Human Resources. Prior to joining Actelis, Mr. Efron was the CFO of TriPlay Inc. and eMusic Inc., a B2C cloud media services company from 2012 to 2017. From 2010 to 2014, Mr. Efron was an entrepreneur in energy efficiency and from 1998 through 2010 worked at Avaya Inc., a Fortune 500 telecommunications company in various executive financial roles including Finance Director. Mr. Efron earned his bachelor’s degree in economics and management from the Hebrew University of Jerusalem.
Elad Domanovitz, Chief Technology Officer
Dr. Domanovitz serves as our Chief Technologies Officer since April 2017, prior to that he served as director of technologies from 2014. Dr. Domanovitz brings extensive experience envisioning and developing Actelis’ research capabilities. As Actelis’ Chief Scientist, Dr. Domanovitz is responsible for driving Actelis’ technology development and aligning it with the company’s overall vision and worldwide go-to-market strategies. Dr. Domanovitz is also responsible for enriching the Actelis IT portfolio and he also actively participates in standards committees. Dr. Domanovitz joined Actelis in November 2005 and has since held several positions in the Algorithms and CTO groups. Dr. Domanovitz holds a Ph.D., MSc. and a BSc (cum laude) in Electrical Engineering from Tel Aviv University.
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Eyal Aharon, VP R&D
Mr. Aharon serves as our Vice President of R&D since January 2018. Previously, Mr. Aharon served as our director of software engineering from 2011 through December 2017. Mr. Aharon brings extensive experience in Research and Development to Actelis, having over 20 years in the telecommunication industry. As Actelis’ VP of R&D, Mr. Aharon is responsible for all current and strategic activities of the R&D group. Mr. Aharon joined Actelis in 2000 and has since held several positions within the R&D group. Prior to joining Actelis, he held several positions in ADC Teledata. Mr. Aharon holds a BA in Computer Science and Economics from Tel-Aviv University, and a Master’s in Economics from Tel-Aviv University.
Michal Winkler-Solomon, VP Marketing
Ms. Winkler-Solomon serves as our Vice President of Marketing since March 2017 and prior as AVP of Product Marketing from March 2016. Ms. Winkler-Solomon has more than 20 years of Product Marketing and Product Management experience. Since joining Actelis in 2001, Ms. Winkler-Solomon has held Product Management, and Product Marketing positions, where she has been responsible for product specifications, positioning, and marketing of the company’s industry-leading Ethernet in the First Mile product line.
Prior to Actelis, Ms. Winkler-Solomon held positions as Chief Technology Officer of BeConnected. Prior, Ms. Winkler-Solomon held positions as Product Manager of the Access Division at Telrad Telecommunications where she led Nortel Networks product development. Prior, Ms. Winkler-Solomon spent five years developing communication systems for the Israeli army. Ms. Michal Winkler-Solomon holds a B.Sc in Electrical Engineering from the Technion and an MBA from Tel Aviv University.
Yaron Altit, Executive Vice President, International Sales
Mr. Altit serves as our Vice President of International Sales since June 2017. Prior to joining us, Mr. Altit was self-employed from 2013 to 2017. Mr. Altit brings more than 25 years of experience to his position as Actelis’ Executive Vice President International Sales business unit, including vast experience in sales management positions in the Telecom, Datacom, and control plane industries. In his role, Mr. Altit is responsible for all EMEA & APAC regions customer-facing functions, including sales, customer support, pre-sale engineering, business development and regional marketing. Mr. Altit held executive positions in several telecommunication companies, including management of Sales, Customer Support and Business Development at Schema, where he was the General Manager of EMEA Business unit. Previously, Mr. Altit held top sales management positions at Mindspeed Technologies. Mr. Altit was responsible for European and International sales at T-Soft (now Cramer Systems, an Amdocs OSS division). Mr. Altit studied towards a B.A. in Economics and Accounting at the Ramat Gan College.
Hemi Kabir, Vice President, Operations
Mr. Kabir serves as our Vice President of Operations since January 2015. With more than 20 years of experience in operations, supply chain and engineering, Mr. Kabir manages Actelis’ Supply Chain, Purchasing, Quality Assurance and Operations Engineering departments, and is responsible for Actelis’ operations including manufacturability, continuous improvement initiatives and cost-savings activities. Prior to joining Actelis, Mr. Kabir was head of Supply Chain management and purchasing at “Better place” Israel, where he was in charge of defining and managing the supply chain divisions. Mr. Kabir holds MBA degree from Heriot Watt University, BA degree in management from the Open University and Industrial practical engineering diploma from Israeli College of Management.
Brett Harrison, Senior Vice President of Sales, North Americas
Mr. Harrison brings more than 20 years of experience including sales leadership, strategy and business development in various technology fields such as communications and cyber security. Prior to joining the Company, since September 2022, Mr. Harrison was the President of Sage Holdings, LLC. From June 2020 until August 2022, Mr. Harrison was the RVP of Sales at Palo Alto Networks. From June 2019 until June 2020, Mr. Harrison served as the VP of North American Banking Service Sales at NCR Corporation. From January 2017 until June 2019, Mr. Harrison served as the VP of Telco Sales at Check Point Software Technologies. From October 2012 until January 2017, Mr. Harrison served as a Vice President of Sales at Avaya. From October 2002 until January 2012, Mr. Harrison served as the VP of Sales at the Company. Mr. Harrison holds a Bachelor of Science degree in Electronics from Chapman University.
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Dr. Israel Niv, Director
Dr. Niv serves as a board member in our company since 2015. Dr. Niv serves on the board of Palo Alto University, Dealsum, and Attolight AG, and is an advisor to the Silicom Ventures investment group. Dr. Niv served as former Chairman of Femtronix inc. and as GM of Opal Inc. (formerly traded on Nasdaq). Dr. Niv has also founded Optonics, and served as CEO of DGC. Dr. Niv received a BSc in chemistry and a PhD in chemical physics from Ben-Gurion University of the Negev (Israel). Dr. Niv completed his postdoctoral work at the University of Southern California as a Weizmann Postdoctoral Fellow.
Joseph Moscovitz, Director
Mr. Moscovitz will serve on our board of directors upon completion of this offering. Mr. Moscovitz has served as the Chief Strategy Officer at Telit Communications Plc from January 2019 through December 2021. Prior to that Mr. Moscovitz served as Chief Executive Officer of Telit Automotive Solutions from December 2016 through December 2018 and President of Products and Solutions at Telit Plc from January 2011 through November 2016.
Mr. Moscovitz was previously employed as a Chief Executive Officer of Cell Data Ltd. and a Chief Executive Officer by Microkim Ltd. Mr. Moscovitz received his Bachelor of Science in Electrical Engineering from Technion-Israel Institute of Technology.
Dr. Naama Halevi-Davidov, Director
Dr. Halevi Davidov will serve on our board of directors upon completion of this offering. Dr. Halevi Davidov has served as a Financial Consultant to Joytunes Ltd., a developer of music learning software, since April 2021, as a director of Gamida-Cell Ltd., since January 2022 and as a director and Audit Committee member of Kaltura, Inc. since July 2021. Prior to that, Dr. Halevi Davidov served as Financial Advisor to Gloat Ltd., a talent marketplace platform, and to Healthy IO Ltd., a manufacturer and marketer of medical equipment. Dr. Halevi Davidov served as the Chief Financial Officer of Kaltura from November 2012 to August 2017. Dr. Halevi Davidov has also served on the board of Kaltura, Inc. subsidiary, Kaltura Asia Pte Ltd. since February 2015. Dr. Halevi Davidov is a Certified Public Accountant in Israel. Dr. Halevi Davidov received a Ph.D. in Strategy from Tel Aviv University in 2012, a Master’s in Finance and Marketing from Tel Aviv University in 2002 and Bachelor of Arts in Accounting and Economics from Tel Aviv University in 2000. Dr. Halevi Davidov was selected to serve on our board of directors because of her extensive knowledge of and experience with corporate financial strategy.
Noemi Schmayer, Director
Ms. Schmayer will serve on our board of directors upon completion of this offering. Ms. Schmayer acted as a Senior Partner and Head of the High-tech and global corporations in one of the five largest law firms in Israel. Since then, Ms. Schmayer has been counseling companies and individuals regarding mergers & acquisitions, investments and strategy, and serves as a director of several board of directors including serving as the external director of Somoto Ltd (publicly traded on the Tel Aviv Stock Exchange under the name Nostromo Energy Ltd) and served as legal counsel for Smart Shooter Ltd. Ms. Schmayer is a renowned specialist in corporate law, corporate finance, cross-border transactions, and commercial law. Ms. Schmayer wields particular expertise in M&A, finance transactions, and complexed commercial contracts in High-tech and Biotech. Ms. Schmayer received an LLB in law from Tel Aviv University.
Number and Terms of Office of Officers and Directors
Our board of directors has five members, at least three of whom will be deemed “independent” under SEC and Nasdaq rules.
Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our certificate of incorporation as it deems appropriate.
Each of the directors of the Company were elected pursuant to the provisions of the Stockholders Agreement and our Certificate of Incorporation in effect prior to the IPO. Tuvia Barlev had a right under the Stockholders Agreement to designate one director. Dr. Niv was elected by the holders of the majority of the Series A Preferred Stock. Joseph Moscovitz, Naama Halevi-Davidov, and Noemi Schmayer were elected by both the majority of our outstanding
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common stock and the holders of the majority of the Series A Preferred Stock and Series Preferred B Stock. The Stockholders Agreement was terminated in connection with our IPO and going forward, each of the directors will be appointed by the holders of the majority of our outstanding common stock pursuant to the provisions of our Certificate of Incorporation, with (i) directors in Class I, consisting of Noemi Schmayer, to stand for election at the Annual Meeting to be held in 2023; (ii) directors in Class II, consisting of Joseph Moscovitz and Naama Halevi-Davidov, to stand for election at the annual meeting of stockholders to be held in 2024; and (iii) directors in Class III, consisting of Israel Niv and Tuvia Barlev, to stand for election at the annual meeting of stockholders to be held in 2025.
Our Company is governed by our Board. Currently, each member of our Board, other than Tuvia Barlev and Joseph Moscovitz, is an independent director; and all standing committees of our Board of Directors are composed entirely of independent directors, in each case under Nasdaq’s independence definition applicable to boards of directors. For a director to be considered independent, our Board of Directors must determine that the director has no relationship which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Members of the Audit Committee also must satisfy a separate SEC independence requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from us or any of our subsidiaries other than their directors’ compensation. In addition, under SEC rules, an Audit Committee member who is an affiliate of the issuer (other than through service as a director) cannot be deemed to be independent. In determining the independence of members of the Compensation Committee, Nasdaq listing standards require our Board of Directors to consider certain factors, including, but not limited to: (1) the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by us to the director, and (2) whether the director is affiliated with us, one of our subsidiaries or an affiliate of one of our subsidiaries. Under our Compensation Committee Charter, members of the Compensation Committee also must qualify as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and as “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The independent members of the Board of Directors are Israel Niv, Naama Halevi-Davidov, and Noemi Schmayer.
Committees of the Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each with its own charter that has been approved by the board. The anticipated composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by our board of directors. Upon our listing on The Nasdaq Capital Market, each committee’s charter will be available under the Corporate Governance section of our website at www.actelis.com. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this registration statement of which the prospectus is a part.
Audit Committee
The members of our audit committee are Israel Niv, Naama Halevi-Davidov, and Noemi Schmayer, with Naama Halevi-Davidov serving as Chairperson. The composition of our audit committee meets the requirements for independence under current Nasdaq listing standards and SEC rules and regulations. Each member of our audit committee meets the financial literacy requirements of Nasdaq listing standards. In addition, our board of directors has determined that Naama-Halevi Davidov is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933. The audit committee operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq. The audit committee, among other things:
•reviews our consolidated financial statements and our critical accounting policies and practices;
•selects a qualified firm to serve as the independent registered public accounting firm to audit our consolidated financial statements;
•helps to ensure the independence and performance of the independent registered public accounting firm;
•discusses the scope and results of the audit with the independent registered public accounting firm and review, with management and the independent registered public accounting firm, our interim and year-end results of operations;
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•pre-approves all audit and all permissible non-audit services to be performed by the independent registered public accounting firm;
•oversees the performance of our internal audit function when established;
•reviews the adequacy of our internal controls;
•develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
•reviews our policies on risk assessment and risk management; and
•reviews related party transactions.
Compensation Committee
The members of our compensation committee are Naama Halevi-Davidov, Israel Niv, and Noemi Schmayer, with Israel Niv serving as Chairperson. The composition of our compensation committee meets the requirements for independence under Nasdaq Capital Market listing standards and SEC rules and regulations. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. The compensation committee operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq. The compensation committee, among other things:
•reviews, approves and determines, or make recommendations to our board of directors regarding, the compensation of our executive officers;
•administers our stock and equity incentive plans;
•helps to ensure the independence and performance of the independent registered public accounting firm;
•reviews and approves, or make recommendations to our board of directors regarding, incentive compensation and equity plans; and
•establishes and reviews general policies relating to compensation and benefits of our employees.
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee are Noemi Schmayer, Naama Halevi-Davidov, and Israel Niv, with Noemi Schmayer serving as Chairperson. The composition of our nominating and corporate governance committee meets the requirements for independence under Nasdaq listing standards and SEC rules and regulations. The nominating and corporate governance committee operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq. The nominating and corporate governance committee, among other things:
•identifies, evaluates and selects, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;
•evaluates the performance of our board of directors and of individual directors;
•considers and make recommendations to our board of directors regarding the composition of our board of directors and its committees;
•reviews developments in corporate governance practices;
•oversees environmental, social and governance (ESG) matters;
•evaluates the adequacy of our corporate governance practices and reporting; and
•develops and make recommendations to our board of directors regarding corporate governance guidelines and matters.
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Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, and in the past year has not served, as a member of the compensation committee of any entity that has one or more executive officers serving on our board of directors.
Oversight of Risk Management
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, financial risks, legal and regulatory risks and others, such as the impact of competition. Management is responsible for the day-to-day management of the risks that we face, while our Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our Board is responsible for satisfying itself that the risk management processes designed and implemented by management are adequate and functioning as designed. Our Board assesses major risks facing our Company and options for their mitigation in order to promote our stockholders’ interests in the long-term health of our Company and our overall success and financial strength. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. The involvement of our full Board of Directors in the risk oversight process allows our Board to assess management’s appetite for risk and also determine what constitutes an appropriate level of risk for our Company. Our Board regularly includes agenda items at its meetings relating to its risk oversight role and meets with various members of management on a range of topics, including corporate governance and regulatory obligations, operations and significant transactions, risk management, insurance, pending and threatened litigation and significant commercial disputes.
While our Board is ultimately responsible for risk oversight, various committees of our Board oversee risk management in their respective areas and regularly report on their activities to our entire Board. In particular, the Audit Committee has the primary responsibility for the oversight of financial risks facing our Company. The Audit Committee’s charter provides that it will discuss our major financial risk exposures and the steps we have taken to monitor and control such exposures. Our Board has also delegated primary responsibility for the oversight of all executive compensation and our employee benefit programs to the Compensation Committee. The Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with our business strategy.
We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing our Company and that our Board’s leadership structure provides appropriate checks and balances against undue risk taking.
Code of Business Conduct and Ethics
Our Board has adopted a code of ethical conduct that applies to our principal executive officer, principal financial officer and senior financial management. This code of ethical conduct is embodied within our Code of Business Conduct and Ethics, which applies to all persons associated with our Company, including our directors, officers and employees (including our principal executive officer, principal financial officer, principal accounting officer and controller). In order to satisfy our disclosure requirements under Item 5.05 of Form 8-K, we will disclose amendments to, or waivers of, certain provisions of our Code of Business Conduct and Ethics relating to our chief executive officer, chief financial officer, chief accounting officer, controller or persons performing similar functions on our website promptly following the adoption of any such amendment or waiver. The Code of Business Conduct and Ethics provides that any waivers of, or changes to, the code that apply to the Company’s executive officers or directors may be made only by the Audit Committee. In addition, the Code of Business Conduct and Ethics includes updated procedures for non-executive officer employees to seek waivers of the code.
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EXECUTIVE AND DIRECTOR COMPENSATION
The following table shows the total compensation awarded to, earned by, or paid to (1) the individual who served as our principal executive officer during fiscal year 2023 and 2022; and (2) our next most highly compensated executive officer who earned more than $100,000 during fiscal year 2023 and were serving as executive officers as of December 31, 2023. We refer to these individuals in this Form S-1 as our named executive officers.
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($) | | Option Awards ($) | | Nonequity incentive plan compensation ($) | | Nonqualified deferred compensation earnings ($) | | All other compensation ($) | | Total ($) | Tuvia Barlev, | | 2023 | | 298,000 | | 163,000 | | — | | — | | — | | — | | 13,834 | | 475,885 | Chief Executive Officer and Chairman | | 2022 | | 250,000 | | 125,00 | | 500,000 | | — | | — | | — | | 11,603 | | 886,603 | Yoav Efron, | | 2023 | | 183,727 | | 36,500 | | — | | — | | | | | | 16,337 | | 236,564 | Chief Financial Officer | | 2022 | | 172,614 | | 85,000 | | 100,000 | | — | | | | | | 26,934 | | 384,548 | Yaron Altit | | 2023 | | 132,381 | | 62,790 | | 11,760 | | — | | — | | — | | 21,584 | | 228,515 | Executive Vice President, International Sales | | 2022 | | 121,850 | | 82,865 | | 3,840 | | — | | — | | — | | 20,885 | | 229,440 |
Outstanding Equity Awards at Fiscal Year-End
The following table provides certain information concerning any common share purchase options, stock awards or equity incentive plan awards held by the executive officers named above at the fiscal year ended December 31, 2023. All amounts are reflective of the Company’s 1-for-10 reverse stock split of the shares of Common Stock, effective April 19, 2023 (the “Reverse Stock Split”).
| | Option Awards | | Stock Awards | | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares of Stock That Have Not Vested (#) | | Market Value of Shares of Stock That Have Not Vested ($) | Tuvia Barlev, | | | | | | | | | | | | | | | | | | Chief Executive Officer and Chairman | | — | | | — | | | | — | | — | | 8,333 | (1) | | $ | 333,333 | Yoav Efron, | | 10,700 | (2) | | — | | | $ | 1.058 | | 02/08/2028 | | — | | | | — | Chief Financial Officer | | 1,495 | | | 679 | (3) | | $ | 13.616 | | 05/27/2031 | | — | | | | — | | | — | | | — | | | | — | | — | | 1,666 | (4) | | $ | 66,666 | Yaron Altit | | 5,255 | (5) | | — | | | $ | 1.058 | | 06/08/2027 | | — | | | | — | Executive Vice President, International Sales | | 5,445 | (6) | | — | | | | 1.058 | | 05/08/2028 | | | | | | | | | — | | | — | | | | — | | — | | 533 | (7) | | $ | 2,560 | | | | | | | | | | | | | | 4,000 | (8) | | | 11,760 |
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Benefit Plans
We maintain a defined contribution employee retirement plan, or 401(k) plan, for our full-time employees. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other full-time employees, if they are considered an employee and not a consultant. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. The 401(k) plan provides that each participant may make pre-tax deferrals from his or her compensation up to the statutory limit, which is $20,500 for calendar year 2022, and other testing limits. Participants that are 50 years or older can also make “catch-up” contributions, which in calendar year 2020 may be up to an additional $6,500 above the statutory limit. Participant contributions are held and invested, pursuant to the participant’s instructions, by the plan’s trustee.
We have no pension, or profit-sharing programs for the benefit of directors, officers or other employees, but our officers and directors may recommend adoption of one or more such programs in the future. We do not sponsor any qualified or non-qualified pension benefit plans, nor do we maintain any non-qualified defined contribution or deferred compensation plans.
Employment Agreements
We have entered into written employment agreements with 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.
Chief Executive Officer
Employment Agreement with Mr. Tuvia Barlev
On February 15, 2015, we entered into an at-will employment agreement with Mr. Tuvia Barlev, which remains in effect as of the date of this registration statement, of which the prospectus is a part.
In May 2022, the Company approved an increase to Mr. Barlev’s salary, effective upon completion of the IPO, to $300,000 with performance bonuses of an additional $260,000. In addition, Mr. Barlev received a bonus of $125,000 following the IPO and is entitled annually to receive $500,000 of RSUs under the Company’s 2015 Plan. For the fiscal year of 2023, Mr.Barlev was not granted these RSUs.
Mr. Barlev’s employment agreement provides that that he will be entitled to severance if we terminate his employment without “Cause” (as defined in the employment agreement), if he terminates his employment for “Good Reason” (as defined in the employment agreement), or following his death or permanent disability. In any event in which Mr. Barlev is entitled to severance pursuant to these provisions, we shall continue to pay Mr. Barlev his then-in-effect base salary and provide benefit continuation at our expense for a period of six months from the date of termination of employment. Any severance payable to Mr. Barlev shall be payable in equal instalments in the same manner and in our regular payroll cycle as other salaried executive employees are paid.
Consultant Agreement with Barlev Enterprises Inc.
In February 2015, we entered into a consulting agreement with Barlev Enterprises Inc., a company owned by Mr. Tuvia Barlev, our Chief Executive Officer, and his wife, Nurit Barlev, or the Barlev Consulting Agreement. Pursuant to the Barlev Consulting Agreement, Barlev Enterprises Inc. provides services to us as an independent contractor, and receives a monthly retainer of $2,083 for these services. The Barlev Consulting Agreement contains provisions regarding noncompetition, non-solicitation, confidentiality of information and assignment of inventions. The enforceability of the noncompetition covenants is subject to certain limitations. The Barlev Consulting Agreement will continue to be in full force and effect unless otherwise terminated in accordance with its terms. The Barlev Consulting Agreement may be terminated by either party, with or without cause, at any time upon six (6) months advance written notice to the other party. This agreement has terminated following the IPO.
Promissory Note with Tuvia Barlev
On February 20, 2015, we made a loan to our Chief Executive Officer, Mr. Tulia Barlev, in the principal amount of $106,290, which loan was evidenced by a secured, non-negotiable promissory note, or the Barlev Note. In April 2022, we entered into a Securities Purchase and Loan Repayment Agreement with Mr. Barlev, pursuant to which Mr. Barlev sold to the Company 27,699shares for a purchase price equal to $4.55 per share for an aggregate purchase
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consideration of $126,023, or the Purchase Consideration. In lieu of paying Mr. Barlev the Purchase Consideration for the shares in cash, the Purchase Consideration was used to repay in full the outstanding loan amount and accrued interest owed to the Company by Mr. Barlev, and the Barlev Note was terminated.
Chief Financial Officer
Employment Agreements with Mr. Yoav Efron
In December 2017, we entered into an at will employment agreement with our Chief Financial Officer, Mr. Yoav Efron, and he entered into another, separate, at will employment agreement with our subsidiary. Both of these agreements remain in effect as of the date of this registration statement, of which the prospectus is a part.
In May 2022, the Company approved an increase to Mr. Efron’s salary, effective upon completion of the IPO, to $187,000 through both employment agreements (which the subsidiary agreement is effected by the currency exchange rates) with performance bonuses of an additional $50,000. In addition, Mr. Efron received a one-time $85,000 bonus upon completion of the IPO and is entitled annually to receive $100,000 of RSUs. For the fiscal year of 2023, Mr.Efron was not granted these RSUs.
Mr. Efron employment agreements provide that that he will be entitled to severance if we terminate his employment without “Cause” (as defined in the employment agreements), if he terminates his employment for “Good Reason” (as defined in the employment agreements), we shall continue to pay Mr. Efron his then-in-effect base salary and provide benefit continuation at our expense for a period of six months from the date of termination of employment following an acquisition of us. Any severance payable to Mr. Efron shall be payable in equal instalments in the same manner and in our regular payroll cycle as other salaried executive employees are paid.
Executive Vice President, International Sales
Employment Agreement, as amended, with Mr. Yaron Altit
On June19, 2017, we entered into an at-will employment agreement with Mr.Yaron Altit, and of which remains in effect as of the date of this registration statement of which the prospectus is a part. On April 2023, the Company approved an increase to Mr.Altit’s salary, effective March1, 2023 to a monthly salary of 42,000 NIS. Additionally, Mr.Altit will receive 40,000 RSU pending board approval.
Either party shall be entitled to terminate the employment agreement by providing written notice to the other party at least 90 days in advance. In the event Mr.Altit resigns without giving prior notice, the Company reserves the right to deduct any owed amounts, including salary, equivalent to the salary he would have been entitled to receive had he been employed during the notice period.
The Company reserves the right to terminate the employment agreement without the need for prior notice for “good cause” as defined in the employment agreement.
Director Compensation
Our Board adopted a non-employee director compensation policy pursuant to which each of our directors who is not an employee or consultant of our company will be eligible to receive an annual cash retainer of $10,000 for his or her service on our board of directors and an annual cash retainer of $2,000 for his or her service on a committee of our board of directors, with the chairperson of each committee receiving an additional $3,000 annually. Additionally, following the IPO, as compensation for serving on the Board, Dr. Naama Halevi-Davidov, Israel Niv, Noemi Schmayer and Joseph Moscovitz were each granted 25,000 RSUs, of which shall fully vest over 36 months, subject to each member’s continued service on the Board. Furthermore, in connection with the IPO, on March22, 2023, Compensation Committee of the Board approved, and thereafter, on May2, 2023, the entire Board approved and ratified the annual issuance of RSUs worth $100,000 at their time of their grant to each of our members of the Board, Dr. Naama Halevi-Davidov, Israel Niv, Noemi Schmayer and Joseph Moscovitz (the “Annual RSU Grants”). The Annual RSU Grants shall fully vest over 36months, subject to each member’s continued service on the Board, as compensation for serving on the Board. Each Annual RSU Grant will be subject to their availability under the Plan. The members of the Board did not receive any new grants of options during 2023.
Our directors are and will continue to be reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf. The compensation of Mr. Barlev as a named executive officer is set forth in the section above; he does not receive any additional compensation for his service as the Chairman of the Board.
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For the year ended 2023, our non-employee directors were compensated as follows in the table below:
Name | | Year | | Fees Earned or Paid in Cash ($) | | Option Awards ($) | | All Other Compensation ($) | | Total ($) | Israel Niv | | 2023 | | $ | 19,000 | | — | | $ | — | | $ | 19,000 | Dr. Naama Halevi-Davidov(1)(2) | | 2023 | | $ | 19,000 | | — | | | — | | $ | 19,000 | Joseph Moscovitz | | 2023 | | $ | 10,000 | | — | | $ | — | | $ | 10,000 | Noemi Schmayer | | 2023 | | $ | 19,000 | | — | | $ | — | | $ | 19,000 |
Director and Officer Liability Insurance
We have purchased following the IPO, and intend to review in May 2024, our director and officer liability insurance that provides financial protection for our directors and officers in the event that they are sued in connection with the performance of their services and also provides employment practices liability coverage, which insures for harassment and discrimination suits.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions since January 1, 2021 to which we have been a party, in which the amount involved in the transaction exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive and Director Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders.
Services Agreement with Ram Vromen
On December 27, 2021, we entered into a service agreement with Dr. Ram Vromen, our director, or the Vromen Services Agreement. Under the terms of the Vromen Services Agreement, Dr. Vromen provides services to us as an independent contractor. The services include advising us and aiding in fundraising, assisting with presentations and providing follow up, negotiating deals, legal assistance. We agreed to pay the outstanding amount for unpaid services rendered by Dr. Vromen during the period between February 15, 2015, and ending on December 31, 2019, of $197,500 plus VAT, or the Outstanding Fees. Pursuant to the Vromen Services Agreement, Dr. Vromen will also be entitled to additional fees in the amount of $150,000 plus VAT as follows: Dr. Vromen will receive (1) $100,000 upon the earlier to occur of (i) the closing of a financing round by us of at least $2.0 million and (ii) achievement of at least $3.0 million in EBITDA as reported by us, which VAT was paid to Dr. Vromen in January 2022 following the closing of our private placement, and (2) $50,000 upon the earlier to occur of (i) the closing of a financing round by us of at least $4.0 million and (ii) achievement of at least $3.0 million in EBITDA as reported by us. In the event that we reach one of the milestones set forth above and Dr. Vromen is entitled to receive such additional fees, then we will pay to Dr. Vromen all of the Outstanding Fees, together with the payment of such additional fees, provided that we may pay any and all of the Outstanding Fees in several instalments over a period not to exceed twenty-four (24) months from achievement of the applicable milestone.
Related Party Transaction Policy
We intend to adopt a formal, written policy, which will become effective upon completion of this offering, that our executive officers, directors (including director nominees), holders of more than 5% of any class of our voting securities and any member of the immediate family of or any entities affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior approval or, in the case of pending or ongoing related party transactions, ratification of our audit committee. For purposes of our policy, a related party transaction is a transaction, arrangement or relationship where we were, are or will be involved and in which a related party had, has or will have a direct or indirect material interest.
Certain transactions with related parties, however, are excluded from the definition of a related party transaction including, but not limited to:
•transactions involving the purchase or sale of products or services in the ordinary course of business, not exceeding $20,000;
•transactions where a related party’s interest derives solely from his or her service as a director of another entity that is a party to the transaction;
•transactions where a related party’s interest derives solely from his or her ownership of less than 10% of the equity interest in another entity that is a party to the transaction; and
•transactions where a related party’s interest derives solely from his or her ownership of a class of our equity securities and all holders of that class received the same benefit on a pro rata basis.
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No member of the Audit Committee may participate in any review, consideration or approval of any related party transaction where such member or any of his or her immediate family members is the related party. In approving or rejecting the proposed agreement, our Audit Committee shall consider the relevant facts and circumstances available and deemed relevant by the Audit Committee, including, but not limited to:
•the benefits and perceived benefits to us;
•the materiality and character of the related party’s direct and indirect interest;
•the availability of other sources for comparable products or services;
•the terms of the transaction; and
•the terms available to unrelated third parties under the same or similar circumstances.
In reviewing proposed related party transactions, the Audit Committee will only approve or ratify related party transactions that are in, or not inconsistent with, the best interests of us and our stockholders.
The transactions described below were consummated prior to our adoption of the formal, written policy described above, and therefore the foregoing policies and procedures were not followed with respect to the transactions. However, we believe that the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Policy for Approval of Related Party Transactions
Prior to the consummation of this offering, we will adopt our Code of Ethics requiring us to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by our board of directors (or the appropriate committee of our board of directors) or as disclosed in our public filings with the SEC. Under our Code of Ethics, conflict of interest situations will include any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving Actelis. A form of the Code of Ethics that we plan to adopt prior to the consummation of this offering is filed as an exhibit to the registration statement of which this prospectus forms a part.
In addition, the Audit Committee of our board of directors will adopt a charter, providing for the review, approval and/or ratification of “related party transactions,” which are those transactions required to be disclosed pursuant to Item 404 of Regulation S-K as promulgated by the SEC, by the Audit Committee. At its meetings, the Audit Committee shall be provided with the details of each new, existing, or proposed related party transaction, including the terms of the transaction, any contractual restrictions that the company has already committed to, the business purpose of the transaction, and the benefits of the transaction to the company and to the relevant related party. Any member of the committee who has an interest in the related party transaction under review by the committee shall abstain from voting on the approval of the related party transaction, but may, if so requested by the chairman of the committee, participate in some or all of the committee’s discussions of the related party transaction. Upon completion of its review of the related party transaction, the committee may determine to permit or to prohibit the related party transaction. Our Audit Committee will review on a quarterly basis all payments that were made by us to our sponsor, officers, or directors, or our or any of their affiliates.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
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PRINCIPAL STOCKHOLDERS
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our Common Stock as of February 1, 2024 of:
•each of our directors and executive officers; and
•each person known to us to beneficially own 5% of our Common Stock on an as-converted basis.
The calculations in the table are based on 3,018,435 common shares issued and outstanding as of February 1, 2024. All amounts are reflective of the Reverse Stock Split.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Unless otherwise indicated, the address for each beneficial owner listed in the table below is c/o Actelis Networks, Inc., 4039 Clipper Court, Fremont, CA 94538.
Name of Beneficial Owner(1) | | No. of Shares Beneficially Owned | | % of Class | Tuvia Barlev(2) | | 165,706 | | 5.55 | % | Yoav Efron(3) | | 13,352 | | * | | Eyal Aharon(4) | | 4,764 | | * | | Yaron Altit(5) | | 10,967 | | * | | Michal Winkler-Solomon(6) | | 4,507 | | * | | Hemi Kabir(7) | | 5,677 | | * | | Israel Niv(8) | | 67,640 | | 2.24 | % | Elad Domanovitz(9) | | 5,632 | | * | | Noemi Schmayer(10) | | 834 | | — | | Joseph Moscovitz(11) | | 834 | | — | | Dr. Naama Halevi-Davidov(12) | | 834 | | — | | Brett Harrison | | — | | — | | All executive officers and directors as a group (12 persons) | | 280,747 | | 9.30 | % | | | | | | | 5% Stockholders | | | | | | Armistace Capital Master Fund, Ltd. | | 301,000 | | 9.97 | % |
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Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information as of December 31, 2023 with respect to our compensation plans under which equity securities may be issued.
Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | | (a) | | (b) | | (c) | Equity compensation plans approved by security holders: | | | | | | | | 2015 Equity Incentive Plan(1) | | 159,044 | | $ | 2.36 | | 90,356 | Equity compensation plans not approved by security holders | | — | | | — | | — | Total | | 159,044 | | $ | 2.36 | | 90,356 |
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DESCRIPTION OF OFFERED SECURITIES
The following description is intended as a summary of our Charter and our Bylaws, each of which will become effective prior to the effectiveness of the registration statement of which this prospectus forms a part, and which will be filed as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of the DGCL. Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our Charter and Bylaws.
Authorized Capital Stock Our Charter authorizes us to issue up to 42,803,774 shares consisting of 30,000,000 shares of common stock with a par value of US$0.0001 per share, 2,803,774 shares of non-votingnon-voting common stock with a par value of US$0.0001 per share and 10,000,000 shares of preferred stock with a par value of US$0.0001 per share. As of February1,March 20, 2024, there were 54 holders of record of our common stock.
Common Stock Upon the closing of this offering, shares of our common stock have the following rights, preferences and privileges:
Voting Rights Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Any action at a meeting at which a quorum is present will be decided by a majority of the voting power present in person or represented by proxy, except in the case of any election of directors, which will be decided by a plurality of votes cast. There is no cumulative voting. Dividends
Dividend Rights Holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for payment, subject to the rights of holders, if any, of any class of stock having preference over the common stock. Any decision to pay dividends on our common stock will be at the discretion of our board of directors. Our board of directors may or may not determine to declare dividends in the future. See “Dividend Policy.” The board’s determination to issue dividends will depend upon our profitability and financial condition any contractual restrictions, restrictions imposed by applicable law and the SEC, and other factors that our board of directors deems relevant.
Liquidation Rights In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of our common stock will be entitled to share ratably on the basis of the number of shares held in any of the assets available for distribution after we have paid in full, or provided for payment of, all of our debts and after the holders of all outstanding series of any class of stock have preference over the common stock, if any, have received their liquidation preferences in full.
Other Rights and Preferences Upon the closing of this offering, holders of our common stock will have no pre-emptive,pre-emptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future. Upon the closing of this offering, shares of our common stock are not convertible into shares of any other class of capital stock, nor are they subject to any redemption or sinking fund provisions.
Fully paid and nonassessable All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable. 79
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Preferred stock We are authorized to issue up to 10,000,000 shares of preferred stock. Our Charter authorizes the board to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, no shares of preferred stock will be outstanding.
Charter and Bylaw Provisions
Charter and Bylaw Provisions Our Charter and our Bylaws to be effective upon the closing of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our management team, including the following: •Board of Directors vacancies. Our Charter to be effective upon the closing of this offering, provides that vacancies on the board of directors may be filled only by the affirmative vote of a majority of the directors then in office, irrespective of whether there is a quorum, or by a sole remaining director. Additionally, the number of directors to serve on our board of directors is fixed solely and exclusively by resolution duly adopted by our board of directors. This would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.
| ● | Board of Directors vacancies. Our Charter to be effective upon the closing of this offering, provides that vacancies on the board of directors may be filled only by the affirmative vote of a majority of the directors then in office, irrespective of whether there is a quorum, or by a sole remaining director. Additionally, the number of directors to serve on our board of directors is fixed solely and exclusively by resolution duly adopted by our board of directors. This would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management. |
•Classified Board of Directors. In accordance with our Charter, as it will be in effect following the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will be divided into three classes with staggered three-year terms. At each annual general meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes. We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
| ● | Classified Board of Directors. In accordance with our Charter, as it will be in effect following the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will be divided into three classes with staggered three-year terms. At each annual general meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes. We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control. |
•Special Meetings of Stockholders. Our Bylaws to be effective upon the closing of this offering, provides that special meetings of our stockholders may be called by the board of directors acting pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, and special meetings of stockholders may not be called by any other person or persons.
| ● | Special Meetings of Stockholders. Our Bylaws to be effective upon the closing of this offering, provides that special meetings of our stockholders may be called by the board of directors acting pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, and special meetings of stockholders may not be called by any other person or persons. |
•No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless the corporation’s certificate of incorporation provides otherwise. Our Charter does not provide for cumulative voting.
| ● | No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless the corporation’s certificate of incorporation provides otherwise. Our Charter does not provide for cumulative voting. |
•Amendment of Charter and Bylaw Provisions. Any amendment of our Charter requires the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, except that the provision in the Charter regarding the staggered board may not be repealed or amended without the vote of the holders of not less than 80% of the Company’s voting stock, voting as a single class. Amendments to our Bylaws may be executed pursuant to a resolution by the Board of Directors pursuant to an affirmative vote of a majority of the directors then in office, or by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote.
| ● | Amendment of Charter and Bylaw Provisions. Any amendment of our Charter requires the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, except that the provision in the Charter regarding the staggered board may not be repealed or amended without the vote of the holders of not less than 80% of the Company’s voting stock, voting as a single class. Amendments to our Bylaws may be executed pursuant to a resolution by the Board of Directors pursuant to an affirmative vote of a majority of the directors then in office, or by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote. |
•Delaware Business Combination Statute. The Company is subject to the “business combination” provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date such person becomes an interested stockholder, unless the business
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| ● | Delaware Business Combination Statute. The Company is subject to the “business combination” provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date such person becomes an interested stockholder, unless the business |
combination or the transaction in which such person becomes an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person that, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. The existence of this provision may have an anti-takeoveranti-takeover effect with respect to transactions not approved in advance by our Board of Directors, and the anti-takeoveranti-takeover effect includes discouraging attempts that might result in a premium over the market price for the shares of our common stock. •Exclusive Forum. Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, stockholder or other employees to us or our stockholders, (iii) any action asserting a claim against the Corporation or any current or former director, officer, stockholder, employee or agent of the Corporation arising pursuant to any provision of the DGCL, our Charter or our Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Company’s Charter or Bylaws, (v) any action asserting a claim against us governed by the internal affairs doctrine or (vi) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the General Corporation Law. The federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint, claim or proceeding asserting a cause of action arising under the Exchange Act or the Securities Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our Charter. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.
| ● | Exclusive Forum. Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, stockholder or other employees to us or our stockholders, (iii) any action asserting a claim against the Corporation or any current or former director, officer, stockholder, employee or agent of the Corporation arising pursuant to any provision of the DGCL, our Charter or our Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Company’s Charter or Bylaws, (v) any action asserting a claim against us governed by the internal affairs doctrine or (vi) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the General Corporation Law. The federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint, claim or proceeding asserting a cause of action arising under the Exchange Act or the Securities Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our Charter. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. |
Anti-Takeover Provisions The provisions of the DGCL, our Charter and our Bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms. Our Charter established a classified board of directors, divided in three classes with staggered three-yearthree-year terms. Under the classified board of directors structure, only one class of directors would be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder for their respective three-yearthree-year terms. Under the classified board of directors structure: (i) directors in Class I, consisting of Noemi Schmayer, are to stand for election at the Annual Meeting to be held in 2023;2026; (ii) directors in Class II, consisting of Joseph Moscovitz and Naama Halevi-Davidov,Halevi-Davidov, are to stand for election at the annual meeting of stockholders to be held in 2024; and (iii) directors in Class III, consisting of Israel Niv and Tuvia Barlev, are to stand for election at the annual meeting of stockholders to be held in 2025.
Limitations on Liability, Indemnification of officers and directors and insurance Our Charter and Bylaws contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the DGCL. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for: •any breach of the director’s duty of loyalty to us or our stockholders;
| ● | any breach of the director’s duty of loyalty to us or our stockholders; |
•
| ● | any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| ● | unlawful payments of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the DGCL; or |
| ● | any transaction from which the director derived an improper personal benefit. |
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•unlawful payments of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the DGCL; orListing
•any transaction from which the director derived an improper personal benefit.
Listing
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “ASNS”.
Transfer Agent and Registrar The transfer agent and registrar for our common stock will be VStock Transfer, LLC. The transfer agent and registrar’s address is 18 Lafayette Place, Woodmere, NY 11598.
Exclusive Forum Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any stockholder for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any current or former director, officer, stockholder, employee or agent of the Company to the Company or the Company’s stockholders, (c) any action asserting a claim against the Corporation or any current or former director, officer, stockholder, employee or agent of the Corporation arising pursuant to any provision of the DGCL or the Company’s Certificate of Incorporation or Bylaws, (d) any action to interpret, apply, enforce or determine the validity of the Company’s Certificate of Incorporation or Bylaws,ByIs, or (e) any action asserting a claim governed by the internal affairs doctrine or (f) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the General Corporation Law. The federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint, claim or proceeding asserting a cause of action arising under the Exchange Act or the Securities Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our Charter. The choice-of-forumchoice-of-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, and may result in increased costs to a stockholder who has to bring a claim in a forum that is not convenient to the stockholder, which may discourage such lawsuits. Although under Section 115 of the DGCL, exclusive forum provisions may be included in a company’s certificate of incorporation, the enforceability of similar forum provisions in other companies’ certificates or incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provision of our Charter inapplicable or unenforceable with respect to 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 materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
Anti-Takeover Provisions of the DGCL and Charter Provisions Certain provisions of the DGCL and certain provisions included in our Charter and Bylaws summarized below may be deemed to have an anti-takeoveranti-takeover effect and may delay, deter, or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders. 82
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Removal of Directors Our Bylaws provide that stockholders may only remove a director with or without cause by a vote of no less than a majority of the shares present in person or by proxy at the meeting and entitled to vote, voting together as a single class.
Amendments to Certificate of Incorporation Certain sections of our Certificate of Incorporation require the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock of the Company entitled to vote, voting together as a single class, except that the provision in the Charter regarding the staggered board may not be repealed or amended without the vote of the holders of not less than 80% of the Company’s voting stock, voting as a single class.
Staggered Board The board of directors is divided into three classes, with regular three-yearthree-year staggered terms. This classification system increases the difficulty of replacing a majority of the directors and may tend to discourage a third-partythird-party from making a tender offer or otherwise attempting to gain control of the Company. In addition, under Delaware law, the Certificate and the By-Laws,By-Laws, the Company’s directors may be removed from office by the stockholders only for cause and only in the manner provided for in the Certificate. These factors may maintain the incumbency of the board of directors.
Amendments to Bylaws Our Charter limits the abilities of the directors and stockholders to amend our Bylaws in certain circumstances. In particular, the Bylaws may be amended only by the vote of a majority of all of the directors then in office, or by the affirmative vote of the stockholders holding at least 75% of the outstanding shares of capital stock entitled to vote in accordance with the provisions of the Charter, Bylaws, and the DGCL.
No Cumulative Voting Our Charter does not provide for cumulative voting.
Special Meetings of Stockholders Our Bylaws provide that, except as otherwise required by law, special meetings of the stockholders may be called only by an officer at the request of a majority of our board of directors, by our Chief Executive Officer or President or by the holders of not less than 25% of the holders of stock entitled to vote at the meeting. Stockholders Agreement We are party to the Amended and Restated Stockholders Agreement, dated February2, 2016, or the Stockholders Agreement, pursuant to which certain holders of our common stock have the right to demand that we file a registration statement or request that their common stock be covered by a registration statement that we are otherwise filing. All rights under the Stockholders Agreement will terminate upon the closing of this offering. 83
PLAN OF DISTRIBUTION MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following discussion is a summaryselling stockholders of the material U.S. federal income tax consequencesShares and any of its pledgees, assignees and successors-in-interest may, from time to non-U.S. holders (as defined below)time, sell any or all of their securities covered hereby on the Nasdaq Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the purchase, ownershipfollowing methods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | settlement of short sales; |
| ● | in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | a combination of any such methods of sale; or |
| ● | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from each selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and dispositionin the case of our common stock issueda principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this offering, but does not purportprospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or foreign tax laws are not addressed herein. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in effect as of the date of this offering. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a non-U.S. holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position regarding the tax consequences of the purchase, ownership and disposition of our common stock. This discussion is limited to non-U.S. holders that hold our common stock as a “capital asset”“underwriters” within the meaning of Section 1221the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a non-U.S. holder’s particular circumstances, including the impact of the alternative minimum tax or the unearned income Medicare contribution tax. In addition, it does not address consequences relevant to holders subject to particular rules, including, without limitation:
•U.S. expatriates and certain former citizens or long-term residents of the United States;
•persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
•banks, insurance companies, and other financial institutions;
•brokers, dealers or traders in securities or currencies;
•persons that hold more than 5% of our common stock, directly or indirectly;
•“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
•corporations organized outside of the United States, any state thereof or the District of Columbia that are nonetheless treated as U.S. taxpayers for U.S. federal income tax purposes;
•partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
•tax-exempt organizations or governmental organizations;
•persons deemed to sell our common stock under the constructive sale provisions of the Code;
•persons for whom our common stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code;
•persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
•qualified foreign pension funds as defined in Section 897(l)(2) of the Code and entities all of the interests of which are heldpurchased by qualified foreign pension funds;
•persons whose “functional currency” is not the U.S. dollar;
•persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into account in an applicable financial statement; and
•tax-qualified retirement plans.
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If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner (or person or entity treated as a partner) in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS LEGAL OR TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our common stock that is neither a “U.S. person,” nor an entity or arrangement treated as a partnership for U.S. federal income tax purposes regardless of its place of organization or formation. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
•an individual who is a citizen or resident of the United States;
•a corporation or other entity created or organized under the laws of the United States, any state thereof, or the District of Columbia and treated as a corporation for U.S. federal income tax purposes;
•an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
•a trust that (1) is subject to the primary supervision of a U.S. court and which has one or more U.S. persons (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust, or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
An individual non-U.S. citizenthem may in some cases, be deemed to be a resident alien (as opposed to a nonresident alien) by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year, are counted.
Resident aliens are generally subject to U.S. federal income tax as if they were U.S. citizens. Individuals who are uncertain of their status as residentunderwriting commissions or nonresident aliens for U.S. federal income tax purposes are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Distributions
As described in the section titled “Dividend Policy,” we do not anticipate declaring or paying distributions to holders of our common stock in the foreseeable future. However, if we do make distributions on our common stock, such distributions of cash or property on our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will first constitute a return of capital and be applied against and reduce a non-U.S. holder’s adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “— Sale or Other Disposition of common stock.”
Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, dividends paid to a non-U.S. holder of our common stock that are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty).
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Non-U.S. holders may be entitled to a reduction in or an exemption from withholding on dividends as a result of either (a) an applicable income tax treaty or (b) the non-U.S. holder holding our common stock in connection with the conduct of a trade or business within the United States and dividends being effectively connected with that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (a) IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming an exemption from or reduction of the withholding taxdiscounts under the benefit of an income tax treaty betweenSecurities Act. The selling stockholders have informed the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI statingCompany that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may be applicable. These certifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. If a non-U.S. holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Subject to the discussions below regarding backup withholding and the FATCA, if dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Sale or Other Disposition of common stock
Subject to the discussions below on backup withholding and FATCA, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock (including a redemption, but only if the redemption would be treated as a sale or exchange rather than as a distribution for U.S. federal income tax purposes) unless:
•the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable);
•the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
•our common stock constitute U.S. real property interests, or the USRPIs, by reason of our status as a U.S. real property holding corporation, or the USRPHC, for U.S. federal income tax purposes.
Gain described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates. A non-U.S. holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits, as adjusted for certain items, which will include such effectively connected gain.
A non-U.S. holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
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With respect to the third bullet point above, we would be a USRPHC if our USRPIs comprise (by fair market value) at least 50 percent of our business assets. We believe we are not currently and do not anticipate becoming a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our USRPIs relative to the fair market value of our other business assets and our non-U.S. real property interests, however, there can be no assurance we are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a non-U.S. holder of our common stock will not be subject to U.S. federal income tax if our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such non-U.S. holder owned, actually and constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period. There can be no assurance that our common stock will continue to qualify as regularly traded on an established securities market. If any gain on your disposition is taxable because we are a United States real property holding corporation and your ownership of our common stock exceeds 5%, you will be taxed on such disposition generally in the manner as gain that is effectively connected with the conduct of a U.S. trade or business (subject to the provisions under an applicable income tax treaty), except that the branch profits tax generally will not apply.
Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Subject to the discussion below on FATCA, a non-U.S. holder will not be subject to backup withholding with respect to distributions on our common stock we make to the non-U.S. holder, provided the applicable withholding agent does not have actual knowledge or reason to know such holder is a U.S. person and the holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or other applicable certification. However, information returns generally will be filed with the IRS in connection with any distributions (including deemed distributions) made on our common stock to the non-U.S. holder, regardless of whether any tax was actually withheld. Such information returns generally include the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.
Information reporting and backup withholding may apply to the proceeds of a sale or other taxable disposition of our common stock within the United States, and information reporting may (although backup withholding generally will not) apply to the proceeds of a sale or other taxable disposition of our common stock outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W-8BEN or W-8BEN-E, or other applicable form (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or such owner otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code and applicable Treasury Regulations (commonly referred to as the Foreign Account Tax Compliance Act, or FATCA), on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends paid on our common stock, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of our common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as definedwritten or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the Code)applicable state or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise 87
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qualifies for an exemption from these rules. If the payeeregistration or qualification requirement is a foreign financial institutionavailable and is subjectcomplied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the diligence and reporting requirements in (1) above, it must enter into an agreement withcommon stock for the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (eachapplicable restricted period, as defined in Regulation M, prior to the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement withcommencement of the United States governing FATCA maydistribution. In addition, the selling stockholders will be subject to different rules. The withholding provisions under FATCA generally apply to payments of dividends paid on our common stock. Further, currentapplicable provisions of the CodeExchange Act and Treasury Regulations treat gross proceeds fromthe rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale or other disposition of common stock as subject to FATCA withholding after December 31, 2018. However, recently proposed Treasury Regulations, if finalized in their present form, would eliminate FATCA withholding on payments of gross proceeds from a sale or other disposition of our common stock. In its preamble to such proposed regulations,(including by compliance with Rule 172 under the U.S. Treasury Department stated that taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued. Prospective investors should consult their tax advisors regarding the potential application of FATCA.Securities Act).
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY RECENT OR PROPOSED CHANGE IN APPLICABLE LAW.
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LEGAL MATTERS The validity of the shares of the common stock offered by this prospectus will be passed upon for us by Pearl Cohen Zedek Latzer Baratz LLP, New York, NY. Certain legal matters in connection with this offering relating to U.S. law will be passed upon for us by Greenberg Traurig, LLP, New York, NY. EXPERTS EXPERTS
The financial statements as of December31, 2022 and 2021 andincorporated in this Prospectus by reference to the Annual Report on Form 10-K for the years thenyear ended included in this ProspectusDecember 31, 2023 have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company’s ability to continue as a going concern as described in Note 1c1b to the financial statements) of Kesselman & Kesselman, Certified Public Accountants (Isr.), a member firm of PricewaterhouseCoopers International Limited, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. 89
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WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1S-1 with the SEC under the Securities Act of 1933, as amended, with respect to the securities offered in this prospectus. This prospectus, which is filed as part of a registration statement, does not contain all of the information set forth in the registration statement, some portions of which have been omitted in accordance with the SEC’s rules and regulations. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to in this prospectus are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document that is filed as an exhibit to the registration statement. You can read our SEC filings, including the registration statement, over the internet at the SEC’s website. Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. The SEC’s website contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of that site is http://www.sec.gov.. We also maintain a website at www.Actelis.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
However, the information contained in or accessible through our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and investors should not rely on such information in making a decision to purchase our common stock in this offering.
PLAN OF DISTRIBUTION
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TableThe selling stockholders of Contents
ACTELIS NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
F-1
Tablethe Shares and any of Contents
Reportits pledgees, assignees and successors-in-interest may, from time to time, sell any or all of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Actelis Networks, Inc.
Opiniontheir securities covered hereby on the Financial Statements
We have auditedNasdaq Capital Market or any other stock exchange, market or trading facility on which the accompanying consolidated balance sheets of Actelis Networks, Inc. and its subsidiary (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive loss, of redeemable convertible preferred stock and shareholders’ equity (capital deficiency) and of cash flows for eachsecurities are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the two yearsfollowing methods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | settlement of short sales; |
| ● | in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | a combination of any such methods of sale; or |
| ● | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from each selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the period ended December 31, 2022, includingcase of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the related notes (collectively referred to ascase of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial positionsale of the Company as of December 31, 2022 and 2021, andsecurities or interests therein, the results of its operations and its cash flows for eachselling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the two yearssecurities in the period ended December 31, 2022course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in conformityturn may sell these securities. The selling stockholders may also enter into option or other transactions with accounting principles generally acceptedbroker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders have informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1c to the consolidated financial statements, the Company has incurred recurring losses from operations and has negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1c. The consolidated financial statements do not include any adjustments that might resultapplicable state or an exemption from the outcome of this uncertainty.registration or qualification requirement is available and is complied with.
Change
Under applicable rules and regulations under the Exchange Act, any person engaged in Accounting Principle As discussed in Note 3n to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2022.
Basis for Opinion
These consolidated financial statements are the responsibilitydistribution of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independentresale securities may not simultaneously engage in market making activities with respect to the Companycommon stock for the applicable restricted period, as defined in accordance withRegulation M, prior to the U.S. federal securities lawscommencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the applicable rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Securitiescommon stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholders and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standardshave informed them of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited
Tel Aviv, Israel
March 29, 2023, except with respect to the matters that raise substantial doubt about the Company’s ability to continue as a going concern discussed in Note 1c, as to which the date is January 8, 2024.
We have served as the Company’s auditor since 2019.
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ACTELIS NETWORKS, INC. CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands except for share and per share amounts)
| | Note | | December 31 | 2022 | | 2021 | Assets | | | | | | | CURRENT ASSETS: | | | | | | | Cash and cash equivalents | | | | 3,943 | | 693 | Short-term deposits | | | | 1,622 | | — | Restricted bank deposits | | | | 451 | | — | Trade receivables, net of allowance for doubtful debts of $125 and $61 as of December 31, 2022 and December 31, 2021, respectively | | | | 3,034 | | 2,147 | Inventories | | 4 | | 1,179 | | 897 | Prepaid expenses and other current assets | | 5 | | 678 | | 398 | TOTAL CURRENT ASSETS | | | | 10,907 | | 4,135 | | | | | | | | NON-CURRENT ASSETS: | | | | | | | Property and equipment, net | | 6 | | 80 | | 103 | Prepaid expenses | | | | 492 | | — | Restricted cash | | | | 336 | | — | Restricted bank deposits | | | | 2,027 | | 102 | Severance pay fund | | | | 239 | | 266 | Operating lease right of use assets | | | | 726 | | — | Long-term deposits | | | | 12 | | 78 | TOTAL NON-CURRENT ASSETS | | | | 3,912 | | 549 | | | | | | | | TOTAL ASSETS | | | | 14,819 | | 4,684 |
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ACTELIS NETWORKS, INC. CONSOLIDATED BALANCE SHEETS — (Continued) (U.S. dollars in thousands except for share and per share amounts)
| | Note | | December 31 | 2022 | | 2021 | | Liabilities and redeemable convertible preferred stock and shareholders’ equity (capital deficiency) | | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | | Current maturities of long-term loans | | 9 | | 553 | | | 758 | | | Warrants | | 14 | | 8 | | | 177 | | | Trade payables | | | | 1,781 | | | 1,920 | | | Deferred revenues | | | | 484 | | | 673 | | | Employee and employee-related obligations | | | | 793 | | | 703 | | | Accrued royalties | | 12 | | 900 | | | 818 | | | Operating lease liabilities | | | | 445 | | | — | | | Other current liabilities | | 8 | | 1,238 | | | 902 | | | TOTAL CURRENT LIABILITIES | | | | 6,202 | | | 5,951 | | | | | | | | | | | | | NON-CURRENT LIABILITIES: | | | | | | | | | | Long-term loan, net of current maturities | | 9 | | 4,625 | | | 5,473 | | | Deferred revenues | | | | 164 | | | — | | | Warrants | | 14 | | — | | | 1,972 | | | Convertible loan | | 11 | | — | | | 4,905 | | | Operating lease liabilities | | | | 237 | | | — | | | Accrued severance | | | | 278 | | | 315 | | | Other long-term liabilities | | | | 48 | | | 79 | | | TOTAL NON-CURRENT LIABILITIES | | | | 5,352 | | | 12,744 | | | TOTAL LIABILITIES | | | | 11,554 | | | 18,695 | | | | | | | | | | | | | COMMITMENTS AND CONTINGENCIES | | 12 | | | | | | | | | | | | | | | | | | REDEEMABLE CONVERTIBLE PREFERRED STOCK: | | | | | | | | | $ | 0.0001 par value, 10,000,000 authorized as of December 31, 2022, and 7,988,691 authorized as of December 31, 2021. SERIES A 0 and 4,986,039 shares issued and outstanding as of December 31, 2022, and December 31, 2021: aggregate liquidation preference of $5,091 as of December 31, 2021 – $2,858. SERIES B 0 and 2,745,004 shares issued and outstanding as of December 31, 2022, and December 31, 2021: aggregate liquidation preference of $4,271 as of December 31, 2021 – $2,727. | | | | — | | | 5,585 | | | TOTAL REDEEMABLE CONVERTIBLE PREFERRED STOCK | | | | — | | | 5,585 | | | | | | | | | | | | | SHAREHOLDERS’ EQUITY (CAPITAL DEFICIENCY): | | 15 | | | | | | | | Common stock, $0.0001 par value: 30,000,000 and 11,009,315 shares authorized as of December 31, 2022 and December 31, 2021, respectively; 17,379,861 and 2,050,404 shares issued and outstanding as of December 31, 2022 and 2021, respectively | | | | 1 | | | * | | | Non-voting common stock, $0.0001 par value: 2,803,774 shares authorized as of December 31, 2022, and 2021, respectively; 0 and 1,783,773 shares issued and outstanding as of December 31, 2022 and 2021, respectively. | | | | — | | | * | | | Additional paid-in capital | | | | 36,666 | | | 2,824 | | | Accumulated deficit | | | | (33,402 | ) | | (22,420 | ) | | TOTAL SHAREHOLDERS’ EQUITY (CAPITAL DEFICIENCY) | | | | 3,265 | | | (19,596 | ) | | TOTAL LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY (CAPITAL DEFICIENCY) | | | | 14,819 | | | 4,684 | |
The accompanying notes are an integral part of these consolidated financial statements.
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ACTELIS NETWORKS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (U.S. dollars in thousands except for share and per share amounts)
| | Note | | Year ended December 31 | 2022 | | 2021 | REVENUES | | 18 | | | 8,831 | | | | 8,545 | | COST OF REVENUES | | | | | 4,721 | | | | 4,575 | | GROSS PROFIT | | | | | 4,110 | | | | 3,970 | | | | | | | | | | | | | OPERATING EXPENSES: | | | | | | | | | | | Research and development expenses, net | | | | | 2,766 | | | | 2,443 | | Sales and marketing expenses, net | | | | | 3,282 | | | | 2,204 | | General and administrative expenses, net | | | | | 4,163 | | | | 1,183 | | TOTAL OPERATING EXPENSES | | | | | 10,211 | | | | 5,830 | | OPERATING LOSS | | | | | (6,101 | ) | | | (1,860 | ) | Interest expenses | | | | | (830 | ) | | | (690 | ) | Other financial expenses, net | | 19 | | | (4,051 | ) | | | (2,701 | ) | NET COMPREHENSIVE LOSS FOR THE YEAR | | | | | (10,982 | ) | | | (5,251 | ) | Net loss per share attributable to common shareholders – basic and diluted | | 17 | | $ | (0.95 | ) | | $ | (2.56 | ) | Weighted average number of common stock used in computing net loss per share – basic and diluted | | | | | 11,621,238 | | | | 2,048,788 | |
The accompanying notes are an integral part of these consolidated financial statements.
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ACTELIS NETWORKS, INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY (CAPITAL DEFICIENCY) U.S. dollars in thousands (except number of shares)
| | Redeemable Convertible Preferred Stock | | Common Stock | | Non-voting Common Stock | | Additional paid-in capital | | Accumulated deficit | | Total shareholder’s equity (capital deficiency) | Number of shares | | Amount | | Number of shares | | Amount | | Number of shares | | Amount | | BALANCE AS OF JANUARY 1, 2021 | | 7,731,083 | | | 5,585 | | | 2,047,641 | | | * | | 1,783,773 | | | * | | 2,771 | | (17,169 | ) | | (14,398 | ) | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of options into common stock | | — | | | — | | | 2,763 | | | * | | — | | | — | | * | | — | | | * | | Share based compensation | | — | | | — | | | — | | | — | | — | | | — | | 53 | | — | | | 53 | | Net comprehensive loss for the year | | — | | | — | | | — | | | — | | — | | | — | | — | | (5,251 | ) | | (5,251 | ) | BALANCE AS OF DECEMBER 31, 2021 | | 7,731,083 | | | 5,585 | | | 2,050,404 | | | * | | 1,783,773 | | | * | | 2,824 | | (22,420 | ) | | (19,596 | ) | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of options into common stock | | — | | | — | | | 77,749 | | | * | | — | | | — | | 5 | | — | | | 5 | | Share based compensation | | — | | | — | | | — | | | — | | — | | | — | | 220 | | — | | | 220 | | Conversion of convertible redeemable preferred stock to common stock upon initial public offering | | (7,731,083 | ) | | (5,585 | ) | | 7,731,083 | | | 1 | | — | | | — | | 5,584 | | — | | | 5,585 | | Issuance of common stock upon initial public offering and private placement, net of underwriting discounts and commissions and other offering costs | | — | | | — | | | 4,212,500 | | | * | | — | | | — | | 14,675 | | — | | | 14,675 | | Conversion of convertible loan to common stock upon initial public offering | | — | | | — | | | 1,638,161 | | | * | | — | | | — | | 6,553 | | — | | | 6,553 | | Conversion of convertible note to common stock upon initial public offering | | — | | | — | | | 900,096 | | | * | | — | | | — | | 3,600 | | — | | | 3,600 | | Conversion of warrants to common stock upon initial public offering | | — | | | — | | | 797,567 | | | * | | — | | | — | | 3,190 | | — | | | 3,190 | | Redemption of non-voting common stock upon initial public offering | | — | | | — | | | — | | | — | | (1,783,773 | ) | | * | | — | | — | | | * | | Repurchase of common stock | | — | | | — | | | (27,699 | ) | | * | | — | | | — | | 15 | | — | | | 15 | | Net comprehensive loss for the year | | — | | | — | | | — | | | — | | — | | | — | | — | | (10,982 | ) | | (10,982 | ) | BALANCE AS OF DECEMBER 31, 2022 | | — | | | — | | | 17,379,861 | | | 1 | | — | | | — | | 36,666 | | (33,402 | ) | | 3,265 | |
The accompanying notes are an integral part of these consolidated financial statements.
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ACTELIS NETWORKS, INC. CONOSLIDATED STATEMENTS OF CASH FLOWS U.S. DOLLARS IN THOUSANDS
| | Year ended December 31 | 2022 | | 2021 | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net loss for the year | | (10,982 | ) | | (5,251 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Depreciation | | 23 | | | 37 | | Changes in fair value related to warrants to lenders | | 1,049 | | | 1,031 | | Inventories write-downs | | 147 | | | 102 | | Exchange rate differences | | (642 | ) | | 167 | | Share-based compensation | | 220 | | | 53 | | Changes in fair value related to convertible loan | | 1,648 | | | 1,342 | | Changes in fair value related to convertible note | | 1,753 | | | — | | Treasury shares | | 15 | | | — | | Interest expenses | | 830 | | | 235 | | Changes in operating assets and liabilities: | | | | | | | Trade receivables | | (887 | ) | | (731 | ) | Net change in operating lease assets and liabilities | | (44 | ) | | — | | Inventories | | (429 | ) | | 78 | | Prepaid expenses and other current assets | | (280 | ) | | (236 | ) | Other long-term assets | | (492 | ) | | — | | Long term deposits | | — | | | 27 | | Trade payables | | (139 | ) | | (217 | ) | Deferred revenues | | (25 | ) | | 92 | | Other current liabilities | | 508 | | | 516 | | Other long-term liabilities | | (41 | ) | | 29 | | Net cash used in operating activities | | (7,768 | ) | | (2,726 | ) | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | Short term deposit | | (1,622 | ) | | — | | Long-term deposit | | 66 | | | — | | Restricted long term bank deposit | | (27 | ) | | — | | Restricted bank deposit | | (2,451 | ) | | — | | Purchase of property and equipment | | — | | | (54 | ) | Net cash used in investing activities | | (4,034 | ) | | (54 | ) | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | Proceeds from exercise of options | | 5 | | | * | | Proceeds from long-term debt, net of issuance costs | | — | | | 2,904 | | Proceeds from initial public offering and private placement | | 18,697 | | | — | | Underwriting discounts and commissions and other offering costs | | (2,175 | ) | | — | | Repayment of long-term loan | | (1,241 | ) | | — | | Net cash provided by financing activities | | 15,286 | | | 2,904 | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | | (72 | ) | | 167 | | INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | 3,484 | | | 124 | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | | 795 | | | 671 | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | | 4,279 | | | 795 | | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | | Cash and cash equivalents | | 3,943 | | | 693 | | Restricted cash, non-current | | 336 | | | 102 | | Total cash, cash equivalents and restricted cash | | 4,279 | | | 795 | |
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ACTELIS NETWORKS, INC. CONOSLIDATED STATEMENTS OF CASH FLOWS — (Continued) U.S. DOLLARS IN THOUSANDS
| | Year ended December 31 | 2022 | | 2021 | SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION: | | | | | Cash paid for interest | | 818 | | 511 | | | | | | SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | | | | | Additional warrants | | — | | 95 | Right of use assets obtained in exchange for new operating lease liabilities | | 237 | | — | Conversion of convertible loan to common stock upon initial public offering | | 6,553 | | — | Conversion of convertible note to common stock upon initial public offering | | 3,600 | | — | Conversion of warrants to common stock upon initial public offering | | 3,190 | | — | Conversion of convertible redeemable preferred stock to common stock upon initial public offering | | 5,585 | | — | Repurchase of common stock | | 15 | | — |
The accompanying notes are an integral part of these consolidated financial statements.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — GENERAL:
a.Actelis Networks, Inc. (hereafter —the Company) was established in 1998, under the laws of the state of Delaware. The Company has a wholly-owned subsidiary in Israel, Actelis Networks Israel Ltd. (hereafter — the Subsidiary). The Company is engaged in the design, development, manufacturing, and marketing of cyber hardened, hybrid fiber, copper networking solutions for IoT and Telecommunication companies. The Company’s customers include providers of telecommunication services and enterprises as well as resellers of the Company’s products. On May 12, 2022, the Company accepted a notification of effectiveness from the SEC, and on May 17 completed its IPO. See note 2 below for further details.
b.In December 2019, a novel coronavirus disease, or COVID-19, was first reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The widespread health crisis is adversely affecting the broader economies, financial markets and overall demand environment for many of the Company’s products.
The Company’s operations and the operations of the Company’s suppliers, channel partners and customers were disrupted to varying degrees by a range of external factors related to the COVID-19 pandemic, some of which are not within the Company’s control. Many governments imposed, and may yet impose, a wide range of restrictions on the physical movement of people in order to limit the spread of COVID-19. The COVID-19 pandemic has had, and likely will continue to have, an impact on the attendance and productivity of the Company’s employees, and those of our suppliers, channel partners or customers, resulting in negative impacts to the Company’s results of operations and overall financial performance. We suffered delays in realization of certain new orders from customers, delay in testing of some new technologies in customer premises and difficulty conducting business development activities in an effective way (face-to-face). In addition, we had to increase credit lines by $2.0 million in 2021 to support the loss of revenue and profit. Additionally, COVID-19 has resulted, and likely will continue to result, in delays in non-residential construction, non-crisis-related IT purchases, electronic components including chip manufacturing and project completion schedules in general, all of which can negatively impact results in both current and future periods.
The duration and extent of the impact from the COVID-19 pandemic or any future epidemic or pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the effects of measures enacted by policy makers and central banks around the globe, and the impact of these and other factors on the Company’s employees, customers, channel partners and suppliers. If we are not able to respond to and manage the impact of such events effectively, our business will be affected.
c.The Company has incurred significant losses and negative cash flows from operations and incurred losses of $10,982 and $5,251 for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company had negative cash flows from operations of $7,768 and $2,726, respectively. As of December 31, 2022, the Company’s accumulated deficit was $33,402. The Company has funded its operations to date through equity financing and has cash on hand (including short term deposits and restricted cash) of $6,016 and long-term deposits and restricted cash of $2,375 as of December 31, 2022. The Company monitors its cash flow projections on a current basis and takes active measures to obtain the funding it requires to continue its operations. However, these cash flow projections are subject to various uncertainties concerning their fulfilment such as the ability to increase revenues by attracting and expanding its customer base or reducing cost structure. If the Company is not successful in generating sufficient cash flow or completing additional financing, including debt refinancing which shall release restricted cash, then it will need to executedeliver a cost reduction plan that has been prepared. The Company’s transition to profitable operations is dependent on generating a level of revenue adequate to support its cost structure. The Company expects to fund operations using cash on hand, through operational cash flows and raising additional proceeds. There are no assurances, however, that the Company will be able to generate the revenue necessary to support its cost structure or that it will be successful in obtaining the level of financing necessary for its operations. Management has evaluated the significance of these
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — GENERAL: (cont.)
conditions and has determined that the Company does not have sufficient resources to meet its operating obligations for at least one year from the issuance date of these consolidated financial statements. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcomecopy of this uncertainty.
NOTE 2 — INITIAL PUBLIC OFFERING:
On May 17, 2022, the Company finalized its IPO offering of an aggregate of 4,212,500shares of common stock, including the partial exercise by the underwriter of its optionprospectus to purchase 462,500 additional shares of common stock,each purchaser at a priceor prior to the public of $4.00 per share.
The net proceeds from the offering, including the over-allotment, to the Company were approximately $15.4 million, after deducting underwriting discounts, commissions and expenses amounting to approximately $1.0 million.
As a result of the IPO, the Company issued common stock in the transactions described below:
a.Redeemable convertible preferred stock (see Note 13) — the Company issued 7,731,083shares of common stock (on a one (1) for one (1) basis, pursuant to the conversion provisions of the Series A and Series B redeemable Preferred Stock agreements). Upon the conversion, the Company reclassified the Convertible Preferred stock at its carrying amount, from temporary equity, into shareholders’ equity.
b.Convertible loan agreement (“CLA”) (see Note 11) — the Company issued 1,638,161shares of common stock. pursuant to the conversion features of the loan agreement.
Upon such issuance, the Company reclassified the Convertible loan’s carrying amount (which reflected its then current fair value), into shareholders’ equity.
c.Convertible notes (see Note 10) — The Company issued 900,096shares of common stock pursuant to the conversion features of the note agreements issued during December 2021 and April 2022.
d.Warrants (See Note 14):
1.The Company issued 617,567shares of common stock as a result of the exercise provisions of the detachable warrants granted to Mizrahi-Tefahot Bank as part of the Company’s financing agreement with Bank Mizrahi.
2.The Company issued 180,000shares of common stock to Migdalor as a result of the exercise provisions of the detachable warrants granted to Migdalor as part of the loan agreement with Migdalor.
3.In addition, concurrently with the IPO and in connection with the consummation of the IPO, the Company issued common stock warrants to the underwriters. The warrants are exercisable into 294,875 of the Company’s common shares for an exercise price of $5 per share and can be exercised at any time during a period of 5 years from the issuance date (i.e. until May 17, 2027). The warrants are classified as equity based on the guidance provided under ASC 718-10.
As of the issuance date of the underwriter warrants, the fair value of the warrants was estimated at $145. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 54%, a risk-free rate of 3.01%, a contractual term of 5 years, an expected dividend yield of 0% and a stock price at the issuance date of $1.95.
e.The Company redeemed 1,783,773shares of non-voting common stock at their par value, removing the stock from shareholders’ equity.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES:
a.Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Certain prior period amounts have been reclassified to conform to the current year presentation.
b.Use of estimates in preparation of financial statements
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, Fair value of financial instruments, inventory write-offs, as well as in estimates used in applying the revenue recognition policy (See note 2l). The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
c.Functional currency
The currency of the primary economic environment in which the operations of the Company and its Subsidiary are conducted is the U.S. dollar (“$” or “dollar”). Therefore, the functional currency of the Company and its Subsidiary is the dollar. In determining the appropriate functional currency to be used, the Company reviewed factors relating to sales, costs and expenses, financing activities and cash flows.
Transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency Translation”. All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of comprehensive loss as financial income or expenses, as appropriate.
d.Principles of consolidation
The consolidated financial statements include the accounts of the Company and the Subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
e.Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchasethe sale (including by compliance with Rule 172 under the Securities Act).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information into this prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information that we incorporate by reference is considered to be cash equivalents. Cash equivalentspart of this prospectus. Because we are carried at cost, which approximates their fair value. f.Restricted cash and restricted deposits
Restricted cash consists of cash held in restricted accounts, classified as current or long term based onincorporating by reference our future filings with the expected timing of the disbursement. Restricted deposits consist of deposits held in restricted deposits bank accounts including deposits held as collateral for guarantees to third parties and other, classified as current or long term based on the expected timing of the disbursement
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
g.Treasury Shares
Treasury shares represents ordinary shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury shares are accounted for under the cost method. UnderSEC, this method, repurchases of ordinary shares are recorded as treasury shares at historical purchase prices. At retirement, the ordinary shares accountprospectus is charged only for the aggregate par value of the shares. The treasury shares have no rights.
h.Trade Receivables, net
Trade receivables are recorded at the invoiced amount, are unsecured and do not bear interest. Trade receivables are stated net of allowances. The allowance for doubtful accounts is based on the Company’s periodic assessment of the collectability of the accounts based on a combination of factors including the payment terms of each account, its age, the collection history of each customer, and the customer’s financial condition. On this basis, management has determined that an allowance for doubtful accounts of $125 and $61 was appropriate as of December 31, 2022, and December 31, 2021, respectively. Allowance for doubtful expense for the years ended December 31, 2022, and 2021 was $64 and $0, respectively.
i.Inventories
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories, discontinued products, new products introduction and for market prices lower than cost. Any write-off is recognized in the consolidated statement of comprehensive loss as cost of revenues. In addition, if required, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company’s future demands forecast consistent with its valuation of excess and obsolete inventory.
Cost is determined as follows:
Raw materials, parts, supplies and finished products — using the weighted average cost method.
j.Property and equipment, net
Property and equipment is stated at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation expense is calculated on a straight-line basis over the estimated useful lives of the related assets. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and the related gain or loss is reported in the statement of comprehensive loss.
Annual rates of depreciation are as follows:
| | %
| Computers, electronic equipment and software
| | Mainly 33%
| Office furniture and equipment
| | 7
| Leasehold improvements
| | By the shorter of lease term and the estimated useful life of the asset
|
k.Impairment of long-lived assets subject to amortization
The Company evaluates long-lived assets, such as property and equipment with finite lives, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company identifies impairment of long-lived assets when estimated undiscounted future cash flows expected to result from the use of the assets plus net proceeds expected from disposition of the assets, if
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any, are less than the carrying value of the assets. If the Company identifies an impairment, the Company reduces the carrying amount of the assets to their estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.
l.Revenue recognition
The Company’s product consists of hardware and an embedded software that function together to deliver the product’s essential functionality. The embedded software is essential to the functionality of the Company’s products. The Company’s products are sold with a two-year warranty for repairs or replacements of the product in the event of damage or failure during the term of the support period, which is accounted for as a standard warranty. Services relating to repair or replacement of hardware beyond the standard warranty period are offered under renewable, fee-based contracts and include telephone support, remote diagnostics and access to on-site technical support personnel.
The Company also offers its customers other management software. The Company sells its other non-embedded software either as perpetual or as term-based licenses.
The Company provides, to certain customers, software updates that it chooses to develop, which the Company refers to as unspecified software updates, and enhancements related to the Company’s management software through support service contracts. The Company also offers its customers product support services which include telephone support, remote diagnostics and access to on-site technical support personnel.
The Company’s customers are comprised of resellers, system integrators and distributors.
The Company follows 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) it satisfies its performance obligations.
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. The Company’s contracts do not include additional discounts once product price is set, right of returns, significant financing components or any forms of variable consideration.
The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is less than a year. The Company’s service period is for one year and is paid for either up front or on a quarterly basis.
Sales of products
Most of the Company’s contracts are of a single performance obligation (sales of the product with a standard warranty) thus the entire transaction price is allocated to the single performance obligation. In addition, the Company also sells separate services such as product support service and extended warranty.
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Sales of software with related services
The Company sells perpetual management software and term-based licenses for its management software together with related services. The perpetual management software stand-alone selling price is established by taking in consideration available information such as historical selling prices of the perpetual license, geographic location, and market conditions. For contracts that contain more than one identified performance obligation (a term-based license for its management software together with related services), the stand-alone selling price of a term-based license, is based on a ratio from the relevant perpetual management software stand-alone selling price. The stand-alone selling price of the related service is then determined by applying the residual method.
Revenue from selling the Company’s product and/or the software management (either as term-based or perpetual) is recognized at a point in time which is typically at the time of shipment of products to the customer or when the code is transferred, respectively. Revenue from services (e.g., product support service, software support service or extended warranty) is recognized on a straight-line basis over the service period, as a time-based measure of progress best reflects our performance in satisfying this performance obligation.
m.Cost of revenues
Cost of revenues includes cost of materials, costs associated with packaging, assembly and testing costs, as well as cost of personnel (including share-based compensation), shipping costs, royalties, costs of logistics and quality assurance, access to on-site technical support personnel as well as warranty expenses and other expenses associated with manufacturing support.
n.Leases
The Company’s lease accounting policy until December 31, 2021, prior to the adoption of the new lease standard — ASC-842.
The Company leases real estate and cars for use in its operations, which are classified as operating leases. Rental expense for year ended December 31, 2021, was $516.
The lease expenses are recognized on a straight-line basis over the expected lease term and is included in the operating expenses in the Company’s consolidated statements of comprehensive loss.
The Company’s lease accounting policy from January 1, 2022, following the adoption of the new lease standard
The Company adopted the new lease standard and all the related amendments on a prospective basis as of January 1, 2022, and used the effective date as the Company’s date of initial application. Consequently, historical financial information was notcontinually updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2022.
The Company determines if an arrangement isthose future filings may modify or contains a lease at inception. If an arrangement is a lease, the Company determines whether it is an operating lease or a finance lease at the lease commencement date. As of December 31, 2021, and 2022, the Company did not have any finance leases. Operating leases are included in operating lease right of use assets and operating lease liabilities (current and non-current) in the Company’s consolidated balance sheets.
Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date., the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means, for those leases, The Company does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition The Company also elected to apply the practical expedient to not separate lease and non-lease components for its real-estate leases.
Regarding leases denominated in a foreign currency, the related ROU assets are remeasured using the exchange rate in effect at the date of initial recognition; the related lease liabilities are remeasured using the exchange rate in effect at the end of the reporting period.
Certain of the Company’s lease agreements include rental payments based on changes in the CPI. Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and recognized in the period in which the related obligation was incurred. The Company includes these variable payments in the initial measurement of the lease right-of-use asset and lease liability. On the effective date, the Company included, in the initial measurement of the ROU asset and lease liability, the lease payments based on the then-current CPI.
In lease agreements that include extension options, the lease term includes the options to extend the lease, only to the extent it is reasonably certain that the Company will exercise such extension options.
The application of ASC 842 has resulted in the recognition of approximately $1,046 ROU assets and lease liabilities on the Company’s balance sheet as of the effective date, and in the requirement to provide significant new disclosures regarding the Company’s leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a significant impact on the Company’s consolidated statements of comprehensive loss and consolidated statements of cash flows. See note 7 for further discussion.
Sublease
In October 2021, the Company entered into a sublease agreement for its offices in the United States.
The Company applies the guidelines in ASC-842 regarding subleases, which states that the classification should be based on the underlying asset being subleased and concluded that the sublease is an operating lease where the Company is the Lessor.
The sublease income is recognized on a straight-line basis over the expected lease term and is included in the operating expenses in the Company’s consolidated statements of comprehensive loss.
o.Offering Costs associated with the Initial Public Offering
The Company complies with the requirements of ASC 340-10-S99-1, SEC Staff Accounting bulletin Topic 5A–“Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO. Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction of equity.
The Company incurred offering costs amounting to approximately $1.45 million, related to underwriting discounts and commissions, and other offering costs of $1 million as a result of the IPO.
p.Basic and diluted net loss per share
Basic net loss per share is computed using the weighted average number of common shares and fully vested RSUs outstanding during the period, net of treasury shares. In computing diluted loss per share, basic loss per share is adjusted to take into account the potential dilution that could occur upon: (i) the exercise of options and non-vested RSUs granted under employee stock compensation plans, and the
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exercise of warrants using the treasury stock method; and (ii) the conversion of the redeemable convertible preferred stock, and convertible loan using the “if-converted” method, by adding to net loss the change in the fair value of the convertible loan, net of tax benefits, and by adding the weighted average number of shares issuable upon assumed conversion of these instruments.
q.Fair value of financial instruments
Fair value measurements are classified and disclosed in one of the following three categories:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 — Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31:
| | | | Fair value measurements at December 31, 2022 | Description | | Total | | Level 1 | | Level 2 | | Level 3 | | | U.S. dollars in thousands | Liabilities: | | | | | | | | | | | | | Warrants (Note 14) | | $ | 8 | | $ | — | | $ | — | | $ | 8 |
| | | | Fair value measurements at December 31, 2021 | Description | | Total | | Level 1 | | Level 2 | | Level 3 | | | U.S. dollars in thousands | Assets: | | | | | | | | | | | | | Monet market funds | | $ | 102 | | $ | 102 | | $ | — | | $ | — | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Convertible Loan (Note 11) | | $ | 4,905 | | $ | — | | $ | — | | $ | 4,905 | Warrants (Note 14) | | $ | 2,149 | | $ | — | | $ | — | | $ | 2,149 |
As of December 31, 2022, and 2021, the fair values of the Company’s cash, cash equivalents, short and long-term deposits, trade receivables, trade payables, long-term loan and restricted cash approximated the carrying values of these instruments presented in the Company’s consolidated balance sheets because of their nature.
r.Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and trade receivables. Cash and cash equivalents and restricted cash are placed with banks and financial institutions in the United States and Israel.
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Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, present minimal credit risk with respect to those investments.
The Company’s trade receivables are derived primarily from telecommunication operators, the Company’s reseller customers and enterprises located mainly in the United States, Europe, and Asia.
Credit risk with respect to trade receivables exists to the full extent of the amounts presented in the consolidated financial statements. Management makes judgments as to its ability to collect outstanding accounts receivable and provides allowances for the applicable portion of accounts receivable when collection becomes doubtful.
Management provides allowances based upon a specific review of all significant outstanding invoices, analysis of its historical collection experience, and current economic trends. If the historical data used to calculate the allowance for doubtful accounts does not reflect the Company’s future ability to collect outstanding accounts receivable, additional provisions for doubtful accounts may be needed, and the future results of operations could be materially affected.
The Company has major customers, representing:
1.29% and 46% of the Company Trade receivables balance as of December 31, 2022 and December 31, 2021 respectively.
2.23% and 0% of the Company Trade receivables balance as of December 31, 2022 and December 31, 2021 respectively.
3.10% and 4% of the Company Trade receivables balance as of December 31, 2022 and December 31, 2021 respectively.
See note 18 for details regarding the revenues from these customers.
The Company does not see any credit risk regarding this balance, as most of the remaining balance was paid off after the balance sheet date.
s.Risks and uncertainties
The Company is subject to a number of risks associated with companies in a similar stage of development, including, but not limited to, dependence on key employees; potential competition from larger, more established companies; the ability to develop and bring new products to market; the ability to attract and retain additional qualified personnel; the ability to obtain raw materials required to deliver its products to customers; and the ability to obtain adequate financing to support its growth.
t.Warranty costs
The Company’s products generally include standard warranty of two years for product defects. The Company accrues for warranty at the time revenue is recognized. The Company’s estimates of future warranty obligations may change due to product failure rates, material usage, and other rework costs incurred in correcting a product failure. In addition, specific warranty accruals may be recorded if unforeseen problems arise. The provision for warranty amounted to $96 and $158 as of December 31, 2022, and 2021, respectively. These provisions are included in other accrued liabilities and non-current liabilities in the accompanying consolidated balance sheets.
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
The following table sets forth activity in the Company’s accrued warranty account for each of the years ended December 31, 2022, and 2021.:
| | Year ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Balance at the beginning of the year | | 158 | | | 90 | | Cost incurred | | (7 | ) | | (68 | ) | Expense (income) recognized | | (55 | ) | | 136 | | Balance at the end of the year | | 96 | | | 158 | |
u.Sales and marketing expenses
Sales and marketing expenses include such expenses for the company’s sales teams, business development activities, sales engineering, and customer support.
v.Research and development costs, net
Research and development costs are expensed as incurred and include compensation for engineers, external services, and material costs associated with new product development, enhancement of current products. During 2022 and 2021, no grants were received.
Based on the Company’s product development process, the Company does not incur material costs after the point in time at which the product as a whole reaches technological feasibility.
w.Shipping and handling
The Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling as cost of revenues.
x.Government grants and related royalties
The Company is paying royalties to the government of Israel for funding received for research and development. Royalties are calculated and paid at a rate of 3% of the applicable revenues. During 2022 and 2021, respectively, the Company incurred royalty expenses of $257 and $258, included within cost of revenues (see note 12).
y.Segments
The Company operates in one segment. Management does not segregate its business for internal reporting. The chief operating decision maker is the Company’s Chief Executive Officer (“CODM”) The CODM evaluates the performance of its business based on financial data consistent with the presentation in the accompanying financial statements. The Company concluded that its unified business is conducted globally and accordingly represents one operating segment.
z.Income taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portionsupersede some or all of the deferred tax assets will not be realized.
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ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position takeninformation included or expected to be takenincorporated in a tax return by determining if the weight of available evidence indicatesthis prospectus. This means that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
Taxes which would apply in the event of disposal of investment in foreign subsidiary has not been taken into account in computing the deferred taxes, since the Company’s intention is to hold, and not to realize the investment.
aa.Employee related benefits:
Severance pay
The Company’s liability for severance pay for its Israeli employees is calculated pursuant to the Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees whose employment is terminated by the Company or who are otherwise entitled to severance pay in accordance with Israeli law or labor agreements are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability for all of its Israeli employees is partly provided for by monthly deposits for insurance policies and the remainder by an accrual. The value of these policies is recorded as an asset in the Company’s consolidated balance sheet. Such deposits are not considered to be “plan assets” and are therefore included in other non-current assets.
During April and May 2008 (the “transition date”), the Company amended the contracts of most of its Israeli employees so that starting on the transition date, such employees are subject to Section 14 of the Severance Pay Law, 1963 (“Section 14”) for severance pay accumulated in periods of employment subsequent to the transition date. Pursuant to Section 14, these employees are entitled to monthly deposits made by the Company on their behalf with insurance companies. These deposits are not recorded as an asset on the Company’s balance sheet, and there is no liability recorded as the Company does not have a future obligation to make any additional payments. The Company’s contributions to the defined contribution plans are charged to the consolidated statements of Comprehensive loss as and when the services are received from the Company’s employees. For the Company’s employees in Israel that began employment prior to Article 14, the Company calculates the liability for severance pay based on the most recent salary of these employees multiplied by the number of years of employment as of the Article 14 inception date. These liabilities are presented under accrued severance pay in the Company’s consolidated balance sheets. The amounts used to fund these liabilities are included in the Company’s consolidated balance sheets under severance pay fund.
The carrying value for the deposited funds for the Company’s employees’ severance pay for employment periods prior to the transition date include profits and losses accumulated up to the balance sheet date.
The amounts of Contribution plans expenses were approximately $182 and $156 for each of the years ended December 31, 2022, and 2021, respectively.
The Company expects to contribute approximately $189 in the year ending December 31, 2023, to insurance companies in connection with its contribution plans.
Gain (loss) on amounts funded in respect of employee rights upon retirement totaled approximately $(4) and $(8) for the years ended December 31, 2022 and 2021, respectively.401(k) profit sharing plans
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
The Company has a number of savings plans in the United States that qualify under Section 401(k) of the current Internal Revenue Code as a “safe harbor” plan. The Companyyou must make a mandatory contribution to the 401(k) plan to satisfy certain nondiscrimination requirements under the Internal Revenue Code. This mandatory contribution is made to all eligible employees. The contribution costs were $9 and $6 for the years ended December 31, 2022, and 2021, respectively.
bb.Share-based compensation
Share-based compensation expense for all share-based payment awards, including share options and restricted share units (“RSUs”), is determined based on the grant-date fair value. The Company recognizes these compensation costs net of actual forfeitures and recognizes compensation cost for all options on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years and three years for the RSUs.
The Company accounts for share-based compensation arrangements with nonemployees based on the estimated fair value of the equity instrument using the Black-Scholes option-pricing model. Compensation cost is recognized over the period that the services are provided, and the award is earned by the counterparty.
The Company follows ASC 718 to determine whether a share-based payment should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using the Black-Scholes Option-pricing model.
For options and RSU’s with graded vesting, the Company has elected a fair-value-based measure of the entire award by using a single weighted-average expected term.
The Company has adopted the actual approach as its accounting policy to account for forfeitures’ effect on its share-based payments (i.e., to account for forfeitures as they occur).
cc.Convertible Note
The Company follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if,look at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Comprehensive Loss.
The Company concluded that the value of the note is predominantly based on a fixed monetary amount known at the date of issuance, to be converted into shares of common stock, at a conversion price per share reflecting a discount of 40% conversion price Accordingly, the note was classified as a liability and is measured at its fair value, pursuant to the provisions of ASC 480-10. Upon the consummation of the IPO, the convertible note was automatically converted into the Company’s common stock based on its contractual terms and conditions. (See note 10).
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
dd.Convertible loan
The Company follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Comprehensive Loss.
The Company concluded that the value of the loan is predominantly based on a fixed monetary amount known at the date of issuance, to be converted into shares of common stock, at a conversion price per share reflecting a discount of no more than 65% of the lowest price per share paid by any investor in an offering. Accordingly, the loan was classified as a liability and is measured at its fair value, pursuant to the provisions of ASC 480-10. Upon the consummation of the IPO, the convertible loan was automatically converted into the Company’s common stock based on its contractual terms and conditions. (See note 11).
ee.Warrants
Common stock warrants
The Company accounts for its warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, or meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexedSEC filings that we incorporate by reference to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outsidedetermine if any of the Company’s control, among other conditions for equity classification. See note 14.
Redeemable Preferred stock warrants
The Company accounts for redeemable preferred stock warrants at fair value and classifies redeemable preferred stock warrants as liabilitiesstatements in accordance with ASC 480, as the warrants are exercisable into contingently redeemable preferred stock as describedthis prospectus or in Note 14. All redeemable preferred stock warrants are recognized at fair value and re-measured at each balance sheet date. At the end of each reporting period, changes in fair value during the period are recognized as a component of financial income (expense), net.
Following the guidance of ASC 480 the warrants were required to be classified as a liability because the redemption feature of their underlying redeemable preferred stock potentially requires the Company to repurchase its stockany document previously incorporated by transferring assets upon specific events which would not necessarily be within the control of the Company (See note 14). In connection with the consummation of the IPO, the type of the stock has changed from redeemable preferred stock to common stock at conversion, and the Company re-evaluated the classification of certain warrants.
Other redeemable preferred stock warrants were converted into the Company’s common stock upon the consummation of the IPO.
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
Warrants issued in connection with obtaining loans and/or securing credit facilities
Warrants issued in connection with obtaining a loan or securing a credit facility are considered deferred issuance costs. Deferred issuance costs for obtaining a loan are reflected as a deduction from the carrying amount of the related loan and are amortized using the effective interest method. Deferred issuance costs incurred in connection with securing a credit facility of non-revolving loans are recorded as an asset on our consolidated balance sheets and amortized on a straight-line basis over the term of the arrangement, until the loan, or a portion of the loan is withdrawn. When the loan or a portion of a loan is withdrawn, the unamortized related deferred issuance cost, or a portion of it, is deducted from the loan and is subsequently amortized according to the effective interest method. (See note 14).
The Company’s redeemable preferred stock is not mandatorily redeemable, nor redeemable at the option of the holder after a specified date, but a deemed liquidation event would constitute a redemption event outside of the common shareholders’ control. Therefore, all redeemable Preferred stock has been presented outside of permanent equity in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity”. Upon the consummation of the IPO, all of the Company’s redeemable preferred stocks were converted into common stock and reclassified from temporary equity, into permanent equity (see note 2)
gg.Commitments and contingencies
The Company accounts for its contingent liabilities in accordance with ASC Topic 450, Contingencies (“ASC 450”). A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
hh.Reverse stock split
On April 15, 2022 (the “Closing Date”), the Company’s Board of Directors approved a Reverse Stock Split in the ratio of forty-six to-one. The Reverse Stock split became effective as of May 2, 2022.
The Company accounted for the Reverse Stock Split on a retroactive basis pursuant to ASC 260. As a result, all common stock, Non-voting Common stock, redeemable Preferred stock and options outstanding and exercisable for common stock, exercise prices and income (loss) per share amountsreference have been adjusted, on a retroactive basis, for all periods presented in these consolidated financial statements, to reflect such Reverse Stock Split.modified or superseded.
ii. New Accounting Pronouncements
Recently adopted accounting pronouncements:
In February 2016, the FASB issued ASU 2016-02 “Leases” (the “new lease standard” or “ASC 842”). The guidance establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.
The Company adopted the new lease standard and all the related amendments on January 1, 2022 and used the effective date as the Company’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2022.
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
ASC 842 provides a number of optional practical expedients in transition, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard. The Company elected to utilize the available package of practical expedients permitted under the transition guidance within ASC 842 which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs.
Upon adoption of ASC 842, the Company recognized operating right-of-use assets of $1,046 with corresponding operating lease liabilities on its consolidated balance sheet as of January 1, 2022. See Note 7 for further details.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The Company applied the guidance prospectively to all in-scope transactions beginning fiscal year 2022. The Company adopted this guidance, and the adoption did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements, not yet adopted:
As an emerging growth company, the Jumpstart Our Business Startup Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company evaluated the effect that ASU 2016-13 will have on its consolidated financial statements and has determined that there will be no effect.
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848)— Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affectedprospectus incorporates by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships, and other transactionsthe documents listed below that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective for all entities as of March 12, 2020, through December 31, 2022.
The Company’s exposure to reference rate reform is due to royalties payments the Company is obligated to pay for research and development grants received from the Government of Israel (see note 8b). As of the date of these consolidated financial statements, the Israeli Innovation Authority (“IIA”) has not determined an alternative benchmark rate to the LIBOR. However, the Company will consider this guidance as future modifications are made.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
In June 2020 the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity’s own equity and modifies the guidance on diluted earnings per share calculations as a result of these changes. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this standard on its consolidated financial statements.
NOTE 4 — INVENTORIES:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Raw materials | | 593 | | 356 | Finished goods | | 586 | | 541 | | | 1,179 | | 897 |
Inventory write-downs totaled to $147 and $102 during the year ended December 31, 2022, and 2021 respectively.
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Prepaid expenses | | 473 | | 194 | Governmental authorities | | 130 | | 82 | Accrued income | | 75 | | 122 | | | 678 | | 398 |
NOTE 6 — PROPERTY AND EQUIPMENT, NET:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Cost: | | | | | Computer, software, and electronic equipment | | 8,575 | | 8,575 | Office furniture and equipment | | 872 | | 872 | Leasehold improvements | | 292 | | 292 | | | 9,739 | | 9,739 | Less: accumulated depreciation | | 9,659 | | 9,636 | Property and equipment, net | | 80 | | 103 |
Depreciation expense was $23 and $37 for the years ended December 31, 2022, and 2021, respectively.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — LEASES:
1)The Company has an operating lease agreement for its facility in the United States, which expires on March 31, 2024. The Company is not reasonably certain that it will exercise the 5-year extension option and hence, the extension period was excluded from the measurement of the ROU asset and the lease liability. The lease payments are denominated in USD.
2)On July 1, 2022, the Company entered into a new operating lease agreement for additional offices in the United States, which expires on September 30, 2025. The lease payments are denominated in USD.
3)The Company’s Israeli subsidiary has an operating lease agreement for a facility in Israel, which expires on April 30, 2023. The Company does not have an option for extending the lease agreement. The lease payments are denominated in ILS and are indexed to the consumer price index.
4)On October 18, 2021, the Company entered into an agreement to sublease its facility to an unrelated third party in the United States. The sublease ends March 31, 2024. The sublease is classified as an operating lease. The Company recognized lease income during the year ended December 31, 2022 in the amount of $168.
5)The Company leases its motor vehicles under operating lease agreements.
6)The Company’s Israeli subsidiary has an operating lease agreement for testing equipment in Israel, which expires on February 07, 2025. The lease payments are denominated in ILS.
7)The Company adopted the new accounting standard ASC 842 “Leases” and all related amendments on January 1, 2022, and used the adoption date as the Company’s date of initial application.
Supplemental information related to leases is as follows:
| | December 31, 2022 | Operating leases: | | | | Operating lease right-of-use assets | | $ | 726 | Current Operating lease liabilities | | $ | 445 | Non-Current Operating lease liabilities | | $ | 237 | Total Operating lease liabilities | | $ | 682 |
Other information:
| | Year ended December 31, 2022 | Cash paid for amounts included in the measurement of lease liabilities (cash paid in thousands) | | $ | 747 | | Weighted Average Remaining Lease Term | | | 1.50 | | Weighted Average Discount Rate | | | 3.49 | % |
The lease costs components are as follows:
| | Year ended December 31, 2022 | Fixed payments | | $ | 723 | Variable payments that depend on an index or rate | | | 24 | Total lease cost | | $ | 747 |
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — LEASES:(cont.)
Maturities of operating lease liabilities were as follows:
| | December 31, 2022 | 2023 | | $ | 476 | | 2024 | | | 177 | | 2025 | | | 70 | | Total operating lease payments | | | 723 | | Less: imputed interest | | | (41 | ) | Present value of lease liabilities | | $ | 682 | |
NOTE 8 — OTHER ACCRUED LIABILITIES:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Tax authorities | | — | | 10 | Accrued expenses | | 1,190 | | 813 | Accrued standard warranty | | 48 | | 79 | | | 1,238 | | 902 |
NOTE 9 — LOANS:
a.As a result of the COVID pandemic, the US and Israeli governments offered different programs of financial aid. The Company participated in the following programs:
On July 1, 2020, the Company received funding from an American Bank under the Small Business Administration COVID19 EIDL Program in the total of $150. The loan bears interest of 3.75% per annum, the principal shall be repaid in 360 equal monthly payments starting January 1, 2023, unless forgiven per program regulations (the “EIDL Loan”).
On February 5, 2021, the Company entered into a loan agreement with an American Bank under the Small Business Administration Payroll Protection Program (“PPP Loan”) in the total of $191. The PPP Loan may be eligible for forgiveness, and if not eligible bears an interest of 1% per annum. The principal and interest, if not forgiven, is payable within 2 years. The Company filed a request for a forgiveness of the loan and received full forgiveness during 2021. The forgiven amount was recognized net in payroll expenses.
b.On December 9, 2020, the Company signed a new loan agreement with an Israeli based financial institution for a loan of up to 20 million NIS (“New Israeli Shekel”) (an amount of $6,000) (the “New Loan”). The Company received $3,000 on December 2020, and additional $2,000 in January 2021. The loan bears interest of 9.6% per annum. The interest shall first be paid in 12 payments starting February 1, 2021. Starting February 1, 2022, the loan principal and interest shall be repaid in 72 equal payments, plus a onetime interest payment after the 36thmonth.
As part of the loan agreement, the Company issued the new Lender warrants to acquire common stock in the amount of $1,500 (see Note 14 regarding the warrants granted).
In November 2021, the Company received additional funding in the amount of $1,000 from the New Lender. The loan bears interest of 9.6% per annum. Starting February 1, 2022, the loan principal and interest shall be repaid in 72 equal monthly payments, plus a onetime interest payment after the 24th month. The Company increased the value of the warrant issued to the New Lender to $1,800 (see also Note 14). As of December 31, 2022, the total loan balance outstanding was $5,016 (including $544 current maturities).
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — LOANS: (cont.)
The loan covenants (the “covenants”) include a debt to EBITDA minimum ratio or a coverage ratio of the loan by current assets.
On December 21, 2022, pursuant to the terms of the loan Agreement, the Company deposited $2 million to a Company-owned interest-bearing bank account, or the “designated account” (as defined in the Agreement), to satisfy the required obligation associated with the loan agreement. An additional $2 million deposited in the designated account by February 28, 2023. (See note 21(d)).
As of December 31, 2022, the Company was in compliance with the covenants.
As of December 31, 2022, future payments are summarized as follows:
| | EIDL Loan | | New Loan | | New Loan | from December 2020 and January 2021 – In NIS* | | from November 2021 – In NIS* | 2023 | | 9 | | | 3,684($1,047) | | 704($200) | 2024 | | 9 | | | 5,567($1,582) | | 1,080($307) | 2025 | | 9 | | | 3,684($1,047) | | 704($200) | 2026 | | 9 | | | 3,684($1,047) | | 704($200) | 2027 | | 9 | | | 3,684($1,047) | | 704($200) | 2028 and thereafter | | 129 | | | 303($86) | | 60($17) | Less-accumulated interest | | (12 | ) | | (5,673)($1,612) | | (1,239)($352) | Total | | 162 | | | 14,935($4,244) | | 2,717($772) |
NOTE 10 — CONVERTIBLE NOTE:
During December 2021 to April 2022, the Company offered up to $3,000 of the Company’s 6% convertible note where both principal and 6% annual interest are due three years from the date of execution (the “Notes”). The Notes were subject to optional and mandatory conversion into shares of the Company’s Common stock, $0.0001 par value. In January 2022 the Company performed a first closing of $2,100 convertible notes out of the $3,000 offered, and in April 2022, a second closing of $60 convertible notes, which private placement was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act of 1933, as amended (“Securities Act”)and was funded by this amount (less fees and expenses). The notes were convertible at any time by the holders into common stock and automatically converted to common stock upon the consummation of an Initial Public Offering (“IPO”) at a 40% discounted conversion price.
The Notes had an optional conversion price at a 40% discount based on a $50m value in the event that an IPO is not consummated and if an IPO is not consummated within 18 months of the issuance of the Notes, the value of the Notes would be set at 110% of their then balance.
Prior to the IPO, discussed further in Note 2, the Company determined that the predominant scenario was the IPO event. The Company measured the convertible note in its entirety at fair value with changes in fair value recognized as financial income or loss in accordance with ASC 480-10.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — CONVERTIBLE NOTE: (cont.)
On May 17, 2022, the Company finalized its IPO, as discussed in Note 2 and the notes were converted into the Company’s common stock. The following table presents a roll forward of the fair value of the Notes in the year ended December 31, 2022:
| | December 31, 2022
| Fair value at the beginning of the period
| | $
| —
| | Additions
| | | 1,847
| | Change in fair value reported in statement of comprehensive loss
| | | 1,753
| | Conversion to the Company’s common stock
| | | (3,600
| )
| Fair value at the end of the period
| | $
| —
| |
The Company recorded financial expenses associated with the Notes during the year ended December 31, 2022, in the amount of $1,753.
NOTE 11 — CONVERTIBLE LOAN:
On March 28, 2017, the Company entered into a convertible loan agreement (the “CLA”) in an aggregate principal amount of up to $ 2,000. Loans under this agreement bear interest of 10% per annum. Following an amendment in March 2022, which was approved by the required majority of the CLA holders, the maturity date of the CLA was established to be the earlier of (i) January 1, 2023, (ii) event of default (as defined in the Agreement) or (iii) deemed liquidation event (as defined in the Company’s certificate of incorporation), in which the lenders are entitled to receive an amount equal to 300% of the principal amount of the loan. As of December 31, 2021, $1,526 had been received under the CLA.
The valuation was performed under alternative scenarios of consummating an IPO or remaining private..
The IPO scenario was estimated at 75% (2021: 37.5%) of an IPO occurring in May 2022. Upon consummation of an IPO, the holders of the CLA would have the right to convert the principal amount of the loan into common stock at a conversion price per common stock reflecting a discount of 30% plus an additional 1% for each two calendar months following March 2017.
Upon the consummation of the IPO, the CLA was automatically converted into the Company’s common stock based on its contractual terms and conditions. For further information, see Note 2 Above.
The following is a roll forward of the fair values:
| | Year ended December 31 | | | 2022 | | 2021 | Fair value at the beginning of the year | | $ | 4,905 | | | 3,563 | Change in fair value reported in statement of comprehensive loss | | | 1,648 | | | 1,342 | Conversion to the Company’s common stock | | | (6,553 | ) | | — | Fair value at the end of the period | | $ | — | | | 4,905 |
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES:
a.As of December 31, 2021, the Company was obligated under noncancellable operating lease agreements for certain sales offices and vehicles.
Future minimum lease payments for noncancellable operating leases with initial or remaining terms in excess of one year are as follows:
Fiscal year ending December 31:
2022 | | 573 | 2023 | | 294 | 2024 | | 42 | Total minimum lease payments | | 909 |
b.The Company is obligated to repay certain research and development grants received from the Government of Israel in the form of a royalty rate on future sales of products derived from the funded research and development activities (see also Note 2g). The aggregate amount of royalties to be paid is determined based on 100% of the total grants received for qualified projects plus interest based on LIBOR. The Company may be required to pay royalties based on previous years funding in periods after December 31, 2022, for the future sale of product that includes technology developed and funded with these research and development grants received to date.
As of December 31, 2022, the Company had received approximately $14,300 (approximately $15,500 including LIBOR) and repaid approximately $10,000 in such grants.
During the year 2022, the Company paid an amount of $221, due in regards to previous years.
As of December 31, 2022, and 2021, the Company had a liability to pay royalties in the amount of approximately $900 and $818, respectively.
NOTE 13 — REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The rights, preferences, and privileges of the redeemable preferred stock (series A and series B) are described below:
Dividends:
a.The holders of redeemable convertible preferred stock shall be entitled to receive dividends, out of any assets legally available therefore, when and as declared by the Board of Directors from time to time, out of any assets of the Company legally available, therefore.
b.The Company may not declare or pay any dividends or make any distribution of assets on, or redeem, purchase or otherwise acquire, shares or any other capital shares of the Company ranking junior to the redeemable convertible preferred stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, unless a corresponding distribution is effected in respect of the redeemable convertible preferred stock as if the redeemable convertible preferred stock had been converted into common stock.
No dividends have been declared to date.
Conversion rights:
Each of the holders of redeemable convertible preferred stock shall have the right, at such holder’s discretion, at any time or from time to time, to convert each redeemable convertible preferred share held by it into such number of fully paid and non-assessable shares of common stock as it is determined by dividing the applicable original issue price by the applicable conversion price per share for the redeemable
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 — REDEEMABLE CONVERTIBLE PREFERRED STOCK: (cont.)
convertible preferred stock in effect at the time of conversion. The initial conversion price for each redeemable convertible preferred share shall be the original issue price for such redeemable preferred share. The conversion price is subject to adjustment.
Each redeemable convertible preferred stock will automatically convert into shares of common stock at the then-effective conversion price for each such share immediately upon the earlier of: (i) the Company’s sale of its common stock in a firm commitment, underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (“Securities Act”), which results in aggregate gross proceeds to the Company of not less than $5,000 at a Company valuation of at least $15,000; or (ii) the date specified in a written request to the Company for such conversion from either the holders (a) of at least 75% of the series B redeemable convertible preferred stock then outstanding, or (b) from the holders of at least 75% of the series A redeemable convertible preferred stock then outstanding.
Liquidation rights:
Upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary or deemed liquidation the assets of the Company available for distribution to its shareholders shall be distributed in the following order of priority:
First and in preference to any distribution of any available assets to the holders of any other class or series of share of the corporation, the holders of series B redeemable convertible preferred stock shall be entitled to receive an amount equal to $0.9991 per share plus interest at the rate of 8% per annum from the original issuance date of such series B redeemable convertible preferred stock. If the assets are insufficient to permit a full payment, then all assets shall be distributed ratably among the holders of series B redeemable convertible preferred stock.
In the event that, following the satisfaction of the B liquidation preference in full, the available assets shall exceed the amount necessary to pay the B liquidation preference, the remaining assets shall be distributed among the holders of series A redeemable convertible preferred stock in preference to holders of common stock, an amount equal to $0.60168 per share plus interest at the rate of 8% per annum from the original issuance date of such series A redeemable preferred stock. If the assets are insufficient to permit a full payment, then all assets shall be distributed ratably among the holders of series A. If the assets exceed the amount necessary to fulfill the payment, then the remaining assets shall be distributed ratably among the holders of common stock.
Voting rights:
The holders of redeemable convertible preferred stock will vote together with, in the same manner and with the same effect as the holders of common stock on all matters on which the holders of common stock shall be entitled to vote. The holders of redeemable convertible preferred Stock shall be entitled to cast such number of votes equal to the number of shares of common stock into which the redeemable convertible preferred stock are then convertible.
The Company applied the provision of ASC 480-10-S99-3A and classifies the redeemable convertible preferred Stock outside of permanent equity.
NOTE 14 — WARRANTS:
a)On August 24, 2016, the Company issued warrants to Comerica Bank (“Comerica”) for the purchase of 73,048shares of the Company’s Series B Redeemable Preferred Stock at an exercise price of $1.02672 per share contemporaneously with obtaining a loan from Comerica which was fully repaid in 2018 (the “Comerica Warrants”). The Comerica Warrants are exercisable at any time during the contract period which ends on August 24, 2026.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — WARRANTS: (cont.)
Additionally, in connection with the consummation of the IPO and the change of the type of the stock from redeemable preferred stock to common stock at conversion, the Company reassessed the Comerica Warrants. As part of the contractual terms and conditions of Comerica’s Warrants, a portion of the warrants are exercisable, as of the IPO date, into the Company’s common stock. The Comerica Warrants are still outstanding as of December 31, 2022. The Company has evaluated whether the Comerica Warrants are still classified as liabilities and concluded that due to a change-of-control provision which may affect the exercise price or entitle Comerica to demand cash, instead of shares, to settle the warrants, Comerica’s Warrants will continue to be classified as liabilities and will be exercisable into the Company’s common shares.
b)During the period from February 2018 through November 2020, the Company issued warrants to Mizrahi-Tefahot Bank (“Mizrahi”) contemporaneously with obtaining a loan and a credit facility. The warrants are convertible into series B convertible redeemable preferred stock or common stock in a qualified financing round. The number of series B convertible redeemable preferred stock is determined by the lesser of (1) dividing the warrant amount (as determined under the contract) by the applicable exercise price which depends on the triggering event as established in the contract, or (2) the lowest stock purchase price in a qualified financing round.
c)During December 2020 and November 2021, the Company issued warrants to Migdalor contemporaneously with obtaining a loan. The warrants can either be (1) converted into the Company’s common stock (the number of which shall be determined based on the warrant amount established in the contract and the Company’s valuation as defined in the contract, or based on a triggering event), at any time during a period of 96 months), or (2) redeemed for cash based on the lesser of a predetermined amount or a formula as set in the contract, at any time and in Migdalor’s own discretion, during a period of 96 months from the date of issue. These warrants were classified as liabilities mainly due to the redemption feature over the options.
As of December 31, 2021, the estimated fair value of all the outstanding warrants was based on a hybrid valuation methodology with a weighted average that combined Option Pricing Model (OPM) and Probability Weighted Expected Return Method (PWERM) using Level 3 inputs. The valuation was performed under scenarios of an IPO estimated at 37.5% of an IPO occurring in May 2022 and staying private estimated at 62.5%, using a volatility of 58%, a risk-free rate of 0.97% and an expected term of 0.4 years in the scenario of IPO and 3 years in the scenario of staying private.
Upon the consummation of the IPO (as further described in Note 2 above), the Company converted the outstanding warrants issued to Mizrahi and Migdalor into the Company’s common stock based on the contractual terms and conditions of the related warrant agreements.
As of December 31, 2022, the estimated fair value of the Comerica warrants was based on a Black-Scholes option-pricing model with the following inputs: an underlying common stock price of $0.477, an expected volatility of 57%, a risk-free rate of 4.11% and a contractual term of 3.6 years.
The table below shows the impact on the statement of comprehensive loss related to the Comerica warrants for the years ended December 31:
| | 2022 | | 2021 | | | U.S. dollars in thousands | Outstanding as of January 1 | | 2,149 | | | 1,023 | Fair value changes | | 1,049 | | | 1,031 | Additions | | — | | | 95 | Conversion to the Company’s common stock | | (3,190 | ) | | — | Outstanding as of December 31 | | 8 | | | 2,149 |
The Company recorded other financial expenses (income) during the year ended December 31, 2022, and 2021 in the amount of $1,049 and $1,031, respectively, in connection with these warrants.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 — SHAREHOLDERS’ EQUITY:
a.Share capital
On May 2, 2022, the Company’s Board of Directors approved an amendment to the Company’s Bylaws, stating the number of authorized stock to be increased, as described below:
a.Common stock — $0.0001 par value — authorized shares increase to 30,000,000shares from 11,009,315shares.
b.Non-voting common stock- $0.0001 par value-authorized shares remain 2,803,774shares.
c.Redeemable Convertible Preferred stock- $0.0001 par value — authorized shares increase to 10,000,000shares from 7,988,691shares.
Regarding stock repurchase program see note 21b.
The Company’s share capital as of December 31, 2022, and 2021, is composed of common stock and Non-voting common stock, of $0.0001 par value, as follows:
| | December 31, 2022 | | | Authorized | | Issued and outstanding | | | Number of shares | Common stock | | 30,000,000 | | 17,379,861 | Non-voting Common stock | | 2,803,774 | | — |
| | December 31, 2021 | | | Authorized | | Issued and outstanding | | | Number of shares | Common stock | | 11,009,315 | | 2,050,404 | Non-voting Common stock | | 2,803,774 | | 1,783,773 |
b.On May 16, 2022, the Companypreviously filed with the SecretarySEC:
| ● | our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 26, 2024; |
| ● | the description of our common stock, which is contained in the registration statement on Form 8-A filed with the SEC on May 4, 2022 (File No. 001-41375). |
We also incorporate by reference all future documents (excluding information furnished pursuant to Items 2.02 and 7.01 of State of the State of Delaware an amended and restated certificate of incorporation (the “A&R COI”), which became effective immediately. The A&R COI includes the Company’s total authorized shares of 42,803,774, of which 30,000,000 authorized shares of common stock, 10,000,000 authorized preferred shares, 2,803,774shares of non-voting common stock and 10,000,000shares of redeemable convertible preferred stock. c.Share-based compensation
In February 2015, under and in accordanceForm 8-K) we file with the equity restructure, the Company’s Board of Directors terminated the Old Plan. On June 30, 2015, the Company adopted the 2015 Equity Incentive Plan (“the 2015 Plan”).
Under the 2015 Plan, the Board of Directors may grant up to 2,804 Incentive Share Options, Non-statutory shares options, share appreciation rights, restricted share and restricted share units (RSU’s) to employees, directors, and consultants. The exercise price of an option cannot be less than 100% of the fair market value of the underlying share of common stock on the date of grant for incentive share options (not less than 110% of the fair market value for shareholders owning more than 10% of all classes of share) as determined by the Board of Directors. The maximum option term is 10 years (five years for shareholders owning more than 10% of all classes of share). The 2015 Plan grants the Board of Directors the discretion to determine when the options granted become exercisable.
In January 2016, the Company’s Board of Directors approved an additional quantity of 216share options permitted to be granted under the 2015 Plan.
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 — SHAREHOLDERS’ EQUITY: (cont.)
1)During the year ended December 31, 2022, the following awards were granted:
Award Type (2015 Plan)
| | Number of Awards
| | Vesting Conditions
| | Expiration Date
| Options
| | 167,779
| | Over 4 years from grant date-25% every year
| | 10th anniversary of Grant Date
| RSU
| | 592,000
| | Over 3 years from grant date
| | |
Pursuant to the current Section 102 of the Israeli Tax Ordinance, which came into effect on January 1, 2003, options may be granted through a trustee (i.e., Approved 102 Options) or not through a trustee (i.e., Unapproved 102 Options). The Company elected to grant its options and RSU’s through a trustee. As a result, the Company will not be allowed to claim as an expense for tax purposes in Israel the amounts credited to the employee as capital gains to the grantees, although it will generally be entitled to do so in respect of the salary income component (if any) of such awards when the related tax is paid by the employee.
2)A summary of the Company’s share option activity under option plans is as follows:
| | Number of Options | | Weighted- Average Exercise Price | | Weighted Average Remaining Contractual Life | Outstanding – January 1, 2022 | | 890,493 | | | $ | 0.1518 | | 5.43 | Granted | | 167,779 | | | $ | 2.1964 | | | Exercised | | (77,749 | ) | | $ | 0.0812 | | | Expired and forfeited | | (15,937 | ) | | $ | 1.5089 | | | | | | | | | | | | Outstanding – December 31, 2022 | | 964,586 | | | $ | 0.4891 | | 5.34 | | | | | | | | | | Exercisable – December 31, 2022 | | 771,956 | | | $ | 0.1476 | | 4.36 |
| | Number of Options | | Weighted- Average Exercise Price | | Weighted Average Remaining Contractual Life | Outstanding – January 1, 2021 | | 879,251 | | | $ | 0.0874 | | 6.25 | Granted | | 43,261 | | | $ | 1.3616 | | | Exercised | | (2,763 | ) | | $ | 0.1058 | | | Expired and forfeited | | (29,256 | ) | | $ | 0.0874 | | | | | | | | | | | | Outstanding – December 31, 2021 | | 890,493 | | | $ | 0.1518 | | 5.43 | | | | | | | | | | Exercisable – December 31, 2021 | | 801,562 | | | $ | 0.276 | | 5.10 |
No income tax benefit has been recognized relating to share-based compensation expense and no tax benefits have been realized from exercised share options.
See also Note 2 above regarding warrants granted to the underwriters upon the consummation of the IPO in consideration for their underwriting services.
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NOTE 15 — SHAREHOLDERS’ EQUITY: (cont.)
3)The following table summarize information as of December 31, 2022, regarding the number of ordinary shares issuable upon outstanding options and exercisable options:
Exercise price | | Options outstanding as of December 31, 2022 | | Weighted average remaining contractual life (years) | | Options exercisable as of December 31, 2022 | | Weighted average remaining contractual life (years) | 0.0644 | | 312,357 | | 2.61 | | 312,357 | | 2.61 | 0.1058 | | 449,885 | | 5.43 | | 437,516 | | 5.39 | 0.5780 | | 88,431 | | 9.96 | | — | | — | 1.3616 | | 38,912 | | 8.41 | | 15,472 | | 8.41 | 4 | | 75,001 | | 9.2 | | 6,611 | | 9.7 |
The weighted-average grant-date fair value of options granted during the years ended December 31, 2022, and 2021 was $71 and $54, respectively. The intrinsic value of options exercised in 2022 and 2021 was approximately $0. The aggregate intrinsic value represents the total intrinsic value (the difference between the fair value of the Company’s common shares on December 31 of the respective year and the exercise price, multiplied by the number of options that would have been received by the option holders had all option holders exercised their options on such date). Key assumptions used to estimate the fair value of the share options granted during the year ended December 31, 2022 and 2021 included:
| | Year Ended December 31 | | | 2022 | | 2021 | Expected term of options (years) | | 10 | | | 5.4 | | Expected common stock price volatility* | | 54 | % | | 58 | % | Expected dividend rate | | 0 | % | | 0 | % | Risk-free interest rate | | 3.21 | % – 3.25% | | 0.97 | % |
4)Share-based compensation expense for share options in the consolidated statement of comprehensive loss is summarized as follows:
| | Year Ended December 31 | | | 2022 | | 2021 | Cost of revenues | | 3 | | 3 | Research and development | | 26 | | 24 | Sales and marketing | | 11 | | 16 | General and administrative | | 12 | | 10 | Total Share-based compensation expense | | 52 | | 53 |
5)Restricted Stock Units
During December 2022, the Company issued RSUs to Directors, officers, consultants and employees.
The RSUs are vested over a three-year period.
The grant-date fair value of the RSUs granted was based on the Company’s common stock price at the time of grant.
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NOTE 15 — SHAREHOLDERS’ EQUITY: (cont.)
The following table summarize information as of December 31, 2022, regarding the number of RSUs outstanding:
| | December 31, 2022 | | | Number of RSUs | | Weighted- Average Grant Date Fair Value | RSUs outstanding at the beginning of the year | | — | | | — | Granted during the year | | 592,000 | | $ | 1.62 | Exercised during the year | | — | | | — | Forfeited during the year | | — | | | — | Outstanding at the end of the year | | 592,000 | | $ | 1.62 |
Share-based compensation expense for RSUs in the consolidated statement of comprehensive loss is summarized as follows:
| | Year Ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Research and development | | 21 | | — | Sales and marketing | | 12 | | — | General and administrative | | 135 | | — | Total Share-based compensation expense | | 168 | | — |
NOTE 16 — INCOME TAXES:
a.The Company is subject to U.S. and Israeli income tax laws.
b.The US entity is subject to a federal income tax rate of 21% in 2019 and thereafter and State taxes of 9%. The Subsidiary is subject to ordinary corporate income tax rate of 23% in 2019 and thereafter.
c.Carryforward tax losses:
As of December 31, 2022, the Company has net operating loss carry forwards of approximately $3,418. In addition, the Company has loss carry forward of approximately $10,605, which the Company did not perform a qualification test for and has certain doubts regarding their qualification.
As of December 31, 2022, the Company’s subsidiary has net operating loss carry forwards of approximately $118,323. Net operating loss carry forwards relate to activity in Israel has an indefinite carry forward period.
Utilization of the U.S. federal and state net operating losses may be subject to a substantial limitation due to the change in ownership limitations provided by the Internal Revenue Code of 1986, as amended and similar to state provisions. The annual limitation may result in the expiration of the net operating losses and credits before their utilization.
d.Loss before taxes on income are comprised as follows:
| | Year Ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Domestic | | (4,535 | ) | | (3,273 | ) | Foreign Subsidiary | | (6,447 | ) | | (1,978 | ) | Total | | (10,982 | ) | | (5,251 | ) |
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 — INCOME TAXES: (cont.)
e.Reconciliation of the theoretical tax expense to actual tax expense:
The main reconciling item between the statutory tax rate of the Company and the effective rate is the provision for a full valuation allowance in respect of tax benefits from carry forward tax losses due to the uncertainty of the realization of such tax benefits.
f.The Company’s major tax jurisdictions are the United States and Israel. Due to unutilized net operating losses and research credits, the tax years through 2016 remain open and subject to examinations by the appropriate governmental agencies in the United States. Tax assessments filed by the Company’s subsidiary through the year 2015 are considered to be final.
g.The components of the Company’s net deferred tax assets were as follows:
| | Year Ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Deferred tax assets (liabilities): | | | | | | | Loss carryforwards | | 27,932 | | | 31,049 | | Valuation allowance | | (27,932 | ) | | (31,049 | ) | Total net deferred tax assets | | — | | | — | |
The Company provided a valuation allowance equal to the deferred income tax assets for the years ended December 31, 2022 and 2021 because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.
NOTE 17 — BASIC AND DILUTED LOSS PER SHARE:
Basic net loss per share is computed using the weighted average number of common stock and fully vested RSUs outstanding during the period, net of treasury shares. In computing diluted loss per share, basic loss per share is adjusted to take into account the potential dilution that could occur upon: (i) the exercise of options and non-vested RSUs granted under employee stock compensation plans, and the exercise of warrants using the treasury stock method; and (ii) the conversion of the convertible redeemable preferred stock, and convertible loan using the “if-converted” method, by adding to net loss the change in the fair value of the convertible loan, net of tax benefits, and by adding the weighted average number of shares issuable upon assumed conversion of these instruments. For further details on the effects on the instruments described below, please see note 2 above.
Options to purchase 964,586 and 890,493shares of common stock at an average exercise price of $0.4891 and $0.1518 per share were outstanding as of December 31, 2022 and 2021, respectively, but were not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
RSU’s to purchase 592,000shares of common stock at an average grant date fair value of $1.62 per share were outstanding as of December 31, 2022 but were not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
Redeemable convertible Preferred stock, which was convertible into 7,731,083shares of common stock was outstanding as of December 31, 2021 but was not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
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NOTE 17 — BASIC AND DILUTED LOSS PER SHARE: (cont.)
The convertible loan was not included in the calculation of the diluted loss per share as the loan was convertible into shares of common stock only upon the occurrence of a contingent event which had yet to occur as of December 31, 2021. For more details see note 11.
Warrants convertible into 178,281 of the Company’s redeemable preferred stock were outstanding as of December 31, 2021 but were not included in the computation of diluted EPS because to do so would have had an antidilutive effect on the basic loss per share (See Note 14(b)).
Warrants convertible into 73,048 and 48,109 of the Company’s common stock were outstanding as of December 31, 2022, and 2021 but were not included in the computation of diluted EPS because to do so would have had an antidilutive effect on the basic loss per share (See Note 14(a)).
Warrants convertible into 294,875 of the Company’s common stock were outstanding as of December 31, 2022 but were not included in the computation of diluted EPS because to do so would have had an antidilutive effect on the basic loss per share (See Note 2).
NOTE 18 — ENTITY WIDE INFORMATION AND DISAGREGATED REVENUES:
The Company operates as one operating segment (developing and marketing access broadband equipment for copper and fiber networks).
a.Geographic information:
Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers:
| | Year Ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | North America | | 4,348 | | 4,637 | Europe, the Middle East and Africa | | 3,999 | | 3,373 | Asia Pacific | | 484 | | 520 | Latin America | | — | | 15 | | | 8,831 | | 8,545 |
b.Revenues from contract liability:
| | December 31, 2022 | | December 31, 2021 | Opening balance | | $ | 673 | | | $ | 581 | | Revenue recognized that was included in the contract liability balance at the beginning of the period | | | (593 | ) | | | (452 | ) | Additions | | | 568 | | | | 544 | | Remaining performance obligations | | $ | 648 | | | $ | 673 | |
As of December 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligation is $648, and the Company will be recognized this revenue over the 12-18 months.
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NOTE 18 — ENTITY WIDE INFORMATION AND DISAGREGATED REVENUES: (cont.)
c.The Company’s long-lived assets are located as follows:
Property and Equipment, net:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Israel | | 75 | | 101 | North America | | 5 | | 2 | | | 80 | | 103 |
Operating lease right of use assets:
| | December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Israel | | 260 | | — | North America | | 466 | | — | | | 726 | | — |
d.Customers representing 10% or more of net revenues and the amount of revenues recognized are as follows:
| | December 31, 2022 | Customer A* | | 33 | % | | 3,021 | Customer B | | 16 | % | | 1,475 | Customer C | | 11 | % | | 1,009 |
| | December 31, 2021 | Customer A* | | 22 | % | | 1,887 | Customer B | | 19 | % | | 1,663 | Customer C | | 10 | % | | 835 |
The majority of the Company’s revenues are recognized at a point in time.
NOTE 19 — OTHER FINANCIAL EXPENSES, NET:
| | Year Ended December 31 | | | 2022 | | 2021 | | | U.S. dollars in thousands | Change in convertible loan fair value | | 1,648 | | | 1,342 | Change in convertible note fair value | | 1,753 | | | — | Change in warrants’ fair value | | 1,049 | | | 1,031 | Exchange rates differences | | (506 | ) | | 278 | Other | | 107 | | | 50 | | | 4,051 | | | 2,701 |
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 — RELATED PARTY TRANSACTIONS:
a)On February 20, 2015, the Company made a loan to the CEO, in the principal amount of $106, which loan was evidenced by a secured, non-negotiable promissory note. In April 2022, the Company entered into a Securities Purchase and Loan Repayment Agreement with the CEO,SEC pursuant to which the CEO sold to the Company 27,699shares for a purchase price equal to $4.55 per share for an aggregate purchase consideration of $126. In lieu of paying the CEO the Purchase Consideration for the shares in cash, the Purchase Consideration was used to repay in full the outstanding loan amount and accrued interest owed to the Company by the CEO, and the promissory Note was terminated. Additionally, due to the fact that the Company repurchased the CEO’s shares for a price per share which exceeded the underlying common stock fair value by $0.55, the Company has also recognized compensation costs attributable to the CEO’s past services to the Company. The Company has recognized the repurchased shares as treasury shares at the cost that represents the then-current market value of the repurchased shares.
b)As part of the Shareholder Agreement (the “SHA”)Sections 13(a), commencing on February 15, 2015, the company was paying one of its shareholders a monthly management fee of $5. The Company and the shareholder agreed to amend the agreement with the shareholder to replace the monthly payment with a success-based fees, effective on January 1, 2020. The amendment offers success-based fee of up to $150 on funding of up to $4,000. During January 2022, the Company paid the shareholder an amount of $100 related to the amendment, and by June 2022 the Company paid the shareholder an additional amount of $50. In aggregate, including the $100 paid in January, the shareholder received an amount of $150 pursuant to the amendment to the shareholder’s agreement. The Company recorded the payments partially as an incremental expense related to the IPO and partially as operating expenses. As of December 31, 2022, the agreement has terminated.
c)In March 2017, the Company issued a convertible loan to investors (see note 11). The Company’s CEO participated in the convertible loan in an amount of $26 and received identical terms and conditions as other investors of the convertible loan.
On May 17, 2022, the Company finalized its IPO offering (see Note 2) and the convertible loan was converted.
d)In December 15, 2022, the Company issued 592,000 Restricted Stock Units (“RSUs”) to Directors, officers, consultants and employees. The CEO received an amount of 125,000, the CFO received an amount of 25,000 and the Directors 100,000.
NOTE 21 — SUBSEQUENT EVENTS:
a.The Company evaluates events13(c), 14 or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to identify matters that require additional disclosure. For its annual consolidated financial statements as of December 31, 2022, and for the year then ended, the Company evaluated subsequent events through March 29, 2023, the date that the consolidated financial statements were issued. The Company has concluded that no subsequent event has occurred that require disclosure other than the below.
b.On November 17, 2022, the Company’s Board of Directors authorized a stock repurchase program pursuant to which the Company intend to repurchase up to $1.0 million of its outstanding common stock. The Board authorized the Company to purchase its common stock from time to time on a discretionary basis through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-115(d) of the Securities Exchange Act, subsequent to the date of 1934, as amended,this prospectus and other applicable legal requirements.
Repurchases underprior to the share repurchase programtermination of the offering.
You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. Any statement contained in a document incorporated by reference into this prospectus will be made at management’s discretion at prices management considersdeemed to be attractive and inmodified or superseded for the best interestspurposes of both the Company and its stockholders, subjectthis prospectus to the availabilityextent that a later statement contained in this prospectus or in any other document incorporated by reference into this prospectus modifies or supersedes the earlier statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of stock, general market conditions, the trading price of the stock, alternative F-39
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ACTELIS NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 — SUBSEQUENT EVENTS: (cont.)
uses for capital, and our financial performance. The repurchase program may be suspended, terminated, or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The repurchase program doesthis prospectus. You should not obligate us to purchase any particular number of shares.
During January and February 2023, the Company purchased 79,195shares of its common stock, for a total price of $50. There were no repurchases under the stock repurchase plan during the year ended December 31, 2022.
c.On or about February 28, 2023, the Company deposited an additional $2 million to a Company-owned bank account. See Note 9(b) for further information.
SUBSEQUENT EVENTS — UNAUDITED
d.On May 8, 2023, the Company completed a fund-raising round in a total gross amount of $3.5 million pursuant to which the Company agreed to issue and sell to Armistice Capital Master Fund Ltd. (the “Holder”) in a private placement 190,000 common stock, $0.0001 par value, 754,670 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 754,670shares of Common Stock for an exercise price of $0.0001 which are exercisable (either physically or on net-cash basis at the Holder’s discretion) immediately upon their issuance until their full exercise and warrants to purchase up to 944,670shares of Common Stock (“Common Warrants”) for an exercise price of $3.58 which are exercisable (physically or upon occurrence of certain events on net-cash basis at the Holder’s discretion) immediately upon their issuance until November 8, 2028. The Company determinedassume that the Common Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification.
On September 30, 2023, the Company and the Holder entered into a Common warrants’ amendment agreement (the “Amendment”) to amend those Common warrants to purchase up to 944,670shares of the Company’s common stock, par value $0.0001 issued to the Holder. The Amendment makes certain adjustment to the definition of a “Fundamental Transaction”information in Common Warrants agreement. Additionally,this prospectus is accurate as of November 8, 2023,any date other than the Amendment increased the numberdate of Common Warrants to include an additional 55,000 Common warrants and changed the exercise price of the Common Warrants to $2.75. The Company reclassified the Common warrants as equity based on the guidance provided under ASC 815-40, due to the adjustments stated in the amendment.
e.On October 7, 2023, an attack by the Hamas terrorist organization was inflicted on the State of Israel which started a war between Israel and the Hamas as well as military conflicts on other fronts. As ofthis prospectus or the date of the issuance of these condensed consolidated financial statements, the Company has not identified any material effect on its operations as a result of those events. The Company continues to monitor its ongoing activities and will make adjustmentsdocuments incorporated by reference in its business if needed, including updating any estimates or judgments impacting its financial statements as appropriate, while supporting the safety and well-beingthis prospectus. of its employees. It is currently not possible to predict the effects of such conflicts and its effects on the Company’s business, operations or financial conditions.
f. On December 20, 2023, the Company completed an offering of a private placement
The information about us contained in a total gross amount of $1.5 million pursuant to which the Company agreed to issue and sell to Armistice Capital Master Fund Ltd. (the “Holder”) in a private placement 301,000 common stock, $0.0001 par value, 970,187 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 970,187shares of Common Stock for an exercise price of $0.0001 which are exercisable (either physically or on net-cash basis at the Holder’s discretion) immediately upon their issuance until their full exercise and warrants to purchase up to 1,271,187shares of Common Stock (“Common Warrants”) for an exercise price of $1.18 which are exercisable (physically or upon occurrence of certain events on net-cash basis at the Holder’s discretion) immediately upon their issuance until June 20, 2029. F-40
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (U. S. dollars in thousands except for share and per share amounts)
| | September 30, 2023 | | December 31, 2022 | Assets | | | | | CURRENT ASSETS: | | | | | Cash and cash equivalents | | 682 | | 3,943 | Short term deposits | | 254 | | 1,622 | Restricted bank deposits | | 450 | | 451 | Trade receivables, net of allowance for credit losses of $125 as of September 30, 2023, and December 31, 2022. | | 715 | | 3,034 | Inventories | | 2,698 | | 1,179 | Prepaid expenses and other current assets | | 616 | | 678 | TOTAL CURRENT ASSETS | | 5,415 | | 10,907 | | | | | | NON-CURRENT ASSETS: | | | | | Property and equipment, net | | 66 | | 80 | Prepaid expenses | | 592 | | 492 | Restricted cash | | 2,407 | | 336 | Restricted bank deposits | | 2,036 | | 2,027 | Severance pay fund | | 225 | | 239 | Operating lease right of use assets | | 403 | | 726 | Long term deposits | | 14 | | 12 | TOTAL NON-CURRENT ASSETS | | 5,743 | | 3,912 | | | | | | TOTAL ASSETS | | 11,158 | | 14,819 |
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued) (UNAUDITED) (U. S. dollars in thousands except for share and per share amounts)
| | September 30, 2023 | | December 31, 2022 | Liabilities and redeemable convertible preferred stock, warrants to placement agent and shareholders’ equity | | | | | | | CURRENT LIABILITIES: | | | | | | | Current maturities of long-term loans | | 1,229 | | | 553 | | Warrants | | 8 | | | 8 | | Trade payables | | 2,192 | | | 1,781 | | Deferred revenues | | 386 | | | 484 | | Employee and employee-related obligations | | 732 | | | 793 | | Accrued royalties | | 924 | | | 900 | | Current maturities of operating lease liabilities | | 255 | | | 445 | | Other accrued liabilities | | 905 | | | 1,238 | | TOTAL CURRENT LIABILITIES | | 6,631 | | | 6,202 | | | | | | | | | NON-CURRENT LIABILITIES: | | | | | | | Long-term loan, net of current maturities | | 3,175 | | | 4,625 | | Deferred revenues | | — | | | 164 | | Operating lease liabilities | | 129 | | | 237 | | Accrued severance | | 256 | | | 278 | | Other long-term liabilities | | 25 | | | 48 | | TOTAL NON-CURRENT LIABILITIES | | 3,585 | | | 5,352 | | TOTAL LIABILITIES | | 10,216 | | | 11,554 | | COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | REDEEMABLE CONVERTIBLE PREFERRED STOCK: | | | | | | | Redeemable convertible preferred stock – $0.0001 par value, 10,000,000 authorized as of September 30, 2023, December 31, 2022. None issued and outstanding as of September 30, 2023, December 31, 2022. | | — | | | — | | | | | | | | | WARRANTS TO PLACEMENT AGENT (Note 11(e)) | | 104 | | | — | | SHAREHOLDERS’ EQUITY (**): | | | | | | | Common stock, $0.0001 par value: 30,000,000 shares authorized as of September 30, 2023, and December 31, 2022; 2,694,179 and 1,737,986 shares issued and outstanding as of September 30,2023 and December 31, 2022, respectively | | 1 | | | 1 | | Non-voting common stock, $0.0001 par value: 2,803,774 shares authorized as of September 30, 2023, and December 31, 2022, None issued and outstanding as of September 30, 2023, and December 31, 2022. | | — | | | — | | Additional paid-in capital | | 38,594 | | | 36,666 | | Accumulated deficit | | (37,757 | ) | | (33,402 | ) | TOTAL SHAREHOLDERS’ EQUITY | | 838 | | | 3,265 | | TOTAL LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK WARRANTS TO PLACEMENT AGENT AND SHAREHOLDERS’ EQUITY | | 11,158 | | | 14,819 | |
The accompanying notes are an integral part of these condensed consolidated financial statements (Unaudited).
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) (U. S. dollars in thousands except for share and per share amounts)
| | Three months ended September 30, | | Nine months ended September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | REVENUES | | | 845 | | | | 1,348 | | | | 4,589 | | | | 6,297 | | COST OF REVENUES | | | 619 | | | | 813 | | | | 3,043 | | | | 3,258 | | GROSS PROFIT | | | 226 | | | | 535 | | | | 1,546 | | | | 3,039 | | | | | | | | | | | | | | | | | | | OPERATING EXPENSES: | | | | | | | | | | | | | | | | | Research and development expenses, net | | | 691 | | | | 723 | | | | 2,117 | | | | 2,049 | | Sales and marketing expenses, net | | | 691 | | | | 790 | | | | 2,332 | | | | 2,357 | | General and administrative expenses, net | | | 971 | | | | 1,028 | | | | 2,805 | | | | 2,730 | | TOTAL OPERATING EXPENSES | | | 2,353 | | | | 2,541 | | | | 7,254 | | | | 7,136 | | | | | | | | | | | | | | | | | | | OPERATING LOSS | | | (2,127 | ) | | | (2,006 | ) | | | (5,708 | ) | | | (4,097 | ) | Interest expense | | | (161 | ) | | | (198 | ) | | | (512 | ) | | | (622 | ) | Other Financial income (expenses), net | | | 1,421 | | | | (3 | ) | | | 1,865 | | | | (3,781 | ) | NET COMPREHENSIVE LOSS FOR THE PERIOD | | | (867 | ) | | | (2,207 | ) | | | (4,355 | ) | | | (8,500 | ) | | | | | | | | | | | | | | | | | | Net loss per share attributable to common shareholders – basic and diluted | | $ | (0.32) | | | $ | (*)(1.27) | | | $ | (*)(1.93) | | | $ | (*)(8.77) | | Weighted average number of common stocks used in computing net loss per share – basic and diluted | | | 2,685,626 | | | | (*)1,731,753 | | | | (*)2,254,235 | | | | (*)968,721 | |
The accompanying notes are an integral part of these condensed consolidated financial statements (Unaudited).
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, WARRANTS TO PLACEMENT AGENT AND SHAREHOLDERS’ EQUITY (UNAUDITED) U.S. dollars in thousands (except number of shares)
| | Warrants To Placement Agent | | Redeemable Convertible Preferred Stock | | Common Stock | | Non-voting Common Stock | | Additional paid-in capital | | Accumulated deficit | | Total shareholders’ equity (deficiency) | Amount | | Number of shares(**) | | Amount | | Number of shares(**) | | Amount | | Number of shares(**) | | Amount | | BALANCE AS OF JANUARY 1, 2022 | | — | | 773,108 | | | 5,585 | | | 205,040 | | | * | | 178,377 | | | — | | 2,824 | | (22,420 | ) | | (19,596 | ) | CHANGES DURING THE FIRST QUARTER ENDED March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of options into common stock | | | | — | | | — | | | 1,546 | | | * | | — | | | — | | * | | — | | | * | | Share based compensation | | | | | | | | | | — | | | — | | — | | | — | | 14 | | — | | | 14 | | Net comprehensive loss for the period | | | | | | | | | | — | | | — | | — | | | — | | — | | (4,639 | ) | | (4,639 | ) | BALANCE AS OF March 31, 2022 | | — | | 773,108 | | | 5,585 | | | 206,586 | | | * | | 178,377 | | | — | | 2,838 | | (27,059 | ) | | (24,221 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share based compensation | | — | | — | | | — | | | — | | | — | | — | | | — | | 14 | | — | | | 14 | | Conversion of convertible preferred stock to common stock upon initial public offering | | — | | (773,108 | ) | | (5,585 | ) | | 773,108 | | | 1 | | — | | | — | | 5,584 | | — | | | 5,585 | | Issuance of common stock upon initial public offering and private placement, net of underwriting discounts and commissions and other offering costs | | — | | — | | | — | | | 421,250 | | | * | | — | | | — | | 14,675 | | — | | | 14,675 | | Conversion of convertible loan to common stock upon initial public offering | | — | | — | | | — | | | 163,816 | | | * | | — | | | — | | 6,553 | | — | | | 6,553 | | Conversion of convertible note to common stock upon initial public offering | | — | | — | | | — | | | 90,009 | | | * | | — | | | — | | 3,600 | | — | | | 3,600 | | Conversion of warrants to common stock upon initial public offering | | — | | — | | | — | | | 79,756 | | | * | | — | | | — | | 3,190 | | — | | | 3,190 | | Redemption of non-voting common stock upon initial public offering | | — | | — | | | — | | | — | | | — | | (178,377 | ) | | * | | — | | — | | | * | | Repurchase of common stock | | — | | — | | | — | | | (2,770 | ) | | * | | — | | | — | | 15 | | — | | | 15 | | Net comprehensive loss for the period | | — | | — | | | — | | | — | | | — | | — | | | — | | — | | (1,654 | ) | | (1,654 | ) | BALANCE AS OF June 30, 2022 | | — | | — | | | — | | | 1,731,755 | | | 1 | | — | | | — | | 36,469 | | (28,713 | ) | | 7,757 | |
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, WARRANTS TO PLACEMENT AGENT AND SHAREHOLDERS’ EQUITY — (Continued) (UNAUDITED) U.S. dollars in thousands (except number of shares)
| | Warrants To Placement Agent | | Redeemable Convertible Preferred Stock | | Common Stock | | Non-voting Common Stock | | Additional paid-in capital | | Accumulated deficit | | Total shareholders’ equity (deficiency) | Amount | | Number of shares(**) | | Amount | | Number of shares(**) | | Amount | | Number of shares(**) | | Amount | | | | U.S. dollars in thousands (except number of shares) | Share based compensation | | — | | — | | — | | — | | | — | | — | | — | | 13 | | | — | | | 13 | | Net comprehensive loss for the period | | — | | — | | — | | — | | | — | | — | | — | | — | | | (2,207 | ) | | (2,207 | ) | BALANCE AS OF September 30, 2022 | | — | | — | | — | | 1,731,755 | | | 1 | | — | | — | | 36,482 | | | (30,920 | ) | | 5,563 | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AS OF JANUARY 1, 2023 | | — | | — | | — | | 1,737,986 | | | 1 | | — | | — | | 36,666 | | | (33,402 | ) | | 3,265 | | CHANGES DURING THE FIRST QUARTER ENDED March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | Share based compensation | | — | | — | | — | | — | | | — | | — | | — | | 95 | | | — | | | 95 | | Repurchase of common stock | | — | | — | | — | | (7,920 | ) | | * | | — | | — | | (50 | ) | | — | | | (50 | ) | Net comprehensive loss for the period | | — | | — | | — | | — | | | — | | — | | — | | — | | | (1,895 | ) | | (1,895 | ) | BALANCE AS OF March 31, 2023 | | — | | — | | — | | 1,730,066 | | | 1 | | — | | — | | 36,711 | | | (35,297 | ) | | 1,415 | | Share based compensation | | | | — | | — | | — | | | — | | — | | — | | 97 | | | — | | | 97 | | Issuance of common stock and pre-funded warrants upon private placement, net of underwriting commissions and other offering costs | | 104 | | — | | — | | 190,000 | | | * | | — | | — | | 1,356 | | | — | | | 1,356 | | Exercise of options into common stock | | — | | — | | — | | 10,652 | | | * | | — | | — | | 10 | | | — | | | 10 | | Net comprehensive loss for the period | | — | | — | | — | | — | | | — | | — | | — | | — | | | (1,593 | ) | | (1,593 | ) | BALANCE AS OF June 30, 2023 | | 104 | | — | | — | | 1,930,718 | | | 1 | | — | | — | | 38,174 | | | (36,890 | ) | | 1,285 | | Share based compensation | | — | | — | | — | | — | | | — | | — | | — | | 106 | | | — | | | 106 | | Exercise of options into common stock | | — | | — | | — | | 8,791 | | | * | | — | | — | | * | | | — | | | * | | Exercise of pre-funded warrants into common stock | | — | | — | | — | | 754,670 | | | * | | — | | — | | * | | | — | | | * | | Reclassification of warrants from liabilities to equity (see note (11(d)) | | — | | — | | — | | — | | | — | | — | | — | | 314 | | | — | | | 314 | | Net comprehensive loss for the period | | — | | — | | — | | — | | | — | | — | | — | | — | | | (867 | ) | | (867 | ) | BALANCE AS OF September 30, 2023 | | 104 | | — | | — | | 2,694,179 | | | 1 | | — | | — | | 38,594 | | | (37,757 | ) | | 838 | |
The accompanying notes are an integral part of these condensed consolidated financial statements (Unaudited).
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | Nine months ended September 30, | | | 2023 | | 2022 | | | U.S. dollars in thousands | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net loss for the period | | (4,355 | ) | | (8,500 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Depreciation | | 20 | | | 29 | | Changes in fair value related to warrants to lenders and investors | | (1,658 | ) | | 1,068 | | Warrant issuance costs | | 223 | | | — | | Inventories write-downs | | 132 | | | 106 | | Exchange rate differences | | (365 | ) | | (798 | ) | Share-based compensation | | 298 | | | 41 | | Changes in fair value related to convertible loan | | — | | | 1,648 | | Changes in fair value related to convertible note | | — | | | 1,753 | | Financial income from short and long term bank deposit | | (78 | ) | | — | | Changes in operating assets and liabilities: | | | | | | | Trade receivables | | 2,319 | | | 37 | | Net change in operating lease assets and liabilities | | 25 | | | (62 | ) | Inventories | | (1,651 | ) | | (271 | ) | Prepaid expenses and other current assets | | 62 | | | (251 | ) | Long term prepaid expenses | | (100 | ) | | (245 | ) | Trade payables | | 411 | | | (1,067 | ) | Deferred revenues | | (262 | ) | | 145 | | Other current liabilities | | (185 | ) | | 406 | | Other long-term liabilities | | (30 | ) | | 185 | | Net cash used in operating activities | | (5,194 | ) | | (5,776 | ) | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | Short term deposits | | 1,363 | | | (68 | ) | Long term Restricted bank deposits | | 75 | | | — | | Long term deposits | | (2 | ) | | — | | Purchase of property and equipment | | (6 | ) | | (34 | ) | Net cash provided by (used in) investing activities | | 1,430 | | | (102 | ) | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | Proceeds from exercise of options | | 10 | | | * | | Proceeds from issuance of common stocks, pre-funded warrants and warrants (see Note 11d) | | 3,500 | | | — | | Proceeds from initial public offering and private placement | | — | | | 18,712 | | Underwriting discounts and commissions and other offering costs | | (291 | ) | | (2,175 | ) | Repurchase of common stock | | (50 | ) | | — | | Repayment of long-term loan | | (583 | ) | | (509 | ) | Net cash provided by financing activities | | 2,586 | | | 16,028 | | EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | | (12 | ) | | 46 | | | | | | | | | INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | (1,190 | ) | | 10,150 | | BALANCE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD | | 4,279 | | | 795 | | BALANCE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD | | 3,089 | | | 10,945 | |
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ACTELIS NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) (UNAUDITED)
| | Nine months ended September 30, | | | 2023 | | 2022 | | | U.S. dollars in thousands | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | | Cash and cash equivalents | | | 682 | | | 10,206 | Restricted cash, current | | | — | | | 650 | Restricted cash, non-current | | | 2,407 | | | 89 | Total cash, cash equivalents and restricted cash | | | 3,089 | | | 10,945 | | | | | | | | SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | Cash paid for interest | | $ | 512 | | $ | 626 | | | | | | | | SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | | | | | | | Issuance costs of common stock, pre-funded warrants and warrants | | $ | 104 | | | — | Reclassification of warrants from liability to equity upon amendment to private placement agreement (see Note 11(d)) | | $ | 314 | | $ | — |
The accompanying notes are an integral part of these condensed consolidated financial statements (Unaudited).
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 1 — GENERAL:
a.Actelis Networks, Inc. (hereafter — the Company) was established in 1998, under the laws of the state of Delaware. The Company has a wholly-owned subsidiary in Israel, Actelis Networks Israel Ltd. (hereafter — the Subsidiary). The Company is engaged in the design, development, manufacturing, and marketing of cyber hardened, hybrid fiber, copper networking solutions for IoT and Telecommunication companies. The Company’s customers include providers of telecommunication services and enterprises as well as resellers of the Company’s products. On May 12, 2022, the Company accepted a notification of effectiveness from the SEC, and on May 17 completed its IPO. See note 2 below for further details.
b.In December 2019, a novel coronavirus disease, or COVID-19, was first reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The widespread health crisis is adversely affecting the broader economies, financial markets and overall demand environment for many of the Company’s products.
The Company’s operations and the operations of the Company’s suppliers, channel partners and customers were disrupted to varying degrees by a range of external factors related to the COVID-19 pandemic, some of which are not within the Company’s control.
The duration and extent of any future epidemic or pandemic and its potential effect on the Company depends on future developments that cannot be accurately predicted at this time.
c.The Company has incurred significant losses, negative working capital and negative cash flows from operations and incurred losses of $4,355 and $10,982 for the nine months ended September 30, 2023, and the year ended December 31, 2022, respectively. During the nine months ended September 30, 2023, and the year ended December 31, 2022, the Company had negative cash flows from operations of $5,194 and $7,768, respectively. As of September 30, 2023, the Company’s accumulated deficit was $37,757. The Company has funded its operations to date through equity and debt financing and has cash on hand (including short term deposits and restricted bank deposits) of $1,386 and long-term deposits, restricted bank deposits and restricted cash of $4,457 as of September 30, 2023. The Company monitors its cash flow projections on a current basis and takes active measures to obtain the funding it requires to continue its operations, as well as adjustments to its cost structure that were done year to date. However, these cash flow projections are subject to various uncertainties concerning their fulfilment such as the ability to increase revenues by attracting and expanding its customer base or reducing cost structure. If the Company is not successful in generating sufficient cash flow or completing additional financing including debt refinancing which shall release restricted cash, then it will need to execute additional cost reduction actions that were planned. The Company’s transition to profitable operations is dependent on generating a level of revenue adequate to support its cost structure. The Company expects to fund operations using cash on hand, through operational cash flows and raising additional proceeds. There are no assurances, however, that the Company will be able to generate the revenue necessary to support its cost structure or that it will be successful in obtaining the level of financing necessary for its operations. Management has evaluated the significance of these conditions and has determined that the Company does not have sufficient resources to meet its operating obligations for at least one year from the issuance date of these condensed consolidated financial statements. These factors and the risk inherent in the Company’s operations raise a substantial doubt as to the Company’s ability to continue as a going concern. These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 2 — INITIAL PUBLIC OFFERING (*):
On May 17, 2022, the Company finalized its IPO offering of an aggregate of 421,250 shares of common stock, including the partial exercise by the underwriter of its option to purchase 46,250 additional shares of common stock, at a price to the public of $40.00 per share.
The net proceeds from the offering, including the over-allotment, to the Company were approximately $15.4 million, after deducting underwriting discounts, commissions and expenses amounting to approximately $1.0 million.
As a result of the IPO, the Company issued common stock in the transactions described below:
1)Redeemable convertible preferred stock — the Company issued 773,108 shares of common stock on a one (1) for one (1) basis, pursuant to the conversion provisions of the Series A and Series B redeemable Convertible Preferred Stock agreements. Upon the conversion, the Company reclassified the redeemable Convertible Preferred stock at its carrying amount, from temporary equity, into shareholders’ equity.
2)Convertible loan agreement (“CLA”) (see Note 8) — the Company issued 163,816 shares of common stock. pursuant to the conversion features of the loan agreement.
Upon such issuance, the Company reclassified the Convertible loan’s carrying amount (which reflected its then current fair value), into shareholders’ equity.
3)Convertible notes (see Note 7) — The Company issued 90,009 shares of common stock pursuant to the conversion features of the note agreements issued during December 2021 and April 2022.
4)Warrants (See Note 9):
1.The Company issued 61,756 shares of common stock as a result of the exercise provisions of the detachable warrants granted to Mizrahi-Tefahot Bank as part of the Company’s financing agreement with Bank Mizrahi.
2.The Company issued 18,000 shares of common stock to Migdalor as a result of the exercise provisions of the detachable warrants granted to Migdalor as part of the loan agreement with Migdalor.
3.In addition, concurrently with the IPO and in connection with the consummation of the IPO, the Company issued common stock warrants to the underwriters. The warrants are exercisable into 29,487 of the Company’s common shares for an exercise price of $50 per share and can be exercised at any time during a period of 5 years from the issuance date (i.e. until May 17, 2027). The warrants are classified as equity based on the guidance provided under ASC 718-10.
As of the issuance date of the underwriter warrants, the fair value of the warrants was estimated at $145. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 54%, a risk-free rate of 3.01%, a contractual term of 5 years, an expected dividend yield of 0% and a stock price at the issuance date of $19.50.
5)The Company redeemed 178,377 shares of non-voting common stock at their par value, removing the stock from shareholders’ equity.
(*)Adjusted to reflect reverse stock split, see note 3(f).
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES:
a)Basis of presentation
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of the Securities and Exchange Commission (“SEC”)’s Regulation S-X. As permitted under those rules, certain footnotes and other financial information that are normally required by generally accepted accounting principles in the United States (“U.S. GAAP”) can be condensed or omitted. These financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of its financial position as of and for the periods presented. These condensed consolidated financial statements and notes thereto are unaudited andprospectus should be read in conjunctiontogether with the Company’s audited financial statements for the year ended December 31, 2022. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of results that could be expected for the 2023 fiscal year or any other interim period or for any other future year. All intercompany transactions and balances have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the current period presentation.
b)Use of estimates in preparation of financial statements
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reportedinformation in the unaudited condensed consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, fair valuesdocuments incorporated by reference. You may request a copy of financial instruments, inventory write-offs, as well as in estimates used in applying the revenue recognition policy. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
c)Revenue recognition
The Company’s products consist of hardware and an embedded software that function together to deliver the product’s functionality. The embedded software is essential to the functionality of the Company’s products. The Company’s products are sold with a two-year warranty for repairsany or replacements of the product in the event of damage or failure during the term of the support period, which is accounted for as a standard warranty. Services relating to repair or replacement of hardware beyond the standard warranty period are offered under renewable, fee-based contracts and include telephone support, remote diagnostics, and access to on-site technical support personnel.
The Company also offers its customers other management software. The Company sells its other non-embedded software either as perpetual or as term-based licenses.
The Company provides, to certain customers, software updates that it chooses to develop, which the Company refers to as unspecified software updates, and enhancements related to the Company’s management software through support service contracts. The Company also offers its customers product support services which include telephone support, remote diagnostics and access to on-site technical support personnel.
The Company’s customers are comprised of resellers, system integrators and distributors.
The Company follows 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;
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
(iv)allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) it satisfies its performance obligations.
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. The Company’s contracts do not include additional discounts once product price is set, right of returns, significant financing components or any forms of variable consideration.
The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is less than a year. The Company’s service period is for one year and is paid for either up front or on a quarterly basis.
Sales of products
Most of the Company’s contracts are of a single performance obligation (sales of the product with a standard warranty) thus the entire transaction price is allocated to the single performance obligation. In addition, the Company also sells separate services such as product support service and extended warranty.
Sales of software with related services
The Company sells perpetual management software and term-based licenses for its management software together with related services. The perpetual management software stand-alone selling price is established by taking into consideration available information such as historical selling prices of the perpetual license, geographic location, and market conditions. For contracts that contain more than one identified performance obligation (a term-based license for its management software together with related services), the stand- alone selling price of a term-based license, is based on a ratio from the relevant perpetual management software stand-alone selling price. The stand-alone selling price of the related service is then determined by applying the residual method.
Revenue from selling the Company’s product and/or the software management (either as term-based or perpetual) is recognized at a point in time which is typically at the time of shipment of products to the customer or when the code is transferred, respectively. Revenue from services (e.g., product support service, software support service or extended warranty) is recognized on a straight-line basis over the service period, as a time-based measure of progress best reflects our performance in satisfying this performance obligation.
d)Fair value of financial instruments
Fair value measurements are classified and disclosed in one of the following three categories:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 — Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
The following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:
| | | | Fair value measurements at September 30, 2023 | Description | | Total | | Level 1 | | Level 2 | | Level 3 | Liabilities: | | | | | | | | | | | | | Warrants (See Note 9) | | $ | 8 | | $ | — | | $ | — | | $ | 8 |
| | | | Fair value measurements at December 31, 2022 | Description | | Total | | Level 1 | | Level 2 | | Level 3 | Liabilities: | | | | | | | | | | | | | Warrants (See Note 9) | | $ | 8 | | $ | — | | $ | — | | $ | 8 |
As of September 30, 2023, and December 31, 2022, the fair values of the Company’s cash, cash equivalents, short and long-term deposits, trade receivables, trade payables, long-term loan, restricted cash and restricted bank deposits approximated the carrying valuesall of these instruments presented in the Company’s consolidated balance sheets because of their nature.
e)Concentration of risk
filings, at no cost, by writing or telephoning us at Yoav Efron, Chief Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and trade receivables. Cash and cash equivalents and restricted cash are placed with banks and financial institutions in the United States and Israel. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, present minimal credit risk with respect to those investments.
The Company’s trade receivables are derived primarily from telecommunication operators, the Company’s reseller customers and enterprises located mainly in the United States, Europe, and Asia.
Credit risk with respect to trade receivables exists to the full extent of the amounts presented in the condensed consolidated financial statements.
Accounts receivable have been reducedOfficer, 4039 Clipper Court, Fremont, CA 94538 , Israel, telephone number 908-242-6463 or by an allowance for credit losses. The Company maintains the allowance for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability.
The Company has major customers, representing as follows:
1.Customer A represented 24% and 3% of the Company Trade receivables balance as of September 30, 2023, and December 31, 2022, respectively.
2.Customer B represented 24% and 5% of the Company Trade receivables balance as of September 30, 2023, and December 31, 2022, respectively.
3.Customer C represented 0% and 29% of the Company Trade receivables balance as of September 30, 2023, and December 31, 2022, respectively.
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NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (cont.)
4.Customer D represented 0% and 23% of the Company Trade receivables balance as of September 30, 2023, and December 31, 2022, respectively.
5.Customer E represented 0% and 10% of the Company Trade receivables balance as of September 30, 2023, and December 31, 2022, respectively.
The Company does not see any credit risk regarding the major trade receivable balance, as most of the remaining balance was paid off after the balance sheet date.
f)Reverse stock split
On April 15, 2022, the Company’s Board of Directors approved a Reverse Stock Split in the ratio of forty-six to-one. The Reverse Stock split became effective as of May 2, 2022. On March 8, 2023, the Company’s Board of Directors approved an additional Reverse Stock Split in the ratio of ten-to-one. The Reverse Stock split became effective as of April 18, 2023.
The Company accounted for the Reverse Stock Splits on a retroactive basis pursuant to ASC 260. As a result, all common stock, Non-voting Common stock, redeemable Convertible Preferred stock, warrants, RSUs and options outstanding and exercisable for common stock, exercise prices and loss per share amounts have been adjusted, on a retroactive basis, for all periods presented in these condensed consolidated financial statements and the applicable disclosures, to reflect such Reverse Stock Splits.
g)New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments to introduce a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, or CECL. Under the new standard, an entity is required to estimate CECL on trade receivablesemailing us at inception, based on historical information, current conditions, and reasonable and supportable forecasts. The guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASC 326 on January 1, 2023, and there was no material impact on the Company’s consolidated balance sheet and the consolidated statements of operations upon adoption.yoave@actelis.com.
NOTE 4 — INVENTORIES:
| | September 30, 2023 | | December 31, 2022 | Raw materials | | $ | 764 | | $ | 593 | Finished goods | | $ | 1,934 | | $ | 586 | | | $ | 2,698 | | $ | 1,179 |
Inventory write-downs amounted to $132 and $106 during the nine months ended September 30, 2023, and 2022, respectively. Inventory write-downs amounted to $35 and $26 during the three months ended September 30, 2023, and 2022, respectively. Inventories write-downs are recorded in cost of revenues.
NOTE 5 — LEASES:
The Company’s Israeli subsidiary has an operating lease agreement for a facility in Israel, which expired on April 30, 2023. The Company did not have an option for extending the lease agreement. On May 15, 2023, the Company extended the lease agreement for an additional six months, until October 31, 2023. On October 30, 2023, the Company extended the lease agreement for an additional two months, until December 31, 2023. The lease payments are denominated in NIS and are indexed to the consumer price index.
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NOTE 6 — LOANS:
a.As a result of the COVID pandemic, the US and Israeli governments offered different programs of financial aid. The Company participated in the following programs:
On July 1, 2020, the Company received funding from an American Bank under the Small Business
Administration COVID19 EIDL Program in the total of $150. The loan bears interest of 3.75% per annum, the principal shall be repaid in 360 equal monthly payments starting January 1, 2023, unless forgiven per program regulations (the “EIDL Loan”).
b.On December 9, 2020, the Company signed a new loan agreement with an Israeli based financial institution for a loan of up to 20 million NIS (“New Israeli Shekel”) (an amount of $6,000) (the “New Loan”). The Company received $3,000 on December 2020, and additional $2,000 in January 2021. The loan bears interest of 9.6% per annum. The interest shall first be paid in 12 payments starting February 1, 2021. Starting February 1, 2022, the loan principal and interest shall be repaid in 72 equal payments, plus a one-time interest payment after the 36th month.
As part of the loan agreement, the Company issued the New Lender warrants to acquire common stock in the amount of $1,500 (see Note 9 regarding the warrants granted).
In November 2021, the Company received additional funding in the amount of $1,000 from the New Lender. The loan bears interest of 9.6% per annum. Starting February 1, 2022, the loan principal and interest shall be repaid in 72 equal monthly payments, plus a onetime interest payment after the 24th month. The Company increased the value of the warrant issued to the New Lender to $1,800 (see also Note 9). As of September 30, 2023, the total loan balance outstanding was $4,249 (including $1,220 current maturities).
The loan covenants (the “covenants”) include a debt to EBITDA minimum ratio or a coverage ratio of the loan by current assets.
On December 21, 2022, pursuant to the terms of the loan Agreement, the Company deposited $2 million to a Company-owned interest-bearing bank account, or the “designated account” (as defined in the Agreement), to satisfy the required obligation associated with the loan agreement. An additional $2 million was deposited in the designated account during the nine months ended September 30, 2023.
As of September 30, 2023, the Company was in compliance with the covenants.
As of September 30, 2023, future payments are summarized as follows:
| | | | New Loan | | New Loan | | | EIDL Loan | | from December 2020 and January 2021-In NIS* | | from November 2021-In NIS* | 2023 (**) | | 2 | | | 921($241) | | 234($61) | 2024 | | 9 | | | 5,567($1,456) | | 1,080($282) | 2025 | | 9 | | | 3,684($963) | | 704($184) | 2026 | | 9 | | | 3,684($963) | | 704($184) | 2027 | | 9 | | | 3,684($963) | | 704($184) | 2028 and thereafter | | 130 | | | 307($80) | | 59($15) | Less-accumulated interest | | (12 | ) | | (4,123)($1,077) | | (961)($250) | Total | | 156 | | | 13,724($3,589) | | 2,524($660) |
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 7 — CONVERTIBLE NOTE:
During December 2021 to April 2022, the Company offered up to $3,000 of the Company’s 6% convertible note where both principal and 6% annual interest are due three years from the date of execution (the “Notes”). The Notes were subject to optional and mandatory conversion into shares of the Company’s Common stock, $0.0001 par value. In January 2022 the Company performed a first closing of $2,100 convertible notes out of the $3,000 offered, and in April 2022, a second closing of $60 convertible notes, which private placement was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act of 1933, as amended (“Securities Act”) and was funded by this amount (less fees and expenses). The notes were convertible at any time by the holders into common stock and automatically converted to common stock upon the consummation of an Initial Public Offering (“IPO”) at a 40% discounted conversion price.
The Notes had an optional conversion price at a 40% discount based on a $50m value in the event that an IPO is not consummated and if an IPO is not consummated within 18 months of the issuance of the Notes, the value of the Notes would be set at 110% of their then balance.
Prior to the IPO, discussed further in Note 2, the Company determined that the predominant scenario was the IPO event. The Company measured the convertible note in its entirety at fair value with changes in fair value recognized as financial income or loss in accordance with ASC 480-10. On May 17, 2022, the Company finalized its IPO, as discussed in Note 2 and the notes were converted into the Company’s common stock. The following table presents a roll forward of the fair value of the Notes in the year ended December 31, 2022:
| | December 31, 2022
| Fair value at the beginning of the period
| | $
| —
| | Additions
| | | 1,847
| | Change in fair value reported in statement of comprehensive loss
| | | 1,753
| | Conversion to the Company’s common stock
| | | (3,600
| )
| Fair value at the end of the period
| | $
| —
| |
The Company recorded other expense (income) associated with the Notes during the three and nine months ended September 30, 2023, and September 30, 2022, in the amount of $0, $0, $0 and $1,753, respectively.
NOTE 8 — CONVERTIBLE LOAN:
On March 28, 2017, the Company entered into a convertible loan agreement (the “CLA”) in an aggregate principal amount of up to $ 2,000. Loans under this agreement bear interest of 10% per annum. Following an amendment in March 2022, which was approved by the required majority of the CLA holders, the maturity date of the CLA was established to be the earlier of (i) January 1, 2023, (ii) event of default (as defined in the Agreement) or (iii) deemed liquidation event (as defined in the Company’s certificate of incorporation), in which the lenders are entitled to receive an amount equal to 300% of the principal amount of the loan.
The valuation was performed under alternative scenarios of consummating an IPO or remaining private.
Upon the consummation of the IPO, the CLA was automatically converted into the Company’s common stock based on its contractual terms and conditions. For further information, see Note 2 above.
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 8 — CONVERTIBLE LOAN: (cont.)
The following is a roll forward of the fair values:
| | Year ended December 31 2022 | Fair value at the beginning of the year | | $ | 4,905 | | Change in fair value reported in statement of comprehensive loss | | | 1,648 | | Conversion to the Company’s common stock | | | (6,553 | ) | Fair value at the end of the period | | $ | — | |
The Company recorded other expense (income) associated with the CLA during the three and nine months ended September 30, 2023, and September 30, 2022, in the amount of $0, $0, $0 and $1,648.
NOTE 9 — WARRANTS:
a)On August 24, 2016, the Company issued warrants to Comerica Bank (“Comerica”) for the purchase of 7,305 shares of the Company’s Series B Redeemable Preferred Stock at an exercise price of $10.2672 per share contemporaneously with obtaining a loan from Comerica which was fully repaid in 2018 (the “Comerica Warrants”). The Comerica Warrants are exercisable at any time during the contract period which ends on August 24, 2026.
Additionally, in connection with the consummation of the IPO and the change of the type of the stock from redeemable preferred stock to common stock at conversion, the Company reassessed the Comerica Warrants. As part of the contractual terms and conditions of Comerica’s Warrants, a portion of the warrants are exercisable, as of the IPO date, into the Company’s common stock. The Comerica Warrants are still outstanding as of September 30, 2023. The Company has evaluated whether the Comerica Warrants are still classified as liabilities and concluded that due to a change-of-control provision which may affect the exercise price or entitle Comerica to demand cash, instead of shares, to settle the warrants, Comerica’s Warrants will continue to be classified as liabilities and will be exercisable into the Company’s common shares.
b)During the period from February 2018 through November 2020, the Company issued warrants to Mizrahi-Tefahot Bank (“Mizrahi”) contemporaneously with obtaining a loan and a credit facility. The warrants are convertible into series B convertible redeemable preferred stock or common stock in a qualified financing round. The number of series B convertible redeemable preferred stock is determined by the lesser of (1) dividing the warrant amount (as determined under the contract) by the applicable exercise price which depends on the triggering event as established in the contract, or (2) the lowest stock purchase price in a qualified financing round.
c)During December 2020 and November 2021, the Company issued warrants to Migdalor contemporaneously with obtaining a loan. The warrants can either be (1) converted into the Company’s common stock (the number of which shall be determined based on the warrant amount established in the contract and the Company’s valuation as defined in the contract, or based on a triggering event), at any time during a period of 96 months), or (2) redeemed for cash based on the lesser of a predetermined amount or a formula as set in the contract, at any time and in Migdalor’s own discretion, during a period of 96 months from the date of issue. These warrants were classified as liabilities mainly due to the redemption feature over the options.
Upon the consummation of the IPO (as further described in Note 2 above), the Company converted the outstanding warrants issued to Mizrahi and Migdalor into the Company’s common stock based on the contractual terms and conditions of the related warrant agreements.
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NOTE 9 — WARRANTS: (cont.)
d)On May 8, 2023, the Company completed a fund-raising round. Upon the consummation of the Offering and pursuant to an agreement entered into with the Holder and the underwriter, the Company issued warrants to purchase shares of Common Stock. See note 11(d) and 11(e) for further details.
The table below shows the impact on the statement of comprehensive loss related to the warrants for the periods ended:
| | September 30, 2023 | | December 31, 2022 | Outstanding as of January 1 | | 8 | | | 2,149 | | Additions | | 1,972 | | | — | | Fair value changes | | (1,726 | ) | | 1,049 | | Warrants amendment | | 68 | | | | | Conversion to the Company’s common stock | | — | | | (3,190 | ) | reclassification to equity (see note (11(d)) | | (314 | ) | | — | | Outstanding at the end of the period | | 8 | | | 8 | |
The Company recorded other expense (income) during the three and nine months ended September 30, 2023, and September 30, 2022, in the amount of $(1,330), $(1,726), $(47) and $1,068, respectively, in connection with these warrants.
NOTE 10 — COMMITMENTS AND CONTINGENCIES:
The Company is obligated to repay certain research and development grants received from the Government of Israel in the form of a royalty rate on future sales of products derived from the funded research and development activities. The aggregate amount of royalties to be paid is determined based on 100% of the total grants received for qualified projects plus interest. The Company may be required to pay royalties based on previous years funding in periods after September 30, 2023, for the future sale of product that includes technology developed and funded with these research and development grants received to date.
As of September 30, 2023, the Company had received approximately $14,300 (approximately $15,668 including interest) and repaid approximately $10,275 in such grants.
During the nine months ended September 30, 2023, and the year ended December 31, 2022, the Company paid an amount of $73 and $221, respectively, due in regard to previous years.
As of September 30, 2023, and December 31, 2022, the Company had a liability to pay royalties in the amount of approximately $924 and $900, respectively.
NOTE 11 — SHAREHOLDERS’ EQUITY (*):
a.Change in authorized stock
On May 2, 2022, the Company’s Board of Directors approved an amendment to the Company’s Bylaws, stating the number of authorized stock to be increased, as described below:
a.Common stock — $0.0001 par value — authorized shares increase to 30,000,000 shares from 11,009, 315 shares.
b.Non-voting common stock — $0.0001 par value-authorized shares remain 2,803,774 shares.
c.Preferred stock — $0.0001 par value — authorized shares increase to 10,000,000 shares from 7,988,691 shares.
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NOTE 11 — SHAREHOLDERS’ EQUITY (*): (cont.)
b.On May 16, 2022, the Company filed with the Secretary of State of the State of Delaware an amended and restated certificate of incorporation (the “A&R COI”), which became effective immediately. The A&R COI did not change the Company’s authorized shares of common stock and preferred stock of 42,803,774 authorized shares of 30,000,000 common stock., 2,803,774 shares of non-voting common stock and 10,000,000 shares of preferred stock.
c.During January and February 2023, the Company purchased 7,920 shares of its common stock, for a total price of $50. (Total of 10,690 common stock are held by the company as treasury shares).
d.Offering of common stocks and warrants
On May 8, 2023, the Company completed a fund-raising round in a total gross amount of $3.5 million pursuant to which the Company agreed to issue and sell to Armistice Capital Master Fund Ltd. (the “Holder”) in a private placement (the “Offering”):
1.190,000 shares of the Company’s common stock, $0.0001 par value;
2.754,670 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 754,670 shares of Common Stock for an exercise price of $0.0001 which are exercisable (either physically or on net-cash basis at the Holder’s discretion) immediately upon their issuance until their full exercise. Their exercise price is adjustable upon dilutive events (such as subsequent rights offerings, pro-rata distributions and stock dividends and splits). The Holder also has certain rights upon a fundamental transaction (as defined in the agreement) as specified in the agreement. The warrants were classified as equity pursuant to ASC 815-40.; and
3.warrants to purchase up to 944,670 shares of Common Stock (“Common Warrants”) for an exercise price of $3.58 which are exercisable (physically or upon occurrence of certain events on net-cash basis at the Holder’s discretion) immediately upon their issuance until November 8 2028. Their exercise price is adjustable upon dilutive events (such as subsequent rights offerings, pro-rata distributions and stock dividends and splits). The Holder also possesses a right to receive any additional consideration that holders of common stocks may be entitled to upon a fundamental transaction (as defined in the agreement).
The Company determined that the Common Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification. The Common Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized as financial income or expense as change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of comprehensive loss.
The Common Warrants were recorded at fair value on May 8, 2023, at $1,972 and were classified as a long-term liability on the Condensed Consolidated Balance Sheet, and the residual value allocated to the common stock and pre-funded warrants which were classified as equity.
The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 54%, a risk-free rate of 3.49%, a contractual term of 5.5 years and a stock price at the issuance date of $3.70.
On September 30, 2023, the Company remeasured the common warrants at a fair value of $246.
The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 54%, a risk-free rate of 4.60%, a contractual term of 5.1 years and a stock price $1.10.
The Company recorded other financial income (expenses) during the three and nine months ended September 30, 2023, in the amount of $1,330 and $1,726, respectively, in connection with the revaluation of these warrants to their fair value.
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 11 — SHAREHOLDERS’ EQUITY (*): (cont.)
On September 30, 2023, the Company and the Holder entered into a Common warrants amendment agreement (the “Amendment”) to amend those Common warrants to purchase up to 944,670 shares of the Company’s common stock, par value $0.0001 issued to the Holder. The Amendment makes certain adjustment to the definition of a “Fundamental Transaction” in Common Warrants agreement. Additionally, as of November 8, 2023, the Amendment increases the number of Common Warrants to include an additional 55,000 Common warrants and changes the exercise price of the Common Warrants to $2.75.
The Company reclassified the Common warrants as equity based on the guidance provided under ASC 815-40, due to the adjustments stated in the amendment.
As of the date of the amendment of the Common warrants, the fair value of the warrants was estimated at $314. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 54%, a risk-free rate of 4.60%, a contractual term of 5.1 years and a stock price at the issuance date of $1.10.
As a result of the amendment, the Company recorded other financial expenses in the three and nine months ended September 30, 2023, in the amount of $68.
During July and August 2023, the Holder elected to exercise 754,670 of the pre-funded warrant. The total exercise price in the amount of $0.0755 was paid in cash.
e.Offering Costs related to May 2023 fund-raising round
Upon the consummation of the Offering and pursuant to an agreement entered into with H.C. Wainwright & Co., LLC (the “Underwriter”), the Company has paid in cash to the Underwriter (and the escrow agent) a total amount of $291. The Company has also granted to the Underwriter upon the consummation of the Offering, warrants to purchase up to 66,127 of the Company’s common stocks which carry the same terms as the common stock warrants described above (Note 11d3.), except for the exercise price which reflect 125% of the share price in the Offering ($4.6313). The warrants are classified as mezzanine equity based on the guidance provided under ASC 480-10-S99-3A and SAB Topic 14. E.
As of the issuance date of the underwriter warrants, the fair value of the warrants was estimated at $104. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 56%, a risk-free rate of 3.29%, a contractual term of 5.5 years and a stock price at the issuance date of 3.58.
Out of the total offering costs, an amount of $223 related to the issuance of the Common Warrants was recognized as a financial expense in the Condensed Consolidated statement of comprehensive loss, and an amount of $172 related to the issuance of the Common stocks and the prefunded warrants was recognized in equity.
The allocation of total offering costs between the warrants, common stocks and prefunded warrants was in the same proportion as the allocation of the total proceeds from the offering.
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ACTELIS NETWORKS, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
NOTE 11 — SHAREHOLDERS’ EQUITY (*): (cont.)
f.Share-based compensation:
1)A summary of the Company’s share options, granted to employees, directors, under option plans is as follows:
| | Number of options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | Outstanding – January 1, 2023 (*) | | 96,458 | | | $ | 4.89 | | 5.34 | Granted | | 400 | | | | 1.48 | | | Exercised | | (2,489 | ) | | $ | 0.90 | | | Expired and forfeited | | (3,992 | ) | | $ | 28.16 | | | | | | | | | | | | Outstanding – September 30, 2023 | | 90,377 | | | $ | 3.94 | | 4.44 | Exercisable – September 30, 2023 | | 77,759 | | | $ | 2.23 | | 3.85 |
See also Note 2 above regarding warrants granted to the underwriters upon the consummation of the IPO in consideration for their underwriting services.
2)Restricted Stock Units (*):
During the nine months ended September 30, 2023, the Company issued 39,100 RSUs to officers and employees.
The RSUs are vested over a three-year period.
The grant-date fair value of the RSUs granted was based on the Company’s common stock price at the time of grant.
The following table summarize information as of September 30, 2023, regarding the number of RSUs outstanding:
| | September 30 2023 | | | Number of RSUs | | Weighted- Average Grant Date Fair Value | RSUs outstanding at the beginning of the year (*) | | 59,200 | | | $ | 16.2 | Granted during the period | | 39,100 | | | | 3.38 | Vested during the period | | (16,954 | ) | | | 18.1 | Forfeited during the period | | (8,400 | ) | | | 4.8 | Outstanding as of September 30, 2023 | | 72,945 | | | $ | 11.1 |
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NOTE 12 — BASIC AND DILUTED LOSS PER SHARE (*):
Basic net loss per share is computed using the weighted average number of shares of common stock and pre-funded warrants and fully vested RSUs outstanding during the period, net of treasury shares. In computing diluted loss per share, basic loss per share is adjusted to take into account the potential dilution that could occur upon: (i) the exercise of options and non-vested RSUs granted under employee stock compensation plans, and the exercise of warrants using the treasury stock method; and (ii) the conversion of the convertible redeemable preferred stock, and convertible loan using the “if-converted” method, by adding to net loss the change in the fair value of the convertible loan, net of tax benefits, and by adding the weighted average number of shares issuable upon assumed conversion of these instruments. For further details on the effects on the instruments described below, please see note 2 above.
Options to purchase 90,377 and 94,018 shares of common stock at an average exercise price of $3.94 and $4.53 per share were outstanding as of September 30, 2023, and September 30, 2022, respectively, but were not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
RSU’s to purchase 72,945 shares of common stock at an average grant date fair value of $11.1 per share were outstanding as of September 30, 2023, but were not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
Warrants convertible into 1,047,589 and 7,736 of the Company’s common stock were outstanding as of September 30, 2023, and 2022 but were not included in the computation of diluted EPS because to do so would have had an antidilutive effect on the basic loss per share.
The following table sets forth the computation of basic and diluted net loss per share attributable to common shareholders:
| | Three months ended September 30, | | Nine months ended September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | Numerator: | | | | | | | | | | | | | | | | | Net loss | | $ | (867 | ) | | $ | (2,207 | ) | | $ | (4,355 | ) | | $ | (8,500 | ) | Denominator: | | | | | | | | | | | | | | | | | Common shares outstanding used in computing net loss per share attributable to common shareholders | | | 2,370,486 | | | | 1,731,753 | | | | 1,986,178 | | | | 968,721 | | Pre-Funded warrants to purchase common shares | | | 304,250 | | | | — | | | | 262,712 | | | | — | | Fully vested RSUs outstanding used in computing net loss per share attributable to common shareholders | | | 10,890 | | | | — | | | | 5,345 | | | | — | | Weighted average number of shares used in computing basic and diluted net loss per share attributable to common shareholders | | | 2,685,626 | | | | 1,731,753 | | | | 2,254,235 | | | | 968,721 | | Net loss per share attributable to common shareholders – basic and diluted | | $ | (0.32) | | | $ | (*)(1.27) | | | $ | (*)(1.93) | | | $ | (*)(8.77) | |
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NOTE 13 — REVENUES:
The Company operates as one operating segment (developing and marketing access broadband equipment for copper and fiber networks).
a.Geographic information:
Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers:
| | Three months ended September 30, | | Nine months ended September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | North America | | $ | 454 | | $ | 621 | | $ | 1,863 | | $ | 3,275 | Europe, the Middle East and Africa | | | 371 | | | 655 | | | 2,274 | | | 2,648 | Asia Pacific | | | 20 | | | 72 | | | 452 | | | 374 | | | $ | 845 | | $ | 1,348 | | $ | 4,589 | | $ | 6,297 |
b.Revenues from contract liability:
| | September 30, 2023 | | December 31, 2022 | Opening balance | | $ | 648 | | | $ | 673 | | Revenue recognized that was included in the contract liability balance at the beginning of the year | | | (494 | ) | | | (593 | ) | Additions | | | 232 | | | | 568 | | Remaining performance obligations | | $ | 386 | | | $ | 648 | |
As of September 30, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligation is $386, and the Company will recognize this revenue over the next 8 months.
c.Customers representing 10% or more of net revenues and the amount of revenues recognized are as follows:
| | Three months ended September 30, 2023 | | Nine months ended September 30, 2023 | Customer A (*) | | 2 | % | | $ | 20 | | 20 | % | | $ | 920 | Customer B (*) | | 24 | % | | $ | 201 | | 11 | % | | $ | 510 | Customer C (*) | | 2 | % | | $ | 20 | | 10 | % | | $ | 469 | Customer D | | 10 | % | | $ | 80 | | 4 | % | | $ | 171 |
| | Three months ended September 30, 2022 | | Nine months ended September 30, 2022 | Customer A (*) | | 41 | % | | $ | 535 | | 33 | % | | $ | 2,180 | Customer B | | 4 | % | | $ | 58 | | 17 | % | | $ | 1,089 | Customer C | | 11 | % | | $ | 146 | | 13 | % | | $ | 785 |
The majority of the Company’s revenues are recognized at a point in time.
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NOTE 14 — RELATED PARTY TRANSACTIONS:
a.In March 2017, the Company issued a convertible loan to investors (see note 8). The Company’s CEO participated in the convertible loan in an amount of $26 and received identical terms and conditions as other investors of the convertible loan.
On May 17, 2022, the Company finalized its IPO offering (see Note 2) and the convertible loan was converted.
b.On December 15, 2022, the Company issued 59,200 Restricted Stock Units (“RSUs”) to Directors, officers, consultants, and employees. The CEO received an amount of 12,500, the CFO received an amount of 2,500 and the Directors 10,000 (*).
(*)Adjusted to reflect April 2023 reverse stock split, see note 3(f).
NOTE 15 — SUBSEQUENT EVENTS:
a.The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of the condensed consolidated financial statements to identify matters that require additional disclosure. For its condensed consolidated financial statements as of September 30, 2023, and for the three and nine months then ended, the Company evaluated subsequent events through November 14, 2023, the date that the condensed consolidated financial statements were issued. The Company has concluded that no subsequent event has occurred that require disclosure other than the below.
b.On October 7th, 2023, an attack by the Hamas terrorist organization was inflicted on the State of Israel which started a war between Israel and the Hamas as well as military conflicts on other fronts. As of the date of the issuance of these condensed consolidated financial statements, the Company has not identified any material effect on its operations as a result of those events. The Company continues to monitor its ongoing activities and will make adjustments in its business if needed, including updating any estimates or judgments impacting its financial statements as appropriate, while supporting the safety and well-being of its employees. It is currently not possible to predict the effects of such conflicts and its effects on the Company’s business, operations or financial conditions.
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Actelis Networks, Inc.
PRELIMINARY PROSPECTUS
, 2024 Through and including 2024 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription. Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses payable by the Company in connection with this offering. All expenses incurred with respect to the registration of the common stock will be borne by the Company. All amounts are estimates, except the SEC registration fee. SEC registration fee | | $ | 438.88 | Printing expenses | | $ | 5,000 | Accounting fees and expenses | | $ | 12,000 | Legal fees and expenses | | $ | 50,000 | Total | | $ | 67,438.88 |
SEC registration fee | | $ | 570.26 | | Printing expenses | | $ | 5,000 | | Accounting fees and expenses | | $ | 12,000 | | Legal fees and expenses | | $ | 50,000 | | Total | | $ | 67,570.26 | |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102(b)(7) of the Delaware General Corporation Law (the “Delaware Law”) enables a corporation, in its original certificate of incorporation or an amendment thereto, to eliminate or limit the personal liability of a director for monetary damages for breach of the director’s fiduciary duty, except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware Law (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions), or (iv) for any transaction from which the director derived an improper personal benefit. The Company’s Sixth Amended and Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), contains such a provision. In addition, Section 145 of the Delaware Law provides that a corporation may indemnify any persons, including officers and directors, who are, or are threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that such person is or was an officer, director, employee or agent of the corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner the person reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to criminal proceedings, had no reasonable cause to believe that the person’s conduct was unlawful. A Delaware corporation may indemnify officers or directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against expenses (including attorneys’ fees) that he or she actually and reasonably incurred. The Company’s Certificate of Incorporation and Restated Bylaws provide for indemnification of directors and officers to the fullest extent permitted by the Delaware Law.
ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES The following information represents securities sold by the Company within the past three years which were not registered under the Securities Act. December 2023 Private Placement Offering
On December 17, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”),Investor, pursuant to which we agreed to issue and sell to the Investor in a private placement (the “Offering”) (i) 301,000shares (the “Shares”) of our common stock, of the Company, $0.0001 par value (the “Common Stock”), (ii) 970,187 pre-fundedpre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 970,187shares of Common Stockour common stock and (iii) warrants to purchase up to 1,271,187shares of Common Stock (“Common Warrants” and collectively II-1
Tablecommon stock issuable upon the exercise of Contents
with the Shares and the Common Warrants, the “Securities”) forcommon warrants, at a purchase price of $1.18 per share of Common Stockcommon stock and related Common Warrantcommon warrant, or $1.1799 per Pre-Funded Warrantpre-funded warrant and related Common Warrant,common warrant, for a total aggregate gross proceeds of approximately $1.5 million. The Offeringoffering closed on December 20, 2023.
The Common Warrantscommon warrants have an exercise price of $1.18 per share, are exercisable immediately upon issuance and expire five and one-halfone-half years following the issuance. The Pre-Funded Warrantspre-funded warrants were sold in lieu of shares of Common Stock,common stock, are exercisable immediately upon issuance, have an exercise price of $0.0001 per share and expire when exercised in full. Under the terms of the Common Warrants and Pre-Funded Warrants, the Investor may not exercise the warrantsThe Company also agreed to the extent such exercise would cause the Investor, together with its affiliates and attribution parties,issue to beneficially own a number of shares of common stock which would exceed 4.99% (or, at such Investor’s option upon issuance, 9.99%), of our then outstanding Common Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon exercise of such warrants which have not been exercised. H.C. Wainwright & Co., LLC, acted as the exclusive placement agent for the issuance and sale of the Securities. We have agreed to pay up to an aggregate cash fee equal to 7.0% of the gross proceeds received by us from the Offering. We also agreed to pay Wainwright $35,000 for non-accountable expenses and a management fee equal to 1.0% of the gross proceeds raised in the Offering. We also agreed to issue to Wainwright, or its designees, unregistered warrants to purchase up to 7.0% of the aggregate number of the Common Stock Shares and Pre-Funded Warrants sold to the Investor (or warrants to purchase up toPlacement Agent, 88,983shares of Common Stock)common stock at an exercise price per share of $1.475 and a term of five and one-halfone-half years. The Securities were offered and sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The investor also represented that it qualified as an “accredited investor” within the meaning of Rule 501 of Regulation D.
May 2023 Private Placement Offering
On May4, 2023, we entered into a securities purchase agreement with an accredited investor (the “Investor”),Investor, pursuant to which we agreed to issue and sell to the Investor in a private placement (the “May 2023 Private Placement”) (i) 190,000shares (the “Shares”) of Common Stock,our common stock, (ii) 754,670 pre-fundedpre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 754,670 shares of our common stock and (iii) 944,670 shares of Common Stock and (iii)common stock issuable upon the exercise of common warrants, to purchase up to 944,670shares of Common Stock (“Common Warrants” and collectively with the Shares and the Common Warrants, the “Securities”) forat a purchase price of $3.705 per share of Common Stockcommon stock and related Common Warrantcommon warrant, or $3.7049 per Pre-Funded Warrantpre-funded warrant and related Common Warrant,common warrant, for a total aggregate gross proceeds of approximately $3.5million. The Offering closed on May8, 2023. The May Following an amendment in September 2023, Common Warrantsthe common warrants now have an exercise price of $3.58$2.75 per share, are exercisable immediately upon issuance and expire five and one-halfone-half years following the issuance. The May 2023 Pre-Funded Warrantspre-funded warrants were sold in lieu of shares of Common Stock,common stock, are exercisable immediately upon issuance, have an exercise price of $0.0001 per share and expire when exercised in full. Under the terms of the May 2023 Common Warrants and May 2023 Pre-Funded Warrants, the May 2023 Investor may not exercise the warrants to the extent such exercise would cause the May 2023 Investor, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% (or, at the May 2023 Investor’s option upon issuance, 9.99%), of the Company’s then outstanding Common Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon exercise of such warrants which have not been exercised.
H.C. Wainwright & Co., LLC (the “Placement Agent”) acted as the exclusive placement agent for the issuance and sale of the Shares, Pre-Funded Warrants and Common Warrants. The Company has agreed to pay up to an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the May 2023 Offering. The Company also agreed to pay the Placement Agent $65,000 for non-accountable expenses and a management fee equal to 1.0% of the gross proceeds raised in the May 2023 Offering. The Company also agreed to issue to H.C. Wainwright & Co., LLC, the Placement Agent, or its designees, unregistered warrants to purchase up to 7.0% of the aggregate number of the Shares and Pre-Funded Warrants sold to the May 2023 Investor (or warrants to purchase up to 66,127shares of Common Stock)common stock at an exercise price per share of $4.6313 and a term of five and oneone-half years.-half years.
On November 8, 2023, we issued to H.C. Wainwright & Co., LLC an additional 55,000 shares of common stock issuable upon the exercise of common warrants, at a purchase price of $ $2.75 per share. As part of the December 2023 Private Placement, we agreed, subject to our shareholders approval, which has not yet been obtained, to amend the exercise price of the warrants to $1.18 per share.
The May 2023 Securitiessecurities above were offered and sold in reliance on thepursuant to an exemption from the registration provided byrequirements under Section 4(a)(2) of the Securities Act. The investor also represented that it qualified as an “accredited investor” withinAct since, among other things, the meaning of Rule 501 of Regulation D.transactions did not involve a public offering. ITEM 16.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits. Exhibit No. | | Description | 3.1 | | Form of the Twenty-Fourth Amended and Restated Certificate of Incorporation of the Registrant, dated May 2, 2022 (as filed as Exhibit 3.5 to the Company’s Form S-1/A, filed on May 10, 2022) | 3.2 | | Amended and Restated Bylaws of Actelis Networks, Inc. (as filed as Exhibit 3.4 to the Company’s Form S-1/A, filed on May 10, 2022) | 4.1 | | Description of Securities (filed as Exhibit 4.1 to the Company’s Form 10-K for the fiscal year ended December 31, 2022, filed on March 29, 2023) | 4.2 | | Form of Representative’s Warrant (as filed as Exhibit 4.1 to the Company’s Form S-1/A, filed on May 2, 2022) | 4.3 | | Form of Common Warrant (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on May 8, 2023) | 4.4 | | Form of Pre-Funded Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on May 8, 2023) | 4.5 | | Form of Placement Agent Warrant (as filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on May 8, 2023) | 4.6 | | Form of Common Warrant (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 4.7 | | Form of Pre-Funded Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 4.8 | | Form of Placement Agent Warrant (as filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 5.1 4.9 | | Form of Credit Agreement (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed on February 14, 2024). | 5.1* | | Opinion of Pearl Cohen Latzer Zedek Baratz LLP (as filed as Exhibit 5.1 to the Company’s Registration Statement on Form S-1, filed on January 8, 2024) | 10.1 | | Lease by and between Actelis Networks Israel, Ltd. and Moshe Smucha, dated January 13, 2000 (as filed as Exhibit 10.2 to the Company’s Form S-1/A, filed on May 2, 2022) | 10.2 | | First Amendment to the Lease and Management Agreements from October 22, 2017, by and between Homerton Investments, Ltd. and Actelis Networks Israel Ltd., dated April 14, 2021 (as filed as Exhibit 10.3 to the Company’s Form S-1/A, filed on May 2, 2022) | 10.3 | | Employment Agreement between Actelis Networks, Inc. and Mr. Tuvia Barlev dated February 15, 2015 (as filed as Exhibit 10.9 to the Company’s Form S-1/A, filed on May 2, 2022) | 10.4 | | Offer letter between Actelis Networks, Inc. and Mr. Yoav Efron dated November 30, 2017 (as furnished as Exhibit 10.10 to the Company’s Form S-1/A, filed on May 10, 2022) | 10.5 | | Employment Agreement between Actelis Networks Israel, Ltd. And Mr. Yoav Efron dated November 30, 2017 (as furnished as Exhibit 10.11 to the Company’s Form S-1/A, filed on May 10, 2022) | 10.6 | | Consulting Agreement between Actelis Networks, Inc. and Barlev Enterprises dated February 20, 2015 (as furnished as Exhibit 10.12 to the Company’s Form S-1/A, filed on May 10, 2022) | 10.7 | | Actelis Networks, Inc. 2015 Equity Incentive Plan (as filed as Exhibit 10.13 to the Company’s Form S-1, filed on April 15, 2022) | 10.8 | | Amendment No. 1 to 2015 Equity Incentive Plan (as filed as Exhibit 10.14 to the Company’s Form S-1, filed on April 15, 2022) | 10.9 | | Senior Loan Agreement between Migdalor Business Investment Fund and Actelis Networks Israel, Ltd., dated December 2, 2020 (as filed as Exhibit 10.16 to the Company’s Form S-1, filed on April 15, 2022) | 10.10 | | Amendment Number 1 to Senior Loan Agreement between Migdalor Business Investment Fund and Actelis Networks Israel, Ltd., dated November 17, 2021 (as filed as Exhibit 10.17 to the Company’s Form S-1, filed on April 15, 2022) |
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Exhibit No.10.14
| | Description
| 10.14
| | Form of Warrant Amendment (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on October 6,December 20, 2023) | 10.15 | | Form of Securities Purchase Agreement (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 10.16 | | Form of Warrant Amendment (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 10.17 | | Form of Registration Rights Agreement (as filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on December 20, 2023) | 21.1 | | Subsidiaries of the Registrant (as filed as Exhibit 21.1 to the Company’s Form S-1, filed on April 15, 2022) | 23.1 23.1* | | Consent of Kesselman & Kesselman, Certified Public Accountants (Isr.) a member firm of PricewaterhouseCoopers International Limited, independent registered accounting firm for the Company*Company | 101.INS | | Inline XBRL Instance Document. | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | 107 107* | | Filing Fee Table (as filed as Exhibit 107 to the Company’s Registration Statement on Form S-1, filed on January 8, 2024) |
____________
(b) Financial Statement Schedules Filed herewith ITEM 17. UNDERTAKINGS
(a)The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or salesAll financial statement schedules are being made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section do not apply ifomitted because the information required to be included in a post-effective amendment by those paragraphsset forth therein is contained in reports filed withnot applicable or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of andis included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statementconsolidated financial statements or prospectus that is part of the registration statement or made in a documentrelated notes incorporated or deemed incorporatedherein by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.reference.
(5)That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)That, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c)The undersigned registrant hereby undertakes:
(1)That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(2)That, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.II-4
ITEM 17. UNDERTAKINGS | (a) | The undersigned registrant hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by section 10(a)(3) of the Securities Act; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (b) | That, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| (c) | The undersigned registrant hereby undertakes: |
| (1) | That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (2) | That, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
SIGNATURES SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement on Form S-1/S-1/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Freemont, California on FebruaryMarch 26, 2024. 9, 2024. | | ACTELIS NETWORKS, INC. | | | | By: | /s/ Tuvia Barlev | | | By:
| | /s/ Tuvia Barlev
| | | | | Tuvia Barlev
| | | | | Chief Executive Officer and Secretary |
Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement on Form S-1/S-1/A has been signed by the following persons in the capacities and on the dates indicated. Signature | | Title | | Date | /s/ Tuvia Barlev | | Chief Executive Officer and Chairman of the Board of Directors | | March 26, 2024 | Tuvia Barlev | | (Principal Executive Officer) | | | /s/ Yoav Efron
| |
| | | * | | Chief Financial Officer | | March 26, 2024 | Yoav Efron | | (Principal Financial Officer and Principal Accounting Officer) | | | | | | | | * | | Director | | March 26, 2024 | Joseph Moscovitz | | | | | | | | | | * | | Director | | March 26, 2024 | Dr. Naama Halevi-Davidov | | | | | | | | | | * | | Director | | March 26, 2024 | Israel Niv | | | | | | | | | | * | | Director | | March 26, 2024 | Noemi Schmayer | | | | |
By: | /s/ Tuvia Barlev | | /s/ Joseph Moscovitz
| | Director
| | | Joseph Moscovitz
| | | | | /s/ Naama Halevi-Davidov
| | Director
| | | Dr. Naama Halevi-Davidov
| | | | | /s/ Israel NivTuvia Barlev
Attorney-in-fact* | | Director
| | | Israel Niv
| | | | | /s/ Noemi Schmayer
| | Director
| | | Noemi Schmayer
| | | | |
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S-1/A 0.95 2.56 11621238 2048788 0.32 1.27 1.93 8.77 1731753 2254235 2685626 968721 P2Y P4Y P3Y P2Y P3Y P146D P3Y P3Y219D P10Y P3Y P5Y6M P5Y36D P5Y36D P5Y6M 11009315 1731753 2254235 2685626 968721 0.32 1.27 1.93 8.77 true
0001141284 iso4217:ILS xbrli:shares2023-01-01 2023-09-30 |