UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
OR
For
the fiscal year ended
OR
OR
Commission
File No.:
(Exact name of registrant as specified in its charter)
Translation of registrant’s name into English: Not applicable
State
of
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
|
|
|
|
| (1) | Evidenced by American Depositary Receipts. |
| (2) | Not for trading, but only in connection with the listing of the American Depositary Shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934.
Yes
☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ |
|
Non-accelerated filer ☐ |
|
Emerging growth company
|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP ☐
as issued by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company.
Yes
☐ No
TABLE OF CONTENTS
i
ii
INTRODUCTION
We are a global provider of web data collection solutions. We currently operate in one segment, web data collection (formerly known as enterprise internet access), following our decision in July 2023 to downscale our investment in the consumer internet access segment of our business, as well as the sale of our enterprise cybersecurity business, which is considered in this annual report on Form 20-F as a discontinued operation.
Our solutions offer a global web data collection cloud service, based on our proprietary proxy traffic optimization and routing technology, and built on partnership agreements with dozens of Internet Service Providers, or ISPs, and with application publishers. The service allows organizations to collect vast amounts of web and internet data by simultaneously connecting to the internet from different IP addresses while maintaining full anonymity and privacy.
The solution also allows access to undiscovered data from non-traditional data sources and allows customers to gain additional data-driven information that provides valuable insights with respect to predictive capabilities or behaviors, thereby assisting ongoing business management operation and decision making. An added benefit to our customers is the fact that utilizing our network completely hides enterprises from the internet by modifying IP addresses, thus ensuring high levels of privacy for their online presence.
Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Alarum” refer to Alarum Technologies Ltd. and its wholly owned Israeli subsidiaries NetNut Ltd., or NetNut, NetNut’s wholly owned subsidiary - NetNut Networks Inc., a Delaware corporation, or NetNut Networks, Safe-T Data A.R Ltd., or Safe-T Data, CyberKick Ltd., or CyberKick, CyberKick’s wholly owned subsidiaries - RoboVPN Technologies Ltd., a Cyprus corporation (under voluntary dissolution), and Spell Me Ltd., a Seychelles corporation.
References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to “Ordinary Shares” are to our Ordinary Shares, no par value per share that have been trading on the Tel Aviv Stock Exchange, or TASE, under the symbol “ALAR”. References to ADSs are to our American Depository Shares, representing our Ordinary Shares, that have been trading on the Nasdaq Capital Market, or Nasdaq, under the symbol “SFET” since August 17, 2018, and effective from January 25, 2023, under the symbol “ALAR” following the Company’s change of name, which was made effective by the Israeli Corporations Authority, Registrar of Companies and Partnerships, on January 8, 2023. We report financial information under IFRS Accounting Standards as issued by the International Accounting Standards Board, or IFRS Accounting Standards.
iii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this annual report on Form 20-F may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws and the Israeli securities law. Forward-looking statements are often characterized using forward-looking terminology such as “may,” “will,” “expect,” “plans,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments, and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | our planned level of revenues and capital expenditures; | |
| ● | our ability to market and sell our products; | |
| ● | the ability of our clients to continue utilizing our products at their current levels; | |
| ● | our ability to expand the number of and diversify types of customers in order to avoid a material effect on our operating margins, our profitability, our sales and our results of operations as a result of a loss of a significant customer, or a material reduction in sales to a significant customer; | |
| ● | our plans to continue to invest in research and development to develop technology for both existing and new products; | |
| ● | our ability to maintain our relationships with partners and customers; | |
| ● | our ability to maintain or protect the validity of our European, U.S. and other patents and other intellectual property; | |
| ● | our ability to engage in future strategic opportunities, including, but not limited to, strategic acquisitions, and achieve any expected benefits from them; | |
| ● | our ability to launch and penetrate markets in new locations, including taking steps to expand our worldwide activities and to enter into engagements with new business partners in those markets; | |
| ● | our intention to increase marketing and sales activities; | |
| ● | our intention to establish partnerships with industry leaders; | |
| ● | our ability to locate additional funding available to us on acceptable terms; |
iv
| ● | our ability to retain professional employees and executive members; | |
| ● | our ability to internally develop new inventions and intellectual property; | |
| ● | our expectations regarding future changes in our cost of revenues and our operating expenses; | |
| ● | our expectations regarding our tax classifications; | |
| ● | interpretations of current laws and the passages of future laws and/or regulations; | |
| ● | our ability to continue to effectively comply with the requirements of Nasdaq; |
| ● | the impact of potential litigation; | |
| ● | acceptance of our business model and performance by investors; | |
| ● | general market, political, and economic conditions in the countries in which we operate including those related to recent unrest and actual or potential armed conflict in Israel and other parts of the Middle East, such as the Israel-Hamas and Israel-Hezbollah wars; and | |
| ● | those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this annual report on Form 20-F generally. |
Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20-F which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
You should not put undue reliance on any forward-looking statements. Any forward-looking statements in this annual report on Form 20-F are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, the section of this annual report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry sources and other sources that we have not independently verified.
Summary Risk Factors
The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 3D. of this Report and the other reports and documents filed by us with the SEC.
| Risks Related to Our Business and Industry |
| ● | If we are unable to sell additional products and services to our existing customers and/or to acquire new customers, our future revenues and operating results will be harmed; | |
| ● | If we are unable to expand the number of and diversify types of customers, we may face a material effect on our operating margins, our profitability, our sales and our results of operations as a result of a loss of a significant customer, or a material reduction in sales to a significant customer; |
v
| ● | If key customers or groups of customers reduce their consumption of our products and services due to technological changes in the market, such as new restrictions, policies, or regulations imposed by major digital platforms, or as a result of other factors, such as industry changes, shifts in customer business priorities, or specific customer decisions, it may negatively impact our revenue and financial performance; |
| ● | We face intense competition from Software as a Service, or SaaS, data collection vendors, some of which are larger and better known than we are, and we may lack sufficient financial or other resources to maintain or improve our competitive position; |
| ● | If our internal network system is compromised by cyber attackers or other malicious cyber activity, or if our hosting and infrastructure fails, public perception of our products and services will be harmed; | |
| ● | If our products fail to ensure customer compliance with government regulations and industry standards, our business and results could be materially impacted. |
Risks Related to Our Intellectual Property
| ● | If we are unable to obtain and maintain effective patent and trademark rights for our products, we may not be able to compete effectively in our markets; |
| ● | Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts, as well as apply financial burdens; |
| ● | We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming, and unsuccessful. |
| Risks Related to the Ownership of Our ADSs or Ordinary Shares |
| ● | Issuance of a significant amount of additional Ordinary Shares due to exercise or conversion of outstanding warrants and/or substantial future sales of our Ordinary Shares may depress our share price; |
| ● | Our warrants are speculative in nature and holders of our warrants will have no rights as shareholders until such holders exercise their warrants and acquire our Ordinary Shares or ADSs, as applicable; |
| ● | Holders of ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, holders of ADSs may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to holders of ADSs; |
| ● | Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company; | |
| ● | We cannot guarantee that we will continue to comply with Nasdaq requirements. If we fail to comply with Nasdaq requirements, our ADSs could be delisted from Nasdaq, and as a result we and our shareholders could incur material adverse consequences, including a negative impact on our liquidity, our shareholders’ ability to sell shares and our ability to raise capital. |
vi
| Risks Related to Israeli Law and Our Operations in Israel |
| ● | Political, economic and military instability due to the Israel-Hamas and Israel-Hezbollah wars, as well as the risk of attacks from Iran on Israel, where our headquarters, members of management, production facilities and employees are located, may adversely affect our results of operations; | |
| ● | Provisions of Israeli law and our articles of association may delay, prevent or otherwise impede a merger with, or acquisition of, our company; | |
| ● | The rights and responsibilities of a holder of our securities will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of U.S. companies. |
| General Risk Factors |
| ● | Raising additional capital would cause dilution to holders of our equity securities, and may affect the rights of existing holders of equity securities; | |
| ● | The increasing use of social media platforms and new technologies presents risks and challenges for our business and reputation; | |
| ● | Unsuccessful management of environmental, social and governance matters could adversely affect our reputation and we may experience difficulties meeting the expectations of our stakeholders; | |
| ● | We are subject to a number of risks associated with global sales and operations; | |
| ● | The price of the ADSs may be volatile; | |
| ● | We may be subject to securities litigation, which is expensive and could divert management attention; | |
| ● | We may be subject to geopolitical events and resulting macroeconomic consequences. |
vii
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved.]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSs could decline.
Risks Related to Our Business and Industry
The data collection markets are rapidly evolving within the increasingly challenging landscape. If the industry does not continue to develop as we anticipate, our sales will not grow as quickly as expected and our share price could decline.
We operate in a rapidly evolving industry focused on providing organizations data collection services and consumers with internet access solutions. We experience intense competition from smaller new players and need to constantly adapt our solutions to the new technologies and growing and constantly changing challenges. It is therefore difficult to predict how large the markets will be for our solutions. If solutions such as ours are not viewed by organizations as necessary, or if business or consumer customers do not recognize the benefit of our solution as a critical layer of an effective security strategy, then our revenues may not grow as quickly as expected, or may decline, and our share price could suffer.
1
If we are unable to expand the number of and diversify types of customers, we may face a material effect on our operating margins, our profitability, our sales and our results of operations as a result of a loss of a significant customer, or a material reduction in sales to a significant customer .
Our significant customers from the data collection segment change from year to year, depending on the use of our services. During the year ended December 31, 2024, our top 7 customers accounted for approximately 39% of our revenue. A reduction in purchases of our products and services by or the loss of one of our larger customers for any reason, loss of a customer as a result of the acquisition of such customer by a purchaser who uses a competitor, in-sourcing by customers, a transfer of business to a competitor, an economic downturn, insolvency of a customer, failure to adequately service our clients, decreased production or a strike or for other reasons, could have a material adverse effect on our operating margins, our profitability, our sales and our results of operations.
As a result of our reliance on a limited number of customers, we may face pricing and other competitive pressures, which may have a material adverse effect on our future revenues and operating results. The volume of products and services sold to specific customers varies from year to year, especially since we are not the exclusive provider for any customers. In addition, there are a number of factors, other than our performance, that could cause the loss of a customer or a substantial reduction in the products or services that we provide to any customer and that may not be predictable. For example, our customers may decide to reduce spending on our products or services or a customer may no longer need our products or services following the completion of a project. The loss of any one of our major customers, a decrease in the volume of sales to these customers or a decrease in the price at which we sell our products to them could materially adversely affect our profits and our revenues.
In addition, this customer concentration may subject us to perceived or actual leverage that our customers may have in negotiations with us, given their relative size and importance to us. If our customers seek to negotiate their agreements on terms less favorable to us and we accept such unfavorable terms, such unfavorable terms may have a material adverse effect on our business, financial condition and results of operations. Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and volume of business from our largest customers and the financial and operational success of these customers.
We are engaged in on-going development of our current and future products. Our research and development efforts may not produce successful products or enhancements to our solution that result in significant revenue or other benefits in the near future, if at all.
We expect to continue to dedicate significant financial and other resources to our research and development efforts in order to continuously evolve the development of our products and maintain our competitive position. As a result, our business is significantly dependent on our ability to successfully complete the development of our next- generation products. Investing in research and development personnel, developing new products, and enhancing existing products is expensive and time consuming, and there is no assurance that such activities will result in successful development of our products, significant new marketable products or enhancements to our products, design improvements, cost savings, revenues or other expected benefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our business and results of operations may be materially and adversely affected.
If we fail to effectively manage our growth, our business and operations will be negatively affected, and as we invest in the growth of our business, we expect our operating and net profit margins to decline in the near-term.
We have experienced rapid growth in the last five years and intend to continue to grow our business. Our annual operating expenses may continue to increase as we invest in sales, marketing, research and development. Our growth to date has placed significant demands on our management, sales, operational and financial infrastructure, and our growth will continue to place significant demands on these resources. We may not be able to successfully implement these improvements in a timely or efficient manner, and our failure to do so may materially impact our projected growth rate. We may also not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, failure to deliver and timely deliver our products to customers, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of current and additional new products. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced, and we may not be able to implement our business strategy.
As we invest in the growth of our business, we expect that these investments will result in increased costs and may impact our short and mid-term operating and net profit margins. A failure to meet market expectations regarding our profitability and our position as a growth company has had and could continue to have an adverse effect on the price of our Ordinary Shares and ADSs.
2
Our quarterly and annual results of operations may fluctuate for a variety of reasons.
Our operating results and financial condition may fluctuate from quarter to quarter and year to year and may continue to vary due to several factors, many of which will not be within our control. If our operating results do not meet the guidance that we provide to the market or the expectations of securities analysts or investors, the market price of our Ordinary Shares and the ADSs will likely decline. Fluctuations in our operating results and financial condition may be due to several factors:
| ● | the degree of market acceptance of our products and services; | |
| ● | our ability to attract and retain new customers; | |
| ● | our ability to sell additional products to current customers; | |
| ● | changes in consumers’, enterprises’ or channel partners’ requirements and utilization of our products; | |
| ● | changes in the growth rate of the data collection solutions markets; | |
| ● | the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of the data collection markets, including consolidation among our customers or competitors; | |
| ● | a disruption in, or termination of, our relationship with partners; | |
| ● | our ability to successfully expand our business globally; | |
| ● | changes in our pricing policies or those of our competitors and our responses to price competition; | |
| ● | general economic conditions in our markets, including political, economic and military instability due to the Israel-Hamas and Israel-Hezbollah wars in Israel; | |
| ● | unexpected changes in regulatory practices, laws, regulations and the court systems of certain jurisdictions; | |
| ● | future accounting pronouncements or changes in our accounting policies or practices; | |
| ● | the amount and timing of our operating costs; | |
| ● | a change in our mix of products and services; and | |
| ● | increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates. |
Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our financial and other operating results from period to period. These fluctuations could result in our failure to meet our operating plan or the expectations of investors or analysts for any period. If we fail to meet such expectations for these or other reasons, the market price of our Ordinary Shares and the ADSs could fall substantially, and we could face costly lawsuits, including securities class action suits.
3
Our reputation and business could be harmed based on real or perceived shortcomings, defects or vulnerabilities in our solution or the failure of our solution to meet customers’ expectations.
Organizations and consumers are facing increasingly sophisticated and targeted cyber threats, including the growing threat of cyber terrorism throughout the world. If we fail to identify and respond to new and increasingly complex methods of attack and update our products to detect or prevent such threats, our business and reputation will suffer. In particular, we may suffer significant adverse publicity and reputational harm if a significant breach occurs generally or if any breach occurs at a high-profile customer. Moreover, if our solutions are adopted by an increasing number of enterprises and consumers, it is possible that attackers will begin to focus on finding ways to defeat our solutions. An actual or perceived security breach or theft of our customers’ sensitive business or personal data, regardless of whether the breach or theft is attributable to the failure of our products, could adversely affect the market’s perception of the efficacy of our solutions and current or potential customers may look to our competitors for alternatives to our solutions. The failure of our products may also subject us to lawsuits and financial losses stemming from indemnification demands of our partners and other third parties, as well as the expenditure of significant financial resources to analyze, correct or eliminate any vulnerabilities. Any claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, and damage to our reputation, and could cause us to fail to retain or attract customers. Costs or payments made in connection with warranty and product liability claims and product recalls, or other claims could materially affect our financial condition and results of operations. It could also cause us to suffer reputational harm, lose existing customers or deter them from purchasing additional products and services and prevent new customers from purchasing our solutions.
False detection of threats, while typical in our industry, may reduce perception of the reliability of our products and may therefore adversely impact market acceptance of our products. If our solutions restrict legitimate privileged access by authorized personnel to IT systems and applications by falsely identifying those users as an attack or otherwise unauthorized, or fail to provide privacy and security web browsing to consumers, our customers’ businesses could be harmed. There can be no assurance that, despite testing by us, errors will not be found in existing and new versions of our products, resulting in loss of or delay in market acceptance. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, the network of data collection solutions is built on a mix of IPs, which we source from various providers and technologies. A significant portion of our IP pool is sourced from third-party IP proxy providers and ISPs around the world from which we lease and then resell. We have separate agreements with each provider. If such a provider chooses to terminate the agreement, we will be at a risk of reducing the size of our IP pool and might not be able to support the demands of our customer base.
If we are unable to acquire new customers, our future revenues and operating results will be harmed.
Our success depends on our ability to acquire new customers. The number of customers that we add in a given period impacts both our short-term and long-term revenues. If we are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The markets we operate in are competitive and many of our competitors have substantial financial, personnel, and other resources that they utilize to develop products and attract customers. As a result, it may be difficult for us to add new customers to our customer base. Competition in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives. Additional factors that impact our ability to acquire new customers include the perceived need for cyber security, the size of our prospective customers’ infrastructure budgets, the utility and efficacy of our existing and new offerings, whether proven or perceived, our ability to reach a significant portion of the consumer market, and general economic conditions. These factors may have a meaningful negative impact on future revenues and operating results. With respect to our enterprise access business, while many companies understand the problem of doing competitive analysis, data collection, and other privacy-related use cases, widespread awareness of the need for access solutions is still lacking. Proxy networks are well understood, and virtual private networks are commonly popular, but access solutions are still in the early adoption phase among companies and individuals that stand to benefit from them. This restraint accounts for not all enterprise access vendors having the marketing budgets to promote themselves.
4
If key customers or groups of customers reduce their consumption of our products and services due to technological changes in the market, such as new restrictions, policies, or regulations imposed by major digital platforms, or as a result of other factors, such as industry changes, shifts in customer business priorities, or specific customer decisions, it may negatively impact our revenue and financial performance.
Our business relies significantly on a limited number of key customers, and any reduction in their consumption of our products and services could adversely affect our financial performance. Changes in market conditions, including technological advancements and evolving regulations, create additional risks that may impact our customer relationships. For instance, new policies, restrictions, or regulatory changes imposed by major digital platforms could alter how our services are used, limiting their scope or effectiveness for certain customers. Additionally, changes within our customers’ industries, shifts in their business priorities, or their specific business decisions may influence their ongoing demand for our offerings.
Furthermore, the decision by our clients to utilize our products may be influenced by other factors, including:
| ● | the cost of our products; | |
| ● | the success of our sales and marketing efforts; | |
| ● | the performance of our products; | |
| ● | the responsiveness and professionalism of our support team; and | |
| ● | customer confidence, which may be impacted by economic and political conditions. |
If key customers reduce or cease their purchases due to any of these factors, whether in response to regulatory developments, strategic adjustments, prices, support issues or shifts in industry standards, our revenue, operations, and financial performance could be significantly affected. We continually strive to improve our products’ performance, marketing efforts efficiency and our support team professionalism and response, while monitoring the evolving market conditions, aiming to adapt to both regulatory shifts and technological advancements to support stable and enduring customer relationships. Nonetheless, the pace and unpredictability of these changes remain outside our control, presenting a potential risk to our business stability and growth trajectory.
If we are unable to sell additional products and services to our existing customers, our future revenues and operating results will be harmed.
Our revenues are also generated from sales to existing customers. Our future success depends, in part, on our ability to obtain recurring sales to our existing customers. However, we face customer retention challenges due to fierce competition in the market. We devote significant efforts to developing, marketing and selling additional products to existing customers and rely on these efforts for a portion of our revenues. These efforts require a significant investment in building and maintaining customer relationships, as well as significant research and development efforts in order to provide product upgrades and launch new products. The rate at which our existing customers purchase additional products and services depends on a number of factors, including, but not limited to, the perceived need for additional access services, the fit and efficacy of our solutions and the utility of our new offerings, whether proven or perceived, our customers’ budgets, general economic conditions, our customers’ overall satisfaction with the maintenance and professional services we provide and the continued growth and economic health of our customer base to require incremental users and servers to be covered. If our efforts to sell additional products and services to our customers are not successful, our future revenues and operating results will be harmed.
5
We face intense competition from access vendors, some of which are larger and better known than we are, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The markets in which we operate are characterized by intense competition, constant innovation and evolving security threats. We compete with companies that offer a broad array of web data collection products. Our current and potential future competitors include providers of access solutions, such as Bright Data Ltd., or Bright Data, Oxylabs Networks Pvt. Ltd., BiScience Inc. and others. Some of our competitors are larger than us and may have the technical and financial resources and broad customer bases needed to bring competitive solutions to the market and already have existing relationships as a trusted vendor for other products. Such companies may use these advantages to offer products and services that are perceived to be as effective as ours at a lower price or for free as part of a larger product package or solely in consideration for maintenance and services fees. They may also develop different products to compete with our current solutions and respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, or client requirements. Additionally, from time to time we may compete with smaller regional vendors that offer products with a more limited range of capabilities that purport to perform functions similar to our solution. Such companies may enjoy stronger sales and service capabilities in their particular regions. We face the emergence of small competitors in this field due to high profitability margins, which can result in pressure on prices to decline. Furthermore, these margins can lead also to competition from bigger companies that can invest larger human, cash and technological resources into this industry. Such increased competition can lead to lower margins and, consequently, impact our revenues, profitability and business.
Our competitors may enjoy potential competitive advantages over us, such as:
| ● | greater name recognition, a longer operating history and a larger customer base; | |
| ● | larger sales and marketing budgets and resources; | |
| ● | broader distribution and established relationships with channel and distribution partners and customers; | |
| ● | greater customer support resources; | |
| ● | greater resources to make acquisitions; | |
| ● | larger intellectual property portfolios; and | |
| ● | greater financial, technical and other resources. |
Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. Current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expand their product and service offerings more quickly than we do. Larger competitors with more diverse product offerings may reduce the price of products that compete with ours in order to promote the sale of other products or may bundle them with other products, which would lead to increased pricing pressure on our products and could cause the average sales prices for our products to decline.
We may not be able to successfully anticipate or adapt to changing technology or customer requirements on a timely basis, or at all. If we fail to keep up with technological changes or to convince our customers and potential customers of the value of our solution even in light of new technologies, our business, results of operations and financial condition could be materially and adversely affected.
If our internal network system is compromise by cyber attackers or other malicious cyber activity, or if our hosting and infrastructure fails, public perception of our products and services will be harmed.
We will not succeed unless the marketplace is confident that we provide effective cybersecurity protection. Further, we may be targeted by cyber terrorists because we are an Israeli company or otherwise. For example, in January 2023, we experienced an immaterial breach, which resulted in the hacker gaining temporary access to our database. In response, we secured all exposed servers to prevent further breaches and engaged a Chief Information Security Officer (CISO) to provide security consultation and strengthen our defenses. Although such incident did not have an adverse effect on us or our customers and we have not had a cybersecurity incident since then, if we experience another actual or perceived breach of our network and our internal systems, it could adversely affect the market perception of our products and services. In addition, we may need to devote more resources to address security vulnerabilities in our solution, and the cost of addressing these vulnerabilities could reduce our operating margins. If we do not address security vulnerabilities or otherwise provide adequate security features in our products, certain customers, particularly government customers, may delay or stop purchasing our products. Further, a security breach could impair our ability to operate our business, including our ability to provide maintenance and support services to our customers. If this happens, our revenues could decline, and our business could suffer. If we experience short period hosting/infrastructure failures, or longer periods of disconnection blocking of our network of IPs to access certain websites, and do not offer our customers various immediate alternatives, some customers may choose to delay or stop purchasing our products.
6
In the ordinary course of our business, we rely on information technology systems, networks and services, including internet sites, data hosting and processing tools, hardware (including laptops and mobile devices), software, and technical platforms and applications, to process, store and transmit data and to help us manage our business and to collect and store the Company’s sensitive data, including intellectual property, personal information and proprietary business information. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools, and domestically available monitoring to provide security for processing, transmitting and storing this sensitive data. As part of our implemented efficiency and cost-saving measures, we are using cloud service providers. While benefits for using cloud computing services are well documented and are mostly related to resources sharing, on-demand self-services, rapid scalability, improved economies of scale and collaboration, there are risks that could outweigh the expected benefits, and require close attention and management. For example, there is no guarantee that the features we use will be provided for the same price in the future, there is a risk in relying on a cloud service for business-related tasks because no service can guarantee 100% uptime and there is always a risk of data leakage when a company’s data is held by a third-party vendor.
Information technology systems, including those managed or hosted by third parties, could be subject to sophisticated cyber-attacks (including phishing and ransomware attacks) and threats by external or internal parties’ intent on disrupting business processes or otherwise extracting or corrupting information. In recent years, ransomware attacks against organizations have become more frequent and while we continue to implement additional protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. We may also face increased cybersecurity risks due to the number of our employees and our third-party providers’ who are (and may continue to be) working remotely, which creates additional opportunities for cybercriminals to launch attacks and exploit vulnerabilities in non-corporate IT environments. Unauthorized access to our systems could disrupt our business, and/or lead to theft, loss or misappropriation of critical assets or to outside parties having access to confidential information, including privileged data, personal data or strategic information. Such information could also be made public in a manner that harms our reputation and financial results and, particularly in the case of personal data, could lead to regulators imposing significant fines on us.
Also, our information technology networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns due power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Any such compromise could disrupt our operations, damage our reputation, and subject us to additional costs and liabilities, any of which could adversely affect our business. See “Item 16.K. Cybersecurity ” for additional information.
If we do not effectively expand, train and retain our sales force, we may be unable to acquire new customers or sell additional products and services to existing customers, and our business will suffer.
We depend significantly on our sales force to attract new customers and expand sales to existing customers. As a result, our ability to increase our revenues depends in part on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. We expect to continue to expand our sales personnel and face a number of challenges in achieving our hiring and integration goals. There is intense competition for individuals with sales training and experience. In addition, the training and integration of a large number of sales personnel in a short time requires the allocation of internal resources. We invest significant time and resources in training new sales force personnel to understand our solutions and growth strategy. Based on our past experience, it takes an average of approximately six to nine months before a new sales force member operates at target performance levels. However, we may be unable to achieve or maintain our target performance levels with large numbers of new sales personnel as quickly as we have done in the past. Our failure to hire a sufficient number of qualified sales force members and train them to operate at target performance levels may materially and adversely impact our projected growth rate.
7
If our products fail to ensure customer compliance with government regulations and industry standards, our business and results could be materially impacted.
The legality of scraping publicly available web data was first upheld in late 2019, when the Ninth Circuit Court of Appeals ruled in hiQ Labs, Inc. v. LinkedIn Corporation that scraping publicly accessible data did not violate the Computer Fraud and Abuse Act. This decision, which favored hiQ Labs, Inc. over LinkedIn Corporation, reinforced the legality of accessing publicly available online data, despite LinkedIn Inc.’s objections. The Ninth Circuit reaffirmed this ruling in April 2022, setting a critical precedent for data collection practices involving publicly accessible information. However, as the web continues to evolve as a vast source of information, the debate over data accessibility versus privacy is likely to intensify, as well as in connection with the way in which some of the automated software programs are built, and changes in regulations may impact the means or ability to provide such solutions. For instance, X Corp. (formerly Twitter) has filed several lawsuits against parties accused of scraping its platform without consent. Additionally, Meta Platforms, Inc. v. Bright Data Ltd. is another significant case that could influence legal perspectives on this issue. In this case, Meta Platforms, Inc. argues that scraping its publicly available data violates user agreements and intellectual property protections. As the web evolves as a vast source of information, the debate over data accessibility versus privacy will likely intensify. This includes concerns over how automated software programs are built, as well as the potential for changes in regulations that could affect the ability to provide such solutions.
International regulatory bodies are increasingly focused on online privacy issues and user data protection. In particular, the General Data Protection Regulation, or the GDPR, in the European Union, or EU, and the UK intends to strengthen and unify data protection for all individuals within the EU. It also addresses the export of personal data outside the EU. The GDPR aims primarily to give control back to citizens and residents over their personal data and to simplify the regulatory environment for international business by unifying the regulation within the EU. Additionally, the uncertainty created by these laws and regulations can be compounded when services hosted in one jurisdiction are directed at users in another jurisdiction. For instance, European data protection rules may apply to companies which are not established in the EU (this is the so-called extraterritorial scope of the GDPR). Similarly, there have been laws and regulations adopted throughout the United States and Israel that impose obligations in areas such as privacy, in particular protection of personal information and implementing adequate cybersecurity measures to protect such information. The most prominent to which we are exposed is the California Consumer Privacy Act of 2020, or the CCPA, which increases the privacy and security obligations companies have towards the consumer when handling personal data. The CCPA allows civil penalties for violations as well as private right of action for data breaches. In addition, the California Privacy Rights Act, or the CPRA, which became effective as of January 1, 2023, imposes additional obligations such as expanding the current data privacy compliance requirements under the CCPA. As an Israeli company we are also subject to the Israeli Privacy Protection Law 1981 and its regulations, as well as the guidelines of the Israeli Privacy Protection Authority.
These industry standards may change with little or no notice, including changes that could make them more or less onerous for businesses. Any inability to adequately address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position. In addition, governments may also adopt new laws or regulations, or make changes to existing laws or regulations, that could impact whether our solution enables our customers to maintain compliance with such laws or regulations. If we are unable to adapt our solution to changing government regulations and industry standards in a timely manner, or if our solution fails to expedite our customers’ compliance initiatives, our customers may lose confidence in our products and could switch to products offered by our competitors. In addition, if government regulations and industry standards related to the access sectors are changed in a manner that makes them less onerous, our customers may view compliance as less critical to their businesses, and our customers may be less willing to purchase our products and services. In either case, our sales and financial results would suffer.
Our model for long-term growth depends upon the introduction of new products. If we are unable to develop new products or if these new products are not adopted by customers, our growth will be adversely affected.
Our business depends on the successful development and marketing of new products, including adding complementary offerings to our current products. Development and marketing of new products require significant up-front research, development and other costs, and the failure of new products we develop to gain market acceptance may result in a failure to achieve future sales and adversely affect our competitive position. There can be no assurance that any of our new or future products will achieve market acceptance or generate revenues at forecasted rates or that the margins generated from their sales will allow us to recoup the costs of our development efforts.
8
If we do not successfully anticipate market needs and enhance our existing products or develop new products that meet those needs on a timely basis, we may not be able to compete effectively and our ability to generate revenues will suffer.
Our customers operate in markets characterized by rapidly changing technologies and business plans, which require them to adapt to increasingly complex IT infrastructures that incorporate a variety of hardware, software applications, operating systems and networking protocols. As our customers’ technologies and business plans grow more complex, we expect them to face new and increasingly sophisticated methods of attack. We face significant challenges in ensuring that our solutions effectively identify and respond to these advanced and evolving attacks without disrupting the performance of our customers’ IT systems. As a result, we must continually modify and improve our products in response to changes in our customers’ IT and industrial control infrastructures.
We cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to develop product enhancements or new products to meet such needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and commercially introduce enhancements and new products, there can be no assurance that enhancements or new products will achieve widespread market acceptance.
Our product enhancements or new products could fail to attain sufficient market acceptance for many reasons, including:
| ● | delays in releasing product enhancements or new products; | |
| ● | failure to accurately predict market demand and to supply products that meet this demand in a timely fashion; | |
| ● | inability to interoperate effectively with the existing or newly introduced technologies, systems or applications of our existing and prospective customers; | |
| ● | inability to protect against new types of attacks or techniques used by cyber attackers or other data thieves; |
| ● | defects in our products, errors or failures of our solutions to secure privileged accounts; | |
| ● | negative publicity about the performance or effectiveness of our products; | |
| ● | introduction or anticipated introduction of competing products by our competitors; | |
| ● | installation, configuration or usage errors by our customers; and | |
| ● | easing or changing of regulatory requirements related to IT / cybersecurity / privacy. |
If we fail to anticipate market requirements or fail to develop and introduce product enhancements or new products to meet those needs in a timely manner, it could cause us to lose existing customers and prevent us from gaining new customers, which would significantly harm our business, financial condition, and results of operations.
Defects and bugs in products could give rise to product returns, cancellation of orders or product liability, warranty or other claims that could result in material expenses, diversion of management time and attention, and damage to our reputation.
Even if we are successful in introducing our products to the market, our products may contain undetected defects or errors that, despite testing, are not discovered until after a product has been used. Our software could have, or could be alleged to have, defects, bugs or other errors or failures. This could result in cancellation of orders, difficulties in maintaining business relations with customers that use our software, delayed market acceptance of those products, claims from distributors, end-users or others, increased end-user service and support costs and warranty claims, damage to our reputation and business and the ability to attract new customers, or significant costs to correct the defect or error. We may from time to time become subject to warranty or product liability claims that could lead to significant expenses as we need to compensate affected end-users for costs incurred related to product quality issues.
Any claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, and damage to our reputation, and could cause us to fail to retain or attract customers.
9
Economic instability, geopolitical events, and market disruptions may impact our access to capital and adversely affect our business and share price.
Market events and conditions, including disruptions in the financial markets and deteriorating global economic conditions, could increase the cost of capital or impede our access to capital. Economic and geopolitical events, as well as global outbreaks of contagious diseases, such as the Russia-Ukraine war, may create uncertainty in global financial and equity markets. Such disruptions could make it more difficult for us to obtain capital and financing for our operations, or increase the cost of it, among other things. If we do not raise capital when we need it, or access it on reasonable terms, it could have a material adverse effect on our business, results of operations, financial condition and the Company’s Ordinary Shares or ADSs price. If the negative economic conditions persist or worsen, it could lead to increased political and financial uncertainty, which could result in regime or regulatory changes in the jurisdictions in which we operate. High levels of volatility and market turmoil could have an adverse effect on our business, results of operations, financial condition and the Company share price.
If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. Our inability to attract or retain qualified personnel or delays in hiring required personnel, particularly in sales and software engineering, may seriously harm our business, financial condition and results of operations. Any of our employees may terminate their employment at any time. Competition for highly skilled personnel is frequently intense, especially in Israel, where we are headquartered. Moreover, certain of our competitors or other technology businesses may seek to hire our employees. There is no assurance that any equity or other incentives that we grant to our employees will be adequate to attract, retain and motivate employees in the future. If we fail to attract, retain and motivate highly qualified personnel, our business will suffer. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
Our functional and reporting currency is the U.S. dollar, and we generate a majority of our revenues in U.S. dollars. A material portion of our operating expenses is incurred outside the United States, mainly in NIS and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in NIS. Our foreign currency-denominated expenses consist primarily of personnel, rent and other overhead costs. Since a significant portion of our expenses is incurred in NIS and is substantially greater than our revenues in NIS, any appreciation of the NIS relative to the U.S. dollar would adversely impact our net income or net loss, as relevant. During 2024, the NIS depreciated by 0.6% against the dollar in comparison to its appreciation in prior years. We are therefore exposed to foreign currency risk due to fluctuations in exchange rates. This may result in gains or losses with respect to movements in exchange rates which may be material and may also cause fluctuations in reported financial information that are not necessarily related to its operating results. We expect that most of our revenues will continue to be generated in U.S. dollars with the balance in NIS for the foreseeable future, and that a significant portion of our expenses will continue to be denominated in NIS. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions. See “Item 11. Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Exchange Risk.”
We may acquire other businesses, which could require significant management attention, disrupt our business, dilute shareholder value, and adversely affect our results of operations.
As part of our business strategy and in order to remain competitive, we are evaluating acquiring or making investments in complementary companies, products or technologies on an on-going basis. We have completed two main acquisitions to date – the acquisitions of NetNut and CyberKick. Going forward, we may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, analysts and investors. In addition, if we are unsuccessful at integrating such acquisitions or the technologies associated with such acquisitions, our revenues and results of operations could be adversely affected. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition or the value of our Ordinary Shares. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
10
We are subject to governmental export and import controls that could subject us to liability in the event of non-compliance or impair our ability to compete in international markets.
We are subject to U.S. and Israeli export control and economic sanctions laws, which prohibit the delivery and sale of certain products to embargoed or sanctioned countries, governments, and persons. Our products could be exported to these sanctioned targets by our channel partners despite the contractual undertakings they have given us, and any such export could have negative consequences, including government investigations, penalties, and reputational harm. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could require export licenses or result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations or cessation of export or sale of our products in sanctioned countries or to sanctioned persons. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition, and results of operations.
We may be subject to geopolitical events and resulting macroeconomic consequences.
Geopolitical risks and associated military action may result in, among other things, global security issues that may adversely affect international business and economic conditions, and economic sanctions which may impact the global economy. For example, the outbreak of hostilities between Russia and Ukraine in February 2022 led to global sanctions that have impacted the international economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Additional geopolitical and macroeconomic consequences of this invasion and associated sanctions cannot be predicted, and future geopolitical events, including further hostilities in Ukraine or elsewhere, could negatively impact global financial markets our business as it may limit our ability to provide our services in those and in neighboring countries and cause the price of our ordinary shares to decline. See also “ Political, economic and military instability due to the Israel-Hamas and Israel-Hezbollah wars, as well as the risk of attacks from Iran on Israel, where our headquarters, members of management, production facilities and employees are located, may adversely affect our results of operations. ”
Our use of third-party software and other intellectual property may expose us to risks.
Some of our products and services include software or other intellectual property licensed from third parties, and we otherwise use software and other intellectual property licensed from third parties in our business. This exposes us to risks over which we may have little or no control. For example, a licensor may have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property that it licenses to us. There can be no assurance that the licenses we use will be available on acceptable terms, if at all. In addition, a third party may assert that we or our customers are in breach of the terms of a license, which could, among other things, give such third party the right to terminate a license or seek damages from us, or both. Our inability to obtain or maintain certain licenses or other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in releases of new products, and could otherwise disrupt our business, until equivalent technology can be identified, licensed, or developed.
Our use of open-source software could negatively affect our ability to sell our software and subject us to possible litigation.
We use open-source software and expect to continue to use open-source software in the future. Some open-source software licenses require users who distribute or make available as a service open-source software as part of their own software product to publicly disclose all or part of the source code of the users’ software product or to make available any derivative works of the open-source code on unfavorable terms or at no cost. We may face ownership claims of third parties over, or seeking to enforce the license terms applicable to, such open-source software, including by demanding the release of the open-source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which would have a negative effect on our business and results of operations. In addition, if the license terms for the open-source code change, we may be forced to re-engineer our software or incur additional costs.
11
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We generally enter into non-disclosure and non-competition agreements with our employees. These agreements prohibit our employees from competing directly with us or working for our competitors or customers for a limited period after they cease working for us. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work, and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
Risks Related to Our Financial Condition and Capital Requirements
We maintain some of our cash balances at financial institutions that may exceed federally insured limits.
A small portion of our cash is held in accounts at U.S. banking institutions that we believe are of high quality. Cash held in non-interest-bearing and interest-bearing operating accounts may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain effective patent rights for our products, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
Our reverse access technology is patent protected in several jurisdictions: United States, Europe (including Austria, Switzerland, Germany, Spain, France, United Kingdom and Italy), Israel, China and Hong-Kong.
There is no guarantee that pending or future patent applications will result in patent grants. Failure to file patent applications or obtain patent grants may allow other entities to manufacture our products and compete with them.
Further, there is no assurance that all potentially relevant prior art relating to our patent applications has been found, which can invalidate a patent or prevent a patent from being issued from a pending patent application. Even if patents are successfully issued, and even if such patents cover our products, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and any future patents may not adequately protect our intellectual property, provide exclusivity for our new products, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If we cannot obtain and maintain effective patent rights for our products, we may not be able to compete effectively, and our business and results of operations may be harmed.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be affected.
We have filed for trademark registration of certain marks relating to our branding. If our unregistered trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be affected. Our trademarks or trade names may be challenged, infringed, circumvented, or declared generic or determined to be infringing on other marks. Competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our trademarks or trade names. In the long term, if we are unable to successfully register trademarks and trade names and establish name recognition based on such trademarks and trade names, then we may not be able to compete effectively, and our business may be affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could impact our financial condition or results of operations.
12
If we are unable to maintain effective proprietary rights for our products, we may not be able to compete effectively in our markets.
Historically, we have relied on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent; processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor and enforce; and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security of our premises and physical and electronic security of our IT systems. Agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.
We cannot provide any assurances that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and other confidential information are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secret.
Intellectual property rights of third parties could adversely affect our ability to commercialize our products, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.
It is inherently difficult to conclusively assess our freedom to operate without infringing on third party rights. Our competitive position may be adversely affected if existing patents or patents resulting from patent applications issued to third parties or other third-party intellectual property rights are held to cover our products or elements thereof or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products or our product candidates unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned or enter a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may also be pending patent applications that if they result in issued patents, could be alleged to be infringed by our new products. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our new products, or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
It is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. patent applications filed before November 29, 2000, and certain U.S. patent applications filed after that date that will not be filed outside the United States, remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our new products or technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our new products, or the use of our new products. Third party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable, and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our new products. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our new products that are held to be infringing. We might, if possible, also be forced to redesign our new products so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
13
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our products. As our industries expand and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to systems, apparatuses or methods related to the use of our products. There may be currently pending patent applications that may later result in issued patents that our products may infringe. In addition, third parties may obtain patents in the future and claim that the use of our technologies infringes upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for designs, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our products. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of any patents that may issue from our patent applications or narrow the scope of our patent protection. Publications of discoveries in the scientific literature often lag the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we were the first to file the inventions claimed in our patents or pending applications, or that we were the first to file for patent protection of such inventions. Assuming all other requirements for patentability are met, in the United States prior to 2013, the first patent applicant to invent the claimed invention without undue delay in filing, is entitled to the patent, while for the most part outside the United States, the first inventor to file a patent application is entitled to the patent. After 2013, the United States has moved to a first-inventor-to-file system. The United States patent system is frequently changing, however, as are other international patent systems, and thus we may experience uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business and financial condition.
We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming, and unsuccessful.
Competitors may infringe our intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement, among others. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. Patent and Trademark Office, or the USPTO, or made a misleading statement, during prosecution. The validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
14
In 2014, the U.S. Supreme Court addressed the question of whether patents related to software are patent eligible subject matter. The Supreme Court did not rule that patents related to software were per se invalid or that software-related inventions were unpatentable. The Supreme Court outlined a test that the courts and the USPTO must apply in determining whether software-related inventions qualify as patent eligible subject matter. The decision and other decisions following that decision have resulted in many software patents having been found invalid as not claiming patent eligible subject matter. Our U.S. patents, like all U.S. patents, are presumed valid, but that does not mean that our issued patents cannot be challenged on grounds of patent eligibility, or other grounds.
Derivation proceedings initiated by third parties or brought by us may be necessary to determine the priority of inventions and/or their scope with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to effectively market our products, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our new products to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our Ordinary Shares.
We may be subject to claims challenging the inventorship of our intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
In addition, under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Recent case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. Because of such claims, we could be required to pay additional remuneration or royalties to our current and former employees, or be forced to litigate such claims, which could negatively affect our business.
15
We may not be able to protect our intellectual property rights.
Filing, prosecuting, and defending patents on products, as well as monitoring their infringement in all countries throughout the world, would be prohibitively expensive, and our intellectual property rights in some countries can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to monitor and enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Because of the expense of litigation, we may be unable to enforce our intellectual property rights, unless we obtain the agreement of a third party to provide funding in support of our litigation. We cannot assure that we will be able to obtain third party funding, and the failure to obtain such funding may impair our ability to monetize our intellectual property portfolio. Since we do not have funds to pursue litigation to enforce our intellectual property rights, we are dependent upon the valuation which potential funding sources give to our intellectual property. In determining whether to provide funding for intellectual property litigation, the funding sources need to make an evaluation of the strength of our patents, the likelihood of success, the nature of the potential defendants and a determination as to whether there is a sufficient potential recovery to justify a significant investment in intellectual property litigation. Typically, such funding sources receive a percentage of the recovery after litigation expenses and seek to generate a sufficient return on investment to justify the investment. Unless that funding source believes that it will generate a sufficient return on investment, it will not fund litigation. We cannot assure that we will be able to negotiate funding agreements with third party funding sources on terms reasonably acceptable to us, if at all. Because of our financial condition, we may only be able to obtain funding on terms which are less favorable to us than we would otherwise be able to obtain. Furthermore, even if we enter into funding agreements, there is no assurance that we will generate revenue from the funded litigation. Although the funding source makes its evaluation as to the likelihood of success, patent litigation is very uncertain, and we cannot assure that, just because we obtain litigation funding, we will be successful or that any recovery we may obtain will be significant. In addition, defending our intellectual property rights may depend upon our ability to retain a qualified legal counsel to prosecute patent infringement litigation. It may be difficult to find the preferred choice for legal counsel to handle our cases because many of these firms may have a conflict of interest that prevents their representation of us or because they are not willing to represent us on a contingent or partial contingent fee basis. It is difficult to predict the outcome of patent enforcement litigation at a trial level as it is often difficult for juries and trial judges to understand complex, patented technologies, and, as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Regardless of whether we prevail in the trial court, appeals are expensive and time consuming, resulting in increased costs and delayed revenue, and attorneys may be less likely to represent us in an appeal on a contingency basis especially if we are seeking to appeal an adverse decision. Although we may diligently pursue enforcement litigation, we cannot predict the decisions made by juries and trial courts. In connection with patent enforcement actions, it is possible that a defendant may file counterclaims against us, or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to the counterclaiming defendant, which could be material, and if we or our operating subsidiaries are required to pay such monetary sanctions, attorneys’ fees and/or expenses, such payment could materially harm our operating results, our financial position and our ability to continue in business.
16
Risks Related to the Ownership of Our ADSs or Ordinary Shares
We cannot guarantee that we will continue to comply with Nasdaq requirement. If we fail to comply with Nasdaq requirements, our ADSs could be delisted from Nasdaq, and as a result we and our shareholders could incur material adverse consequences, including a negative impact on our liquidity, our shareholders’ ability to sell shares and our ability to raise capital.
We cannot guarantee that we will continue to comply with Nasdaq requirements. For example, in 2022, we failed to comply with Nasdaq’s requirement that the closing bid price of our ADSs exceed $1.00. We subsequently changed the ratio of our ADSs to our Ordinary Shares and regained compliance with Nasdaq’s minimum bid requirement. If we fail to demonstrate compliance with the minimum bid requirement or any other Nasdaq requirement and satisfy Nasdaq’s conditions for continued listing, our Ordinary Shares could be delisted. Delisting from Nasdaq could have an adverse effect on our business and on the trading of our Ordinary Shares. If a delisting of our Ordinary Shares were to occur, such shares may trade in the over-the-counter market such as on the OTC Bulletin Board or on the “pink sheets.” The over-the-counter market is generally considered to be a less efficient market, and this could diminish investors’ interest in our Ordinary Shares as well as significantly impact the price and liquidity of our Ordinary Shares. Any such delisting may also severely complicate trading of our Ordinary Shares by our shareholders or prevent them from re-selling their Ordinary Shares at/or above the price they paid.
The issuance of a significant amount of additional Ordinary Shares due to the exercise or conversion of outstanding warrants and/or substantial future sales of our Ordinary Shares may depress our share price.
As of March 10, 2025, we had approximately 69.3 million Ordinary Shares issued and outstanding and approximately 10.3 million of additional Ordinary Shares which are issuable upon exercise of outstanding warrants and employee options. The issuance of a significant amount of additional Ordinary Shares on account of these outstanding securities will dilute our current shareholders’ holdings and may depress our share price. If these or other shareholders sell substantial amounts of our Ordinary Shares and/or ADSs, including shares issuable upon the exercise or conversion of outstanding warrants or employee options, or if the perception exists that our shareholders may sell a substantial number of our Ordinary Shares and/or ADSs, we cannot foresee the impact of any potential sales on the market price of these additional Ordinary Shares, but it is possible that the market price of our Ordinary Shares would be adversely affected. Any substantial sales of our shares in the public market might also make it more difficult for us to sell equity or equity related securities in the future at a time and on terms we deem appropriate. Even if a substantial number of sales do not occur, the mere existence of this “market overhang” could have a negative impact on the market for, and the market price of, our Ordinary Shares.
Holders of ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, holders of ADSs may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to holders of ADSs.
The depositary for the ADSs has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Although, we do not currently anticipate paying any dividends, if we do, the ADS holders will receive these distributions in proportion to the number of Ordinary Shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights, or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
17
Our warrants are speculative in nature.
Until holders of the warrants acquire our ADSs upon exercise of the warrants, they will have no rights with respect to our ADSs or Ordinary Shares underlying such warrants. Upon exercise of the warrants the holders thereof will be entitled to exercise the rights of a holder of ADSs only as to matters for which the record date occurs after the exercise date.
We do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes, and our payment of dividends (out of tax-exempt income) may subject us to certain Israeli taxes, to which we would not otherwise be subject.
Holders of ADSs may not have the same voting rights as the holders of our Ordinary Shares and may not receive voting materials in time to be able to exercise the right to vote.
Holders of the ADSs may not be able to exercise voting rights attached to the Ordinary Shares underlying the ADSs on an individual basis. Instead, holders of the ADSs appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the Ordinary Shares in the form of ADSs. Holders of ADSs may not receive voting materials in time to instruct the depositary to vote, and it is possible that they, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise voting rights and may lack recourse if your ADSs are not voted as requested.
Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company.
Holders of our ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice period required to convene a shareholders meeting is generally no less than 35 calendar days, but in some instances, 21 or 14 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their Ordinary Shares underlying the ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in their capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.
As a “foreign private issuer” we are permitted to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
Our status as a foreign private issuer also exempts us from compliance with certain SEC laws and regulations and certain regulations of the Nasdaq Stock Market, including the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. In addition, we will not be required under the Exchange, to file current reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and we will generally be exempt from filing quarterly reports with the SEC. Also, although the Israeli Companies Law 5759-1999, or the Israeli Companies Law, requires us to disclose the annual compensation of our five most highly compensated officers on an individual basis, this disclosure is not as extensive as that required of a U.S. domestic issuer. For example, the disclosure required under Israeli law would be limited to compensation paid in the immediately preceding year without any requirement to disclose option exercises and vested stock options, pension benefits or potential payments upon termination or a change of control. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.
18
We may be a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of our ADSs or Ordinary Shares if we are or were to become a PFIC.
Based on the projected composition of our income and valuation of our assets, we do not expect to be a PFIC for 2024, and we do not expect to become a PFIC in the future, although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held to produce passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is considered. The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our ADSs or Ordinary Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year during which a U.S. taxpayer holds our ADSs or Ordinary Shares, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of our ADSs or Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the ADSs or Ordinary Shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held our ADSs or Ordinary Shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold our ADSs or Ordinary Shares if we believe we will be treated as a PFIC for any taxable year to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. taxpayers annually with information needed to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold our ADSs or Ordinary Shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to our ADSs or Ordinary Shares if we are a PFIC. See “Item 10.E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable results to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our Ordinary Shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and / or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.
19
Risks Related to Israeli Law and Our Operations in Israel
Provisions of Israeli law and our articles of association may delay, prevent, or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
As a company incorporated under the law of the State of Israel, we are subject to Israeli law. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital and a majority of the offerees that do not have a personal interest in the tender offer approves the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding shares. Under the Israeli law, a potential bidder for the company’s shares, who would as a result of a purchase of shares hold either 25% of the voting rights in the company when no other party holds 25% or more, or 45% of the voting rights in the company where no other shareholders holds 45% of the voting rights, would be required to make a special purchase offer as set out in the provisions of the Israeli law. The Israeli law requires a special purchase offer to be submitted to shareholders for a pre-approval vote. A majority vote is required to accept the offer. An offeror who is regarded as a ‘controlling shareholder’ under Israeli law, as well as those who control the offeror, those who have a personal interest in the acceptance of the special purchase offer, or those who holds 25% of the voting rights in the company, or those on behalf of those or the offeror, including their relatives or corporations under their control, cannot vote on the resolution and the procedure includes a secondary vote of the non-voting shareholders and the shareholders who rejected the offer at pre-approval level. A special purchase offer may not be accepted unless shares that carry 5% of the voting rights in the target company are acquired. Furthermore, the shareholders may, at any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect their fair market value, and petition an Israeli court to alter the consideration for the acquisition accordingly, other than those who indicated their acceptance of the tender offer in case the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published all required information with respect to the tender offer prior to the tender offer’s response date. In addition, our articles of association provide for a staggered board of directors, which mechanism may delay, defer or prevent a change of control of the Company. See “Item 10.B Memorandum and Articles of Association — Provisions Restricting Change in Control of Our Company” for additional information.
Israeli tax considerations also may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies may be subject to certain restrictions and additional terms. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. See “Item 10.E. Taxation—Israeli Tax Considerations and Government Programs” for additional information.
The rights and responsibilities of a holder of our securities will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our Ordinary Shares (and therefore indirectly, the ADSs and the warrants) are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company, and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of an officer of the company has a duty to act in fairness towards the company with regard to such vote or appointment. However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations. See “Item 6.C. Board Practices—Duties of Shareholders” for additional information.
20
It may be difficult to enforce a judgment of a U.S. court against us and our officers and directors and the Israeli experts named in this annual report in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these experts.
We were incorporated in Israel and our corporate headquarters are located in Israel. The vast majority of our executive officers and directors and the Israeli experts named in this annual report on Form 20-F are located in Israel. All of our assets and most of the assets of these persons are located in Israel. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
Political, economic and military instability due to the Israel-Hamas and Israel-Hezbollah wars, as well as the risk of attacks from Iran on Israel, where our headquarters, members of management, production facilities and employees are located, may adversely affect our results of operations.
Our executive offices, corporate headquarters and research and development facilities are located in Israel. In addition, all of our key employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could harm our operations, product development and results of operations.
On October 7, 2023, an unprecedented attack was launched against Israel by terrorists from the Hamas terrorist organization that infiltrated Israel’s southern border from the Gaza Strip and in other areas within the state of Israel attacking civilians and military targets while simultaneously launching extensive rocket attacks on the Israeli population. In response, the Security Cabinet of the State of Israel declared war against Hamas. To date, the State of Israel continues to be at war with Hamas.
Following the attack by Hamas on Israel’s southern border, Hezbollah, a terrorist organization in Lebanon, has also launched missile, rocket, and shooting attacks against Israeli military sites, troops, and Israeli towns in northern Israel. In response to these attacks, the Israeli army has carried out a number of targeted strikes on sites belonging to Hezbollah in southern Lebanon, and in October 2024, the Israeli military initiated a ground operation in Lebanon, primarily near the Israel-Lebanon border. As of the end of November 2024, Israel entered into a ceasefire agreement with Hezbollah, but there are no guarantees as to whether the agreements will hold or whether further hostilities will resume. As of March 18, 2025, the ceasefire with Hamas that had been in place since January 2025 has ended, and hostilities have resumed. The continuation of the conflict has led to heightened security concerns, potential disruptions to business operations, and economic instability. There remains significant uncertainty regarding the duration and escalation of the conflict, and further military actions, restrictions, or government-imposed measures could adversely affect our operations, supply chains, and financial condition.
In connection with the Israeli security cabinet’s declaration of war against Hamas and possible hostilities with Hezbollah and other organizations, several hundred thousand Israeli military reservists were drafted to perform immediate military service. To date, only a small number of our employees and only one of our current directors in Israel were called to active military duty, which we define as continuous military duty of over two weeks. Employees of such service providers or contractual counterparties may be called for service in current or future wars or other armed conflicts and such persons may be absent from their positions for a period of time. Currently, we have not been impacted by any absences of personnel at our service providers or counterparties located in Israel. However, military service call ups that result in absences of personnel from us, our service providers or contractual counterparties in Israel may disrupt our operations and absences for an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations.
In April and October 2024, Iran launched missile and unmanned aerial vehicle, or UAV, attacks on Israel. Most of the missiles and UAVs were intercepted by Israel’s defense systems, with support from the United States and other countries, including regional allies, preventing significant damage and resulting in no casualties. Despite the successful interceptions, the attacks posed an elevated threat to Israel’s security.
21
In December 2024, Ba’athist Syria, led by President Bashar al-Assad, collapsed during a major offensive by opposition forces made up of several competing rebel groups. In response, the Israeli Defense Forces took control over a United Nations-designated buffer zone over Mount Hermon that separates Israel and Syria. Simultaneously, Israel conducted targeted military strikes against military assets in Syria, aiming to eliminate any chemical weapons storage sites that could be used by rebel groups and further weaken Iran’s operational capabilities in the region. While the transitional government of Syria has indicated that it is interested in reconstruction and stability rather than a continuation of conflicts with Israel, there are no guarantees that there will be no future escalation of hostilities or that Syria will not permit other neighboring countries to launch attacks at Israel from its territory.
It is possible that other terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile countries, will join the hostilities. Additionally, Iran may continue its direct aggression against Israel. Such hostilities may include terror and missile attacks. Any hostilities involving Israel, or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.
Since the war broke out on October 7, 2023, our operations have not been materially adversely affected by this war. However, at this time, it is not possible to predict the intensity or duration of the war, nor can we predict how this war will ultimately affect Israel’s economy in general and we continue to monitor the situation closely and examine the potential disruptions that could adversely affect our operations.
Our insurance policies do not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies, whether as a result of hostilities in the region or otherwise. Also, the Israeli government imposes restrictions on doing business with certain countries. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods and cooperation with Israeli-related entities based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to collaborate with other third parties. Any hostilities involving Israel, any interruption or curtailment of trade or scientific cooperation between Israel and its present partners, or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and operations. Moreover, we cannot predict how this war will ultimately affect Israel’s economy in general, which may involve a downgrade in Israel’s credit rating by rating agencies (such as the downgrade by Moody’s of its credit rating of Israel from A1 to A2 in October 2023 and further downgrade to Baa1 with a negative outlook in September 2024, as well as the downgrade of its outlook rating from “stable” to “negative”). We may also be targeted by cyber terrorists specifically because we are an Israeli-related company.
Furthermore, the Israeli government is currently pursuing extensive changes to Israel’s judicial system, which sparked extensive political debate. In response to the foregoing developments, a series of civil unrests and demonstrations throughout Israel took place. Additionally, individuals, organizations, and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel including due to reluctance of foreign investors to invest or conduct business in Israel, as well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in securities markets, and other changes in macroeconomic conditions. Such proposed changes may also adversely affect the labor market in Israel or lead to political instability or civil unrest. To the extent that any of these negative developments do occur, they may have an adverse effect on our business, our results of operations and our ability to raise additional funds, if deemed necessary by our management and board of directors.
22
General Risk Factors
Our securities are traded on more than one market or exchange, and this may result in price variations.
Our Ordinary Shares have been trading on the TASE, since January 2000. Our ADSs representing our Ordinary Shares have been trading on the Nasdaq Capital Market and TASE since August 17, 2018. Trading in our ADSs and Ordinary Shares takes place in different currencies (dollars on the Nasdaq and NIS on the TASE), and at different times (resulting from different time zones, trading days, and public holidays and Israel). The trading prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price of our Ordinary Shares on the TASE could cause a decrease in the trading price of our Ordinary Shares on the Nasdaq.
Raising additional capital would cause dilution to holders of our equity securities and may affect the rights of existing holders of equity securities.
We may seek additional capital through a combination of private and public equity offerings, debt financing and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the issuance of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of the ADSs.
We are subject to a number of risks associated with global sales and operations.
Business practices in the global markets that we serve may differ from those in the United States and may require us to include non-standard terms in customer contracts, such as extended payment or warranty terms. To the extent that we enter into customer contracts that include non-standard terms related to payment, warranties, or performance obligations, our results of operations may be adversely impacted.
Additionally, our global sales and operations are subject to a number of risks, including the following:
| ● | greater difficulty in enforcing contracts and managing collections, as well as longer collection periods; | |
| ● | higher costs of doing business globally, including costs incurred in maintaining office space, securing adequate staffing and localizing our contracts; | |
| ● | fluctuations in exchange rates between the NIS and foreign currencies in markets where we do business; | |
| ● | management communication and integration problems resulting from cultural and geographic dispersion; | |
| ● | risks associated with trade restrictions and foreign legal requirements, including any importation, certification, and localization of our platform that may be required in foreign countries; | |
| ● | greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties; | |
| ● | compliance with anti-bribery laws, including, without limitation, compliance with the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act; | |
| ● | heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, consolidated financial statements; | |
| ● | reduced or uncertain protection of intellectual property rights in some countries; | |
| ● | social, economic and political instability, terrorist attacks and security concerns in general, and specifically the impact of the war between Israel and Hamas; |
23
| ● | an outbreak of a contagious disease, such as coronavirus, which may cause us, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country; | |
| ● | laws and business practices favoring local competition; | |
| ● | being subject to the laws, regulations and the court systems of many jurisdictions; and | |
| ● | potentially adverse tax consequences. |
These and other factors could harm our ability to generate future global revenues and, consequently, materially impact our business, results of operations and financial condition.
Weakened global economic conditions may affect our industry, business and results of operations.
Our overall performance depends on worldwide economic conditions. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability or willingness to purchase our secure access solutions, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts, or affect renewal rates, all of which could adversely affect our operating results. In addition, in a weakened economy, companies that have competing products may reduce prices which could also reduce our average selling prices and harm our operating results.
The increasing use of social media platforms and new technologies present risks and challenges for our business and reputation.
We increasingly rely on social media, new technologies and digital tools, such as artificial intelligence, or AI, to communicate about our products, or to provide our services. The use of these media requires specific attention, monitoring programs and moderation of comments. Political and market pressures may be generated by social media because of rapid news cycles. This may result in commercial harm, overly restrictive regulatory actions and erratic share price performance. In addition, unauthorized communications, such as press releases or posts on social media, purported to be issued by the Company, may contain information that is false or otherwise damaging and could have an adverse impact on our image and reputation and on our share price. Negative or inaccurate posts or comments about the Company, our business, directors or officers on any social networking website could seriously damage our reputation. In addition, our employees and partners may use social media and other technologies inappropriately, which may give rise to liability for Alarum, or which could lead to breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information. Such uses of social media and other technologies could have an adverse effect on our reputation, business, financial condition and results of operations.
Unsuccessful management of environmental, social and governance matters could adversely affect our reputation, and we may experience difficulties meeting the expectations of our stakeholders.
Companies are increasingly expected to behave in a responsible manner on a variety of environmental, social and governance, or ESG, matters, by governmental and regulatory authorities, counterparties such as vendors and suppliers, customers, investors, the public at large and others. This context, driven in part by a rapidly changing regulatory framework in the U.S. and in Europe, is raising new challenges and influencing strategic decisions that companies must take if they wish to optimize their positive impact and mitigate their negative impact on ESG matters. As a software company, our Code of Ethics reflects the values of our business and operations, and we have adopted ESG measures that aim at minimizing the impact of our activities and products on the climate and the environment. As part of our commitment to social responsibility, we actively seek opportunities to support marginalized communities and champion inclusivity in all aspects of our operations. However, despite our strong commitment we could be unable to meet ESG or other strategic objectives in an efficient and timely manner, or at all. We may also be unable to meet the ever more demanding criteria used by rating agencies in their ESG assessments process, leading to a downgrading in our rating. Financial investments in companies which perform well in ESG assessments are increasingly popular, and major institutional investors have made known their interest in investing in such companies. Depending on ESG assessments and on the rapidly changing views on acceptable levels of action across a range of ESG topics, we may be unable to meet our stakeholders’ expectations, our reputation may be harmed, we may face increased compliance or other costs and demand our securities may decrease.
24
The price of the ADSs may be volatile.
The market price of the ADSs has fluctuated in the past. Consequently, the current market price of the ADSs may not be indicative of future market prices, and we may be unable to sustain or increase the value of your investment in the ADSs. During the first quarter of 2025 and up to March 10, 2025, the market price of our ADSs has fluctuated from a low of $6.07 per ADS to a high of $11.15 per ADS, and our ADS price continues to fluctuate, as does the daily volume of trading of our ADSs. The market price of our ADSs and volume of trading may continue to fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:
| ● | our ability to grow our revenue and customer base; | |
| ● | the announcement of new products or product enhancements by us or our competitors; | |
| ● | variations in our and our competitors’ results of operations; | |
| ● | successes or challenges in our funding sources; | |
| ● | developments in the industries we operate; | |
| ● | future issuances of ADSs or other securities; | |
| ● | the addition or departure of key personnel; | |
| ● | announcements by us or our competitors of acquisitions, investments or strategic alliances; and | |
| ● | general market conditions and other factors, including factors unrelated to our operating performance. |
Further, the stock market in general, and the market for technology companies in particular, has recently experienced extreme price and volume fluctuations. The volatility of our ADSs is further exacerbated due to its low trading volume, which has only recently increased. Continued market fluctuations could result in extreme volatility in the price of our ADSs which could cause a decline in the value of our ADSs and the loss of some or all of your investment.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities. We may also not be able to maintain and effectively comply with the Minimum Bid Requirement.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, the share price and trading volume of our Ordinary Shares and ADSs could decline.
The trading market for our ADSs or Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our ADSs or Ordinary Shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the share price or trading volume of our ADSs or Ordinary Shares to decline.
25
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Our legal and commercial name is Alarum Technologies Ltd. We were incorporated as a legal entity in the State of Israel in December 1989, and are therefore subject to the Israeli Companies Law. From June 2011 until June 2016, we did not have any active business operations, excluding administrative management. On June 15, 2016, we completed a merger transaction, or the Merger Transaction, with Safe-T Data, whereby we acquired 100% of the share capital of Safe-T Data. Since the date of the Merger Transaction, we have devoted substantially all of our financial resources to develop and commercialize our products and to extend our business organically as well as by acquisitions. Our Ordinary Shares have been trading on the TASE since January 2000. As of July 7, 2016, and following the change of our name in the course of the Merger Transaction, our symbol on the TASE was “SAFE.” ADSs representing our Ordinary Shares have been trading on the Nasdaq Capital Market and TASE under the symbol “SFET” since August 17, 2018. On January 8, 2023, we changed our name to Alarum Technologies Ltd., and effective from January 25, 2023, our ADSs, representing our Ordinary Shares, are traded on the Nasdaq Capital Market, and our Ordinary Shares are traded on TASE under the symbol “ALAR.”
Our principal executive offices are located at 30 Haarba’a St, Tel Aviv, 6473926 Israel. Our telephone number in Israel is +972-9-8666110.
Our website address is www.alarum.io. The information contained on our website or available through our website is not incorporated by reference into and should not be considered a part of this annual report on Form 20-F, and the reference to our website in this annual report on Form 20-F is an inactive textual reference only. NetNut Networks Inc. is our agent in the United States, and its address is 4607 Library Rd Ste 220 #1067 Bethel Park, PA 15102.
The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also be available to the public through the SEC’s website at www.sec.gov.
We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the SEC and certain regulations of the Nasdaq Stock Market, including the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. In addition, we will not be required to file annual, quarterly, and current reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domestic companies registered under the Exchange Act.
Our capital expenditures for 2024, 2023 and 2022 amounted to $99,000, $55,000 and $49,000, respectively. These expenditures were primarily for purchases of fixed assets. Our purchases of fixed assets primarily include leasehold improvements, computers, and equipment used for the development of our products, and we financed these expenditures primarily from cash on hand.
B. Business Overview
We are a global SaaS provider. Our company operates mainly in the Web Data Collection market, offering web data collection and a private internet browsing platform.
Our Web Data Collection products offer secured, fast, and anonymous IP Proxy Network Solutions Services, or IPPN or IPPN Solutions, to our business customers which, in turn, enables them to anonymously and securely browse the internet as well as to collect data from any publicly available source on the web, for their own business purposes.
Our IPPN solutions allow organizations to collect vast amounts of accurate, transparent web data from public online sources by simultaneously connecting to the Internet from different IP addresses. Our customers can choose from various types of IPs from our IP pool which contains millions of IPs, including ISP IPs, data center IPs, and residential service provider IPs.
26
With our solutions, customers gain data-driven information that provides valuable insights with respect to predictive capabilities or behaviors, thereby assisting ongoing business management operation and decision making. An added benefit to our customers is the fact that utilizing our network completely hides enterprises from the internet by modifying IP addresses, thus ensuring high levels of privacy for their online presence.
Our products enable access to the Internet through millions of end points globally, thus ensuring multiple business use cases, including large-scale data collection and analysis, cyber security, price comparison, ad verification, search engine optimization, or SEO, validations, web data extraction, collection of data for financial analysis, and more.
At the end of 2022, we set as our leading goal to start our path towards profitability. As part of our focus on generating profitable revenues, we decided in July 2023 to downscale our investment towards the consumer internet accesses segment of our business, operated under our wholly owned subsidiary, CyberKick. CyberKick’s business model was based on acquiring new users to download and use our solutions. Following a careful analysis of prevailing market conditions, including the costs of acquiring such users, we identified that while this business model may provide a potential to generate future revenues, it requires significant resources and investments in advance that cause operational loss, resulting in non-profitable revenues. We therefore decided to scale down the operations of the internet access solutions for consumers, a decision that resulted in material reductions of expenses and headcount. We continue to maintain our products and the service only to current paying users, which allows us to generate revenue from past investments in acquiring such users, with minimal costs. We also generated in CyberKick during 2024 immaterial revenues from providing advertising services to one enterprise.
We offer the following services solutions:
Web Data Collection :
| ● | Static residential proxy network: a proxy network, which is based on our unique technology and deployment through tens of ISPs partners around the world. | |
| ● | Rotating residential proxy network: a proxy network, which is based on routing traffic through millions of residential ISP based end points in the United States, Europe, Asia, South America and Canada. | |
| ● | Data center proxy network: a proxy network, which is based on routing traffic, deployed through servers located in data centers with leading carriers in the United States, the EU, Asia Pacific, or APAC, and more. | |
| ● | Premium dedicated static residential proxies: a solution that creates a dedicated static IP for each user, providing a highly effective proxy, that remains stable during heavy traffic and saves the customer additional bandwidth charges. | |
| ● | Mobile proxies: a proxy network, which is based on routing traffic through millions of mobile devices. | |
| ● | Search Engine Results Page, or SERP data collection service: a tool that delivers real-time structured data from global search engines, tailored to the customer’s needs. | |
| ● | Social data collection service: a tool that is designed to easily collect accurate data from social platforms. | |
| ● | Website Unblocker: a tool which allows our customers to collect public web data from web sites that have implemented anti-bot technologies. Such technologies prevent the collection of web data using automated data collection tools. | |
| ● | AI data collector: a tool that is designed to simplify the creation of automated data collection tools and the collection of data. Using the AI data collector, our customers no longer need to deal with developing their data collection tools, using our intuitive interface. They only need to enter the destination website’s address and the data points which they require, and our tool automatically collects the data for them. |
27
Web Data Collection Background
Today, data is the core and essence of all companies, and decisions are made based on data analysis rather than gut feelings. As markets become more and more competitive, so does the need for large amounts of data to be analyzed in real time in order to make business decisions. To achieve this, companies of all sectors started collecting data from internet websites - this can be consumer and customer related data, product prices, advertising data, financial data, internet behavior data, or other information.
The challenge is that it has become common for internet websites to change their displayed information based on user IP address, location, and demographic attributes. For example, flight prices to the United States may differ for a person browsing an American airline from New York rather than browsing the same flight from London. In addition, to conduct competitor analysis, price comparisons and data extraction, companies need to access websites as a “simulated user” to capture the real and accurate information.
From these needs, the market of web data collection services has emerged, allowing businesses to gather data over the Internet using different types of IP addresses (ISP, residential, data center, mobile) from various locations around the world. Web data collection services support a wide variety of use cases and provide several significant benefits to their business users. For example, cyber and web intelligence companies can collect data anonymously and infinitely from any public online source, advertising or ad networks can view their advertisers’ landing pages anonymously to ensure they do not contain malware or improper advertising, online retailers can gather comparative pricing information from competitors, and businesses may utilize these IP addresses to test their websites from different cities in the world.
A proxy server provides a gateway between users and the internet. It is a server, referred to as an “intermediary” because it goes between end-users and the web pages they visit online. When a computer connects to the internet, it uses an IP address. This is similar to a home street address, telling incoming data where to go and marking outgoing data with a return address for other devices to authenticate. A proxy server is essentially a computer on the internet that has an IP address of its own and instead of getting data directly from a website, a customer’s request first passes through the proxy server, before going to and receiving a response from the target website, and places an extra IP address from a rotating pool of addresses between a customer and any website they visit on the public internet. Proxy servers provide varying levels of functionality, security, and primarily privacy, depending on the use case, needs, or user policy. Proxy servers have many purposes, such as anonymizing identities, filtering information, getting around filters, and improving information retrieval performance.
From the target website’s perspective, no information about the original machine is sent. Only the proxy device’s IP address gets transmitted. As many websites place limits on the amount of information sent to any one IP address, gathering additional, openly available data from any one website, often involves using proxy servers to make it appear as if the requests come from different users, thus requiring the need for a rotating pool of IP addresses to be used by proxy servers.
The rotating pool of IP addresses can be derived from proxy software installed on residential users’ computers and mobile devices, while data centers use dedicated proxy servers. Based on the IP address it receives, a target website can distinguish whether a request comes from a residence, mobile device or data center and display different information accordingly based on location and demographic attributes. Companies tailoring information based on such attributes led to competitors needing proxy services to simulate being actual customers. Proxy servers are intermediaries between devices requesting information from other servers.
Rotating proxy servers tend to be used by companies to simulate actual customers in different locations and to collect data, also known as web data collection. Ever since the commercialization of the web, companies have developed increasingly better ways to target consumers via advertising and marketing to the point of adjusting pricing based on a location or even per customer basis. As companies put more of their product information online, this customer targeting made it very difficult for competitors and customers to monitor and/or compare pricing and product availability that can vary so much because of targeting. Websites today recognize customers to show different advertising, content and pricing based on location and other identifiable information. Companies further evolved to prevent data collectors from accessing their data via blocking known IP address ranges, or by deploying anti-bot solutions. Such anti-bot solutions, originally developed to block malicious bots, are now being used also as a means of preventing automated web data collection tools. These measures prevent companies from collecting publicly available web data, essentially affecting all use cases, whether it is comparing pricing, security companies conducing audits, AI companies collecting public data for Large Language Model (LLM) training, or ad-tech companies verifying their advertising campaigns.
In the age of information technology, data is arguably the world’s most precious resource and the way we use and consume data has evolved considerably. Publicly available web data is one of the main driving forces behind digital transformation and helps corporations and brands to develop, improve and build business strategies faster. The web data collection market includes a variety of vendors in addition to NetNut, including Bright Data, Similarweb Ltd., Oxylabs Networks Pvt. Ltd., SmartProxy, and others.
28
Market Size and Growth Drivers of the Automated Data Collection Labeling Market, or ADCL Market
In today’s market-driven economy, data collection, retrieval, and its analysis, is the lifeblood by which companies make their business decisions. As both traditional and online businesses become increasingly more competitive, so does their need for larger amounts of empirical, statistical, anecdotal, behavioral, and projected data to be analyzed in real time in order to compete. The internet is full of various information: big data, software data, analytics, content, and others. Data-oriented strategies that companies follow require data collection and analysis. Every click, search, and interaction on the internet generates information, waiting to be deciphered. Businesses, both big and small, realize that their survival and success heavily depend on how well they can collect, interpret, and act on this data, allowing companies to make informed decisions and adhere to stable advancement. As straightforward as data collection might seem, it’s not without challenges. IP blocking, inaccurate data due to location restrictions, and concerns about privacy and anonymity are some of the hurdles data collectors often face. To combat these issues, more and more businesses are turning to proxies.
| ● | We believe that existing and new customers seek this end-to-end solution because it provides them with; |
| a. | A more complete Data Set, derived from a more complete set of data that was comprised and collected from a global IPPN network which has open (proxy) global access to more websites (without localized “silo effect” bias or data collection blocking) at real-time throughput – and all written and driven on the same software code, |
| b. | A more accurate Data Set , which is stored, structured, and updated as the information gathered from (a) web site change(s) (either minute by minute on social media sites, hours on e-commerce sites or weeks on government sites). NetNut’s newly introduced AI-based Data Collection Service, or DCS, solutions were designed to automatically learn the design of websites, thus allowing fast and simple data collection, while ensuring the highest levels of data accuracy with the least human involvement in the process, |
| c. | A faster and more efficient data gathering and analysis experience , based on NetNut’s IPPN capability in processing enormous amounts of data at hundreds of terabytes per second for our customers, |
| d. | A more central management/dashboard – our customers can utilize a single dashboard via which they can order, track, manage and pay for any of NetNut’s four main solution or service packages. |
According to Grand View Research, the data collection and labelling market size was valued at $3.77 billion in 2024. The industry is projected to grow at a compound annual growth rate, or CAGR, of 28.4% from 2025 to 2030. 1
According to research by Fact.MR., the global data collection and labelling market size was valued at $2.57 billion in 2024 and is expected to grow at a CAGR of 18%, reaching $13.45 billion by the end of 2034. 2
Our Solutions/Services
Following our acquisition of NetNut in June 2019, we launched our web data collection services. The services are based on partnership agreements with tens of ISPs around the world, as well as our proprietary software deployed at data centers and devices which enable our customers to access the internet through millions of end points globally and collect valuable data for their needs. The services’ performance and scalability are enhanced by our proprietary proxy traffic optimization and routing technology.
Customers in the web data collection market use the proxy service for various needs and for a wide variety of use cases, as mentioned above. To address all these use cases, different types of web data collection services are needed. For some of the use cases, the web data collection service needs to be fast and stable and allow customers to use the same IP address for long time periods, while for others, the most important factor of a web data collection service is its ability to provide a different IP address for each request in order to be able to get a full picture of the collected data. And in some cases, the most important factor is high success rates and the assurance that the web data collection process is not blocked by third party tools. For these reasons, providers in the web data collection market are required to provide a wide selection and web data collection service types. We have invested heavily in the last year in expanding our offering in order to become a leading provider in this market.
| 1 | https://www.grandviewresearch.com/industry-analysis/data-collection-labeling-market |
| 2 | https://www.factmr.com/report/4726/data-collection-and-labelling-market |
29
Our solutions’ main advantages over competitors include:
| ● | NetNut’s web data collection service has been designed to handle massive amounts of traffic, with the capacity to process hundreds of terabytes per second, while ensuring the data collection process is not blocked. |
| ● | Our web data collection service has the widest set of IP options offered to our customers. |
| ● | Our direct connections to top ISPs worldwide allow for fast and reliable access to any geo-targeted web data. |
| ● | NetNut has formed strategic partnerships with leading ISPs and technology providers to enhance its network capabilities and offer customers the best possible solution. |
| ● | NetNut’s solution has been rigorously tested and validated by independent research firms and experts in the field. |
| ● | Results have shown that the company’s solution outperforms its competitors in terms of speed, security, success rates, and reliability. |
| ● | NetNut’s solution has received positive feedback from customers, with many praising its fast, secure, and reliable performance. |
| ● | The Company has received recognition from industry experts for its innovative approach to proxy solutions. |
Strategy
As the future of data collection unfolds, we believe that proxies will continue to play a vital role in enabling comprehensive and ethical big data analytics. We therefore seek to leverage our existing IPPN Solutions and service offering to enter the much larger Automated Data Collection Labeling Market, or the ADCL Market, which is projected to reach more than $17.1 billion dollars by 2030, according to Grand View Research. We believe that our IPPN’s unique architecture, which includes our patented reflection technology, the way we make use of our AI and machine learning algorithms, our website unblocking technology, the flexibility and scalability of our network, effective IP rotation for scaling proxy usage and our hands-on experience with industry best practices to collect data ethically and effectively, uniquely position us to enter the ADCL Market.
We believe that the key drivers of our business growth are based on:
| ● | Enterprise Customers Seek a Full End-to-End Solution: which includes providing a full data set collected through the full end-to-end process, from the IPPN Solution to the web data collection tools, to the data processing process. |
| ● | Increasing Growth in Data-Backed Decision Making : The growing importance of accurate, and real time data requires tight control and monitoring of each element of the process. |
| ● | Increasing Use of AI-based Data Optimization : Data collection and labeling plays an increasingly important role in developing the accuracy, functionality and modeling of AI-based systems currently being developed to optimize the analysis of data. |
| ● | Increasing Use of Complex Forms of Digital Marketing; Particularly through social media, requires better and more efficient use of automated real-time data collection and labeling. |
The ADCL Market is an inherent evolution for the growth of our business where we look forward to:
| ● | Leveraging on our key strengths in the IPPN business (i.e. stable global network presence, pinpoint accuracy, at high-speed data throughput) to add and bundle together an overall ADCL Service Package, which will include a Data Communication System, or DCS, a Data Set Library, or DSL, and DSL Insight Analysis service. |
| ● | Growing our revenue base both outwards (i.e. cross-sale of ADCL Service Package to existing IPPN customers) as well as upwards (i.e. upsizing existing IPPN service packages required to meet the increasing demand of customers who migrate to our ADCL Service Package. |
| ● | Improving overall margin growth, resulting from the sale of DSLs which (once created for one client) can be re-sold as an off-the-shelf product at diminishing marginal costs. |
30
Below is the complete stack of solutions and service offering that we intend to provide in the ADCL Market, along with our current offering in the IPPN market.
Our Unique Value Proposition in the ADCL Market
We believe that once we have completed development of our ADCL Service Package (i.e., our DCS, our DSL and our DSL Insights Analysis solutions and service offerings), we will be uniquely positioned as one of the only vendors offering a full end-to-end solution, combining IPPN and ADCL and grow into a market leader in the ADCL Market.
We plan to sell our ADCL solutions using the following models:
| ● | Data Collector based pricing – where the customer uses our Data Collector solution to collect data from the world wide web. The customer effectively requests to collect data from the world wide web using our solutions and only pays for the actual data that was collected from their request. The service is priced per each one-thousand requests. |
| ● | Data Records based Service Packages – customer purchases from us a list of records that NetNut compiles according to search and data preference instructions received from the customer. Pricing is based on a per record basis. |
We aim to be a leading global vendor of data collection and analysis. We currently have a footprint in almost every major geographical region in the world, including North, South and Central America, Europe, Southeast Asia, the Middle East and Africa. We continue to develop our plug and play Data Collection offering as we have witnessed that rather than developing their own Application Programming Interfaces, or APIs, existing and new customers prefer to rely on our technology, experience and know how to direct them in their strategy for collecting data. Our Strategy spans the following:
| o | Upsizing our IPPN Solutions packages to existing customers, |
| o | Cross-selling our ADSL service package (including DCS, DSL and DSL Insight Analysis) to existing customers, |
| o | Achieving rapid market traction in the ADSL market with small and medium enterprises, and |
| o | Improving margin growth through the re-sale of “off-the-shelf” DSL solutions. |
31
Customers and Competition
The markets in which we operate are characterized by intense competition, constant innovation and evolving security threats. Our current and potential future competitors in the web data collection segment include providers such as Similarweb, Bright Data, Oxylabs Networks, and others.
In the last several years, our customer base in the data collection business has steadily increased. During 2024, we had more than 1,000 customers, primarily small, medium and enterprise business segments. As mentioned above, since July 2023 we scaled down operations in the consumer segment by discontinuing further investment into acquisition of new customers, and we continue to maintain our products and the service only to approximately 2,500 current paying users.
Our enterprise customers span multiple different industries and include advertising and media companies, financial organizations, cyber security companies, industrial and commercial companies, online companies, education institutions, the AI recruitment market and more. They primarily use our platform when they are seeking to;
| ● | provide their own customers with comparative pricing for goods and services on the internet, |
| ● | compare pricing of their own goods and services to those of their competitors, |
| ● | verify the validity of third-party advertisements on the internet which advertise their goods and services to ensure that they are accurate and do not contain malware, |
| ● | confirm and validate that the search engine optimization methods they use to attract traffic to their web site perform as they should, |
| ● | extract data from other web sites which they can use as their own, and/or |
| ● | monitor the internet to ensure proper use of their brand. |
The Problems We Solve for Our Customers
Our customers use our IPPN Solutions and services to solve the various problems that they experience when trying to collect data from the internet, such as:
| ● | Need for Access to Web Sites - our customers often seek to collect accurate data from web sites that change their display information based on demographic attributes, contain restrictions on the number of times per day that their web site could be visited and block automated data collection altogether. |
| ● | Need for Anonymity when Collecting Data from Web Sites - our customers seek to collect data from the internet anonymously . |
| ● | Need for Automation during the Data Collection Process – our customers need a fast and automated solution without erroneous or delayed information. |
| ● | Need to Uniform Data Across Different Geographies - the “silo effect” whereby the same product is offered by the same vendor but at different prices, depending on which country (i.e. IP address) that the end-user logs in from. Our customers need to “break through” this “silo effect” in order to offer their end-customers with unified comparative pricing across the globe. |
| ● | Need to avoid loss of Data Bits – our customers use our IPPN Solution to avoid the type of tracking technologies that can “steal” bits of data from the overall data that they are collecting from web sites on the internet. |
32
Our Solution Services Offering
Our solutions and services offered are designed to enable our customers to fan out across millions of internet end-points within seconds in order to collect data across all business sectors while guaranteeing anonymity. The security, stability, and speed of our service is based on our:
| ● | Global IP network that we have built through the various different partnership agreements we have with IP and ISP providers around the globe; |
| ● | Global IP network’s ability to “rotate” between different pools of IP addresses; |
| ● | Global IP network’s use of different types of IP proxies (i.e. residential-based proxies, data center-based proxies, mobile-based proxies); |
| ● | Global IP Network’s traffic “routing” software that we deploy at data centers across the globe; |
| ● | Our proprietary reflection technology, which was designed to enable asymmetric routing of internet traffic through client devices (e.g. desktop computers) to allow us to provide additional exit points around the globe to our customers; |
| ● | Our website unblocking technology, which helps our customers bypass anti-data collection bot solutions; and |
| ● | Our AI data collection tool, which was developed to help our customers reduce their overall costs of developing and maintaining data collection tools, by automatically learning the destination web site and collecting relevant data from it. |
IPPN Product Offering and Business Model
We offer our IPPN Solution to our customers to either: (a) develop their own data collection tools and utilize our network for data collection purposes, or (b) use our “plug and play” data collection solution where our customers rely on our own experience (in data collection) to pre-define for them the parameters of the data they seek to collect. Based on our recent experience with our customers, we believe that in the coming years, the plug and play solution will be the solution that customers will prefer.
Most of the customers purchase our IPPN Solutions and services using periodic packages ranging between one month to one year or per actual consumption where the service is a package that is priced in terms of pre-defined data packets, for example, where the customer purchases a 5TB (terabytes) package of IPPN + ADCL services and is priced at units of gigabytes used within the terabyte package. The packages can be either renewed automatically or by election, based on the customers’ preferences. We offer various pricing tiers based on pre-set and customizable packages. We enter into longer-term engagement agreements with our larger enterprise customers as well as into engagements with resellers for the purpose of reselling our services to their customers.
We believe that the key to our historical and future business success is based on:
| ● | Our Fast, Secure and Automated IPPN Solutions - providing comprehensive, anonymously acquired and geographically diverse data collection services for the creation of robust datasets for our customers, |
| ● | Our Extensive Global IP Network - based on many agreements with ISPs around the globe, enabling us to provide multiple and differing types of proxies in over 180 countries around the globe, providing tens of millions of exit points to our customers, and |
| ● | Our Strong Industry Recognition and First Mover Advantage - Our IPPN solution has been rigorously tested and validated by independent research firms such as Proxyway and Absolute Reports, and in-the-field experts such as G2 and Trustpilot. |
33
Our Unique IP
Our intellectual property and our right to use and protect it are important to the success of our business. We rely on a combination of copyright, trademark, trade secret and patent laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property rights, including our proprietary technology, software, know-how and brand.
Intellectual property is at the core of our data collection platform and the basis of our solutions.
Our intellectual property is comprised of our proprietary reflection technology, carrier grade routing technology, and our reverse access technology.
Carrier grade routing technology
Our unique carrier grade routing technology system is based on software which is installed both on our global access servers’ network and on servers at the premises of ISPs that are part of our global network platform. This software allows the ISPs to share the existing IP addresses with external customers (our customers) without any effect on their current users and without the need to allocate these IPs specifically for our customers. The software can handle the connectivity between hundreds of our global access servers and the ISPs’ networks and is able to manage the routing on the transmission control protocol level of hundreds of thousands of concurrent connections without any degradation in the network performance.
Reflection technology
Our reflection technology is patent protected in the United States (patent number 11,818,104) titled “Anonymous Proxying”. The patent describes a revolutionary method, which brings a novel twist to traditional proxy services. Unlike conventional anonymous proxies, where proxy service client requests would be rerouted through an intermediate proxy device, thus potentially slowing down the connection and exposing a device’s local network to security risks, NetNut’s “reflector” method achieves the same end-result without such detour. It cleverly uses the IP address of an intermediate device to initiate the connection, and after this initial step, client requests are sent directly to the target server. This method retains the benefits of using a proxy, while masking the original IP address and avoiding the usual bottleneck of channeling all traffic through a third-party device. The result is a secured, faster, more efficient, and streamlined method of connecting to the internet, with all the advantages of a proxy but none of the traditional drawbacks.
Reverse access technology
Our reverse access technology is patent protected in the United States (patent numbers US RE50,113 E and US10110606 titled “Reverse Access Method for Securing Front-End Applications and Others”). The Reverse Access patent addresses a problem of securing access to external-facing computing resources or services, which are often subject to aggressive hacking efforts by malicious actors and other unauthorized people. The Reverse Access patent solves this problem by providing a “reverse access” mechanism, whereby incoming requests addressed to the services provided from within the local network can be serviced over an outgoing connection initiated and controlled from within the local network, rather than allowing such requests to be initiated directly from outside. The solution provided by the Reverse Access patent thereby reduces the risks to the participants deploying such services on large public networks, such as the Internet. As such, the Reverse Access patent provides a technical solution to a problem that is unique to computer network communications, and moreover does so by an inventive mechanism wherein the ordinary flow of communications in the network is reversed, to shift control over the initiation of the connection to elements inside the protected local network.
34
“NetNut” is a registered trademark in the United States and in Israel and pending trademark in various additional jurisdictions. Our logo, and the logos of our subsidiaries are our and our subsidiaries’ unregistered trademarks. As we continue to expand, we may face challenges registering for or obtaining trademarks in other jurisdictions.
We have additional pending patent applications relating to current and future elements of our products and technology.
Although we rely on intellectual property rights, including copyrights, trademarks and trade secrets, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new services, features and functionality, and frequent enhancements to our platform are more essential to establishing and maintaining our technology leadership position. We are committed to fostering innovation and dedicated to pushing the boundaries of what is possible in our industry to continue and deliver exceptional value to our customers.
We control access to and use of our proprietary technology and other confidential information by implementing internal and external controls, including contractual protections with employees, contractors, customers and partners. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and we control and monitor access to our software, documentation, proprietary digital insights data, proprietary technology, and other confidential information. Our policy is to require all employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, processes, and other intellectual property generated by them on our behalf and under which they agree to protect our confidential information. In addition, we generally enter into confidentiality agreements with our customers and partners.
Sales and Marketing
Our internal marketing and sales staff consists currently of approximately 30 people. We also work through marketing and distribution channels.
We maintain in-house marketing and sales personnel where we employ traditional and non-traditional internet-based marketing methods, tools, and techniques. We enter into engagements with resellers for the purpose of reselling our services to their customers. We maintain clear and defined key performance indicators regarding our marketing spent. We also participate from time to time in web data and internet exhibitions and conferences.
We also continue to build out and maintain third party marketing and distribution channels. We partner with marketing affiliates, all of which are performance driven and on a non-exclusive basis. The engagement with each partner or marketing entity is limited to a specific territory and/or specific customers and is not exclusive. Normally, the term of engagement with partners or marketing entities is one year and it is extended automatically, unless cancelled by one of the parties. Consideration in respect of those engagements is paid to us from time to time when sales are made by the affiliates/partners.
We use third party marketing contractors, for specific topics which we do not have expertise in, such as SEO management for our web sites, or companies specializing in marketing to specific countries, such as China. Our web site management and content writing is done in-house. In addition, we utilize local partners in certain countries such as China, where there is a language barrier as well as time zone differences.
We participate from time to time in web data and internet exhibitions and conferences.
We market our products through our website https://netnut.io and digital media.
Regulation
Regulation in the data collection market continues to be a critical focus of governments and regulatory bodies worldwide. As concerns about user privacy and the ethical handling of data grow, laws like the GDPR in the European Union and the CCPA are shaping stricter standards for data collection, storage, and usage. On October 30, 2023, President Biden issued an Executive Order establishing new standards for AI, directing federal agencies to adopt measures to maximize AI’s benefits while mitigating substantial risks. These guidelines are expected to influence public policy and private sector practices, especially for businesses leveraging AI for operations such as programming, coding, and analytics.
35
The global regulatory landscape aims to promote transparency, accountability, and consent-based practices among entities handling data, fostering a more ethical and privacy-centric market. However, the rapid evolution of technology and the international scope of data handling present significant challenges in developing comprehensive and adaptive regulations that balance consumer protection, innovation, and business efficiency.
We believe that compliance with existing regulations is imperative for companies operating in the data collection market, necessitating robust data protection measures, clearer consent mechanisms, and increased accountability to uphold consumer trust. Navigating the complex regulatory landscape of the data collection market is a priority we take seriously. Our approach hinges on proactive measures that ensure transparency, consent, and security. We meticulously outline data collection practices, ensuring clarity in our privacy policies and consent mechanisms. We maintain regular audits and assessments to keep us aligned with evolving regulatory standards, to ensure continuous compliance. We are committed to upholding the rights of individuals concerning their data, prioritizing their control and privacy while delivering top-tier data collection solutions in adherence to the evolving regulatory landscape.
C. Organizational Structure
We have three wholly owned subsidiaries: NetNut Ltd., CyberKick Ltd. and Safe-T Data A.R Ltd. In addition, NetNut Ltd. has one wholly-owned subsidiary, NetNut Networks Inc. CyberKick Ltd. owns one wholly owned subsidiary - Spell Me Ltd. and one wholly owned subsidiary under voluntary dissolution – RoboVPN Technologies Ltd.
NetNut Ltd. is our wholly owned subsidiary incorporated in Israel. NetNut operates in the field of web data collection services, which enables customers to collect data anonymously at any scale from any public sources over the web using a unique hybrid network.
CyberKick Ltd. is our wholly owned subsidiary incorporated in Israel. CyberKick operates in the field of internet access for consumers and provides powerful, secured and encrypted connection, masking the customers’ online activity and keeping them safe from hackers. CyberKick scaled down its operation in July 2023, as part of our focus on generating profitable revenues. As a result, the company operates at a low business level (See also - B. Business Overview).
Safe-T Data A.R Ltd. is our wholly owned subsidiary incorporated in Israel. Safe-T Data operated in the field of enterprise cybersecurity, specifically in the development and marketing of information security solutions for organizations that allow secure and controlled sharing of information. In July 2023, we completed the sale of our legacy cybersecurity solutions and therefore, currently, Safe-T Data is inactive.
NetNut Networks Inc. is a wholly owned subsidiary of NetNut Ltd. NetNut Networks is incorporated in the State of Delaware, and is engaged in the field of web data collection services.
Spell Me Ltd. is a wholly owned subsidiary of CyberKick. Spell Me Ltd. is incorporated in Seychelles and is currently inactive.
D. Property, Plants and Equipment
Our headquarters is located at 30 Haarba’a St., Tel Aviv, 6473926, Israel, where we occupy approximately 4,200 square feet. We lease our facilities through NetNut. The lease ends in October 2025, with an option to extend it for one additional year. Our monthly rent is approximately NIS 115,000 (approximately $32,000). CyberKick’s offices are located also in the same offices.
NetNut Networks’ registered address is 4607 Library Rd Ste 220 #1067, Bethel Park, PA 15102.
We believe that our current office spaces are sufficient to meet our anticipated needs for the foreseeable future and are suitable for the conduct of our business.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
36
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 20-F. This discussion and other parts of this annual report on Form 20-F contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20-F. We report financial information under IFRS Accounting Standards. Our discussion and analysis for the year ended December 31, 2023, can be found in our annual report on Form 20-F for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024.
Our Business Model
Alarum is a global provider of web data collection solutions.
We currently operate in one segment: web data collection.
Our web data collection solutions are provided through our wholly owned subsidiary NetNut and offer secured, fast, and anonymous IPPN Solutions to our business customers which, in turn, enables them to anonymously and securely browse the internet as well as to collect data from any publicly available source on the web, for their own business purposes. Our IPPN solutions allow organizations to collect vast amounts of accurate, transparent web data from public online sources by simultaneously connecting to the Internet from different IP addresses. Our customers can choose from various types of IPs from our IP pool which contains millions of IPs, including ISP IPs, data center IPs, and residential service provider IPs.
With our solutions, customers gain data-driven information that provides valuable insights with respect to predictive capabilities or behaviors, thereby assisting ongoing business management operation and decision making. An added benefit to our customers is the fact that utilizing our network completely conceals enterprises from the internet by modifying IP addresses, thus ensuring high levels of privacy for their online presence. Our solutions enable access to the internet through millions of end points globally, thus ensuring multiple business use cases, including large-scale data collection and analysis, cyber security, price comparison, ad verification, search engine optimization validations, web data extraction, collection of data for financial analysis, and more.
Key Business Metric
We monitor the key business metrics set forth below to help us evaluate and establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. Our key non-IFRS business metrics are EBITDA (EBITDA loss), Adjusted EBITDA (Adjusted EBITDA loss), and non-IFRS net profit (loss).
EBITDA or EBITDA loss. We define EBITDA (EBITDA loss) as net profit (loss) before depreciation, amortization and impairment of intangible assets, financial income (expense) and income tax.
Adjusted EBITDA or Adjusted EBITDA loss . We define Adjusted EBITDA (Adjusted EBITDA loss) as EBITDA (EBITDA loss) as further adjusted to remove the impact of (i) impairment of goodwill (if any); and (ii) share-based compensation.
Non-IFRS net profit (loss) . We define non-IFRS net profit (loss) as net profit (loss) before depreciation, amortization and impairment of intangible assets, impairment of goodwill, financial income (expense) effects primarily related to derivative financial instruments and long-term loan, deferred tax effects and share-based compensation.
We believe the non-IFRS financial information provided in this report is useful to investors’ understanding and assessment of the Company’s ongoing operations. Management also uses both IFRS and non-IFRS information in evaluating and operating its business internally, and as such, deemed it important to provide this information to investors. The non-IFRS financial measures disclosed by the Company should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with IFRS, and the financial results calculated in accordance with IFRS and reconciliations to those financial statements should be carefully evaluated. Investors are encouraged to review the reconciliations of these non-IFRS measures to their most directly comparable IFRS financial measures provided in the financial statement tables herein.
37
The following tables present the reconciled effect of the above on the Company’s Adjusted EBITDA and non-IFRS net profit for the year ended December 31, 2024, and 2023:
| December 31, | ||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Net profit (loss) from continuing operations | 5.8 | (5.6 | ) | |||||
| Adjustments: | ||||||||
| Depreciation, amortization and impairment of intangible assets | 0.6 | 3.5 | ||||||
| Financial expense (income), net | (0.4 | ) | 0.6 | |||||
| Tax expense (benefit) | 1.4 | (0.5 | ) | |||||
| EBITDA (EBITDA loss) | 7.4 | (2.0 | ) | |||||
| Adjustments: | ||||||||
| Impairment of goodwill | - | 6.3 | ||||||
| Share-based compensation | 2.0 | 0.9 | ||||||
| Adjusted EBITDA | 9.4 | 5.2 | ||||||
| December 31, | ||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Net profit (loss) from continuing operations | 5.8 | (5.6 | ) | |||||
| Adjustments: | ||||||||
| Depreciation, amortization and impairment of intangible assets | 0.6 | 3.5 | ||||||
| Financial expense, net effects | 0.1 | 0.1 | ||||||
| Impairment of goodwill | - | 6.3 | ||||||
| Deferred tax effects | (0.1 | ) | (0.5 | ) | ||||
| Share-based compensation | 2.0 | 0.9 | ||||||
| Non-IFRS net profit | 8.4 | 4.7 | ||||||
Factors Affecting our Performance
We rely on businesses requiring gathering data over the Internet using residential and Data Center IP addresses from various geographies. Also, our revenues from consumers access tools rely on consumers’ willingness to spend money to increase their safety and privacy while using the internet.
Our prospective customers in the enterprise access segment often do not have a specific portion of their information technology budgets allocated for products that address the next generation of privacy solutions. We invest in sales and marketing efforts to increase market awareness, educate prospective customers, and drive the adoption of our solution. We believe that we will need to invest additional resources in targeted global markets to drive awareness and market adoption. The degree to which prospective customers recognize the mission critical need for collecting valuable information from internet sites will drive our ability to acquire new customers, increase renewals and follow-on sales opportunities, which, in turn, will affect our future financial performance.
Reliance on Large Customers
We work continuously to increase our customer base, in order to reduce reliance on large customers. During 2024, approximately 41% of our data collection revenue derived from 42 customers who purchased services in amounts ranging between $100,000 and $1,000,000, and approximately 16.0% of our revenue was generated from 152 customers who bought services at amounts range between $10,000 and $100,000. We had 7 customers that purchased services in amounts greater than $1,000,000, and they generated together approximately 39% of the total data collection business revenues. To the extent any of our significant customers reduce their purchases of services, our revenues would be adversely impacted; however, an alteration in customer composition could strengthen the Company’s market position and support more sustainable growth.
38
Expansion from Existing Customers
Our large customer base of customers represents a significant opportunity for further sales expansion. When customers have purchased subscriptions from us, we have achieved significant expansion with them over time as they add additional features, geographic coverage, users, and digital intelligence solutions. We believe the increased spending from our customers is an indication of the value we provide them with over time.
An indication of our success to increase spending from existing customers in the data collection business is our net dollar-based retention rate, or NRR, which compares our Annual Recurring Revenue, or ARR, from the same set of customers as of a certain point in time, relative to the same point in time in the previous year ago period. We calculate our NRR as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the Current Period ARR by the Prior Period ARR to arrive at the point-in-time NRR. We then calculate the average of the trailing four quarter point-in-time NRRs to arrive at the NRR. As of December 31, 2024, our NRR was 1.27. This, compared to an NRR of 1.53 as of December 31, 2023.
Our NRR may fluctuate due to a number of major factors, such as: material changes in our customers’ businesses; our customers’ satisfaction with our solutions; pricing; support; and the competition which may impact the revenues from significant customers due to changes in our customers’ spending levels.
5.A Operating Results
Components of Operating Results
Revenue
We generate SaaS revenues when customers subscribe to our web data collection and consumer internet access platforms and pay for the packages they choose. In the web data collection segment packages are usually used for a period of one to twelve months, or for a shorter period if the maximum bandwidth was utilized. In the consumer internet access platform, packages are primarily used for a period of one month. Our revenue is recognized on a straight-line basis over the package period.
We believe that our business is not sensitive to seasonal trends but historical patterns in our business may not be a reliable indicator of our future sales activity or performance due to the early stage of the businesses we operate and past acquisitions.
Cost of Revenues
Our total cost of revenue consists mainly of payments related to our data collection solutions with respect to publishers and ISPs for IP addresses, including servers’ costs required for the IP’s routing. We also have amortization of technology purchased in our acquisition of NetNut in June 2019, and personnel costs associated with our operations and global customer support, including salaries, benefits, bonuses, and share-based compensation. The personnel consist of post-sales services on-site, such as support teams that provide our customers with on-line support.
Until July 2023, we paid material traffic acquisition costs and platform providers fees to Apple and Google, related to the consumer segment, before it was scaled down.
39
Gross Margin
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our products and services, the mix of products sold, the costs related to our enterprise access solutions, the amortization of acquired technologies and the personnel costs involved in the generation of the revenue.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, share-based compensation and, with regards to sales and marketing expenses, also sales commissions. Operating expenses also include contractors, consultants and other professional services costs, overhead costs for facilities, IT and depreciation.
| ● | Research and development . Research and development expenses consist primarily of personnel costs and allocated overheads, as well as the costs of subcontractors assisting our research and development team. We expect research and development expenses to continue to increase in absolute dollars as we continue to invest in our research and product development efforts to enhance our product capabilities, address new threat vectors and access new customer markets. |
| ● | Sales and marketing . Sales and marketing expenses consist primarily of personnel costs, incentive commission costs, payment processing fees and allocated overhead. We expense commission costs as incurred. Until the second quarter of 2023, we had material media costs, which were required for customer acquisitions in the consumer access segment – an activity we stopped in July 2023. We also spend money on market development programs, promotions and other marketing activities, outside consulting costs, and travel expense. We expect sales and marketing expenses to continue to increase in absolute dollars as we increase the size of our sales and marketing activities and expand our international sales and marketing operations. | |
| ● | General and administrative . General and administrative expenses consist mainly of personnel costs, professional services and allocated overhead. General and administrative personnel include our executive, finance, legal, human resources and administration. Professional services included in our general and administrative expenses consist primarily of legal, auditing, accounting and other consulting costs. |
Financial Expense/Income
Finance expense/income derives primarily from changes in the fair value of derivative financial instruments, mainly warrants issued to investors in 2019 and 2020. We also have interest income from cash deposits balances and exchange rate differences, which can impact our finance expense/income. We report our financial results in dollars and most of our revenues are recorded in dollars, while most of the research and development expenses, a portion of the sales and marketing and general and administrative expenses, and a small portion of our cost of revenue expenses are incurred in NIS. As a result, we are exposed to fluctuations in exchange rates which affect our finance expense or finance income .
40
Comparison of the year ended December 31, 2024, to the year ended December 31, 2023
Results of Operations from Continuing Operations
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Consolidated Statements of Profit or Loss | ||||||||
| Revenues | 31.8 | 26.5 | ||||||
| Cost of revenues | 7.9 | 7.7 | ||||||
| Gross profit | 23.9 | 18.8 | ||||||
| Operating Expenses: | ||||||||
| Research and development expenses | 4.5 | 3.6 | ||||||
| Selling and marketing expenses | 7.0 | 10.0 | ||||||
| General and administrative expenses | 5.7 | 4.4 | ||||||
| Impairment of goodwill | - | 6.3 | ||||||
| Total operating expenses | 17.2 | 24.3 | ||||||
| Operating profit (loss) | 6.7 | (5.5 | ) | |||||
| Finance income, net | 0.3 | (0.6 | ) | |||||
| Profit (loss) from continuing operations before income tax | 7.0 | (6.1 | ) | |||||
| Tax benefit (expense) | 1.2 | (0.5 | ) | |||||
| Profit (loss) from continuing operations | 5.8 | (5.6 | ) | |||||
Revenues
The following table summarizes our revenues by types for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Software as a Service | 31.8 | 23.7 | ||||||
| Advertising services | * | 2.8 | ||||||
| Total Revenues | 31.8 | 26.5 | ||||||
| * | Less than $0.1 |
Our revenues for the year ended December 31, 2024, amounted to $31.8 million, representing an increase of $5.3 million, or 20%, compared to $26.5 million for the year ended December 31, 2023. The increase is attributed to a $9.6 million increase from $21.3 million to $30.9 million (45%) in the web data collection segment revenues compared to 2023 due to an increase in sales volume. This increase was partially offset by a $4.3 million decrease (83%) in the consumer internet access segment revenues, from $5.2 million to $0.9 million, due to the cessation of the advertising services in mid-2023 and the scale down in the consumer product operations and revenues.
41
Cost of Revenues
The following table summarizes our cost of revenues for the periods presented, as well as presenting the gross profit as a percentage of total revenues. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Internet protocols addresses costs | 5.5 | 3.8 | ||||||
| Amortization and impairment of intangible assets and depreciation | 0.6 | 0.9 | ||||||
| Traffic acquisition costs | * | 1.1 | ||||||
| Payroll, related expenses and share-based payment | 0.3 | 0.4 | ||||||
| Networks and servers | 1.2 | 0.8 | ||||||
| Platform providers fees | 0.2 | 0.7 | ||||||
| Other | 0.1 | * | ||||||
| Total cost of revenues | 7.9 | 7.7 | ||||||
| Gross profit | 23.9 | 18.8 | ||||||
| Gross profit out of revenues % | 75 | % | 71 | % | ||||
| * | Less than $0.1 |
Our cost of revenues for the year ended December 31, 2024, amounted to $7.9 million, representing an increase of $0.2 million or 3% compared to $7.7 million for the year ended December 31, 2023. The increase is primarily attributed to a $2.1 million increase in the web data collection segment cost of revenues that supported the increase in this segment’s revenues. It was partially offset by a $1.6 million reduction in the consumer internet access cost of revenues, mainly traffic acquisition costs related to the cessation of operation of the advertising services which amounted to $1.1 million in 2023 compared to $0 in 2024, and a reduction of platform providers fees as a result of the scale down of the products sales under this segment.
Gross Profit
As a result of a higher increase in revenues compared to cost of revenues, gross profit grew by $5.1 million to $23.9 million, representing an 27% increase during 2024, compared to gross profit in 2023.
Research and Development Expenses
The following table summarizes our research and development costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Payroll, related expenses and share-based payment | 3.7 | 2.9 | ||||||
| Subcontractors | 0.3 | 0.2 | ||||||
| Other | 0.5 | 0.5 | ||||||
| Total Research and development expenses | 4.5 | 3.6 | ||||||
Our research and development costs for the year ended December 31, 2024, amounted to $4.5 million, representing an increase of $0.9 million, or 26%, compared to $3.6 million for the year ended December 31, 2023. The research and development costs of the web data collection segment increased from $2.8 million in 2023 to $4.3 million in 2024 mainly due to higher headcount and payroll costs. The increase was offset by the stoppage of the development costs in the consumer internet access segment which resulted in a $0.7 million decrease from $0.8 million in 2023 to $0.1 million in 2024.
42
Sales and Marketing Expenses
The following table summarizes our sales and marketing costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Payroll, related expenses and share-based payment | 4.8 | 4.0 | ||||||
| Media costs | - | 1.5 | ||||||
| Payment processing fees | 0.6 | 0.5 | ||||||
| Marketing | 1.1 | 0.7 | ||||||
| Amortization and impairment of intangible assets and depreciation | 0.1 | 2.8 | ||||||
| Professional fees and other | 0.4 | 0.5 | ||||||
| Total Selling and marketing expenses | 7.0 | 10.0 | ||||||
Our sales and marketing expenses totaled $7.0 million for the year ended December 31, 2024, a decrease of $3.0 million, or 30%, compared to $10.0 million for the year ended December 31, 2023. The sales and marketing costs of the consumer segment decreased by $2.1 million from $2.1 million in 2023 to close to $0 million due to the 2023 scale down in this business’ operations including a decrease of $2.2 million recognized in 2023 as a result of customer relations impairment related to this segment. The decrease was offset by an increase of $1.4 million in the web data collection segment (26%) to $6.7 million, as a result of the increase in revenues which required higher sales and marketing resources and increased incentive payments.
General and Administrative Expenses
The following table summarizes our general and administrative costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year ended
December 31, |
||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Payroll, related expenses and share-based payment | 2.9 | 2.0 | ||||||
| Professional fees | 1.8 | 2.1 | ||||||
| Impairment loss on trade receivables | 0.4 | * | ||||||
| Other | 0.6 | 0.3 | ||||||
| Total General and administrative expenses | 5.7 | 4.4 | ||||||
| * | Less than $0.1 |
Our general and administrative expenses totaled $5.7 million for the year ended December 31, 2024, an increase of $1.3 million, or 32%, compared to $4.4 million for the year ended December 31, 2023. The increase is primarily due to a $0.9 million increase related to a headcount increase and higher payroll payments, and higher share-based compensation payments of $0.4 million. Also, we had a $0.4 million impairment loss on trade receivables resulting mainly from two customers.
Impairment of Goodwill
In 2023, we recorded impairment of goodwill of $6.3 million related to the CyberKick cash-generating-unit. There was no goodwill impairment in 2024.
43
Operating profit (loss)
As a result of the foregoing, our operating profit for the year ended December 31, 2024, was $6.7 million, compared to an operating loss of $5.5 million for the year ended December 31, 2023.
Financial income (expense), net
We had net finance income of $0.3 million for the year ended December 31, 2024, compared to net finance expense of $0.6 million for the year ended December 31, 2023. This change is mainly related to interest income from cash deposits in 2024, compared to interest expenses in 2023 related to the bank short-term loan and the strategic funding loan, as well as finance expenses related to the September 2023 private placement.
Tax benefit (expense)
We had a tax expense of $1.2 million for the year ended December 31, 2024, compared to a tax benefit of $0.5 million for the year ended December 31, 2023. The change to tax expense is due to the profit before income tax generated by NetNut in 2024, after utilizing all of its carryforward tax losses.
Profit (loss) from continuing operations
As a result of the foregoing, our profit from continuing operations for the year ended December 31, 2024, was $5.8 million, compared to a loss of $5.6 million for the year ended December 31, 2023.
5.B Liquidity and Capital Resources
Overview
As of December 31, 2024, our cash and cash equivalents of approximately $15.1 million were intended for working capital, capital expenditures, investment in technology and business acquisition purposes. We also had approximately $9.9 million as long-term debt investments, primarily in the United States and other countries high rated corporate bonds, including accrued interest.
We believe that our cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future and at least for the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, the continuing market acceptance of our products and our pursuit of strategic opportunities, including, but not limited to, strategic acquisitions. If we are unable to raise additional capital when desired or if we cannot generate profit from operating activities, our business, operating results, and financial condition would be adversely affected.
Results of cashflows from continuing operations
| December 31, | ||||||||
| U.S. dollars in millions | 2024 | 2023 | ||||||
| Net cash provided by continuing operating activities | 8.9 | 4.6 | ||||||
| Net cash provided by (used in) continuing investing activities | (9.3 | ) | 0.7 | |||||
| Net cash provided by continuing financing activities | 4.7 | 2.2 | ||||||
| Net increase in cash and cash equivalents | 4.3 | 7.5 | ||||||
44
Cash Flows Provided by (Used in) continuing Operating Activities
During the year ended December 31, 2024, net cash provided by continuing operating activities was $8.9 million, primarily attributable to an increase in the Company’s operating profit from the data collection segment. This positive figure represents a $4.3 improvement compared to the $4.6 million provided by continuing operating activities during the year ended December 31, 2023. The improvement is attributed to the growth in the data collection segment, combined with material cost reduction in the consumer data collection segment due to this business being scaled down, mainly in operating costs.
During the year ended December 31, 2023, net cash provided by continuing operating activities was $4.6 million, primarily attributed to cash flows from customers’ payments which exceeded the cost of revenues and the operational costs, stemming from the data collection segment. This positive figure represents a $12.7 improvement compared to the $8.1 million used in continuing operating activities during the year ended December 31, 2022. The improvement is attributed to the growth in the data collection segment, combined with material cost reduction in the consumer internet access segment due to this business being scaled down, mainly in operating costs. Also, the Company benefited from a reduction of $2.4 million of legal fees, due to patent related proceedings that were resolved by a settlement on May 17, 2022.
Cash Flows Provided by continuing Investing Activities
During the year ended December 31, 2024, net cash used in continuing investing activities was $9.3 million, compared to $0.6 million provided during the year ended December 31, 2023. The operating cash flow generated in 2024 was invested primarily in $10.0 million of debt investments. This investment was partially offset by interest of $0.8 million received from short-term bank deposits.
During the year ended December 31, 2023, net cash provided by continuing investing activities was $0.6 million, compared to $5.1 million during the year ended December 31, 2022. The cash generated in 2023 resulted from a repayment of restricted deposits in the amount of $0.7 million compared to the sale of short-term investments in the amount of $5.7 million during 2022.
Cash Flows Provided by continuing Financing Activities
During the year ended December 31, 2024, net cash provided by continuing financing activities was $4.7 million, primarily attributed to warrants and options exercises.
During the year ended December 31, 2023, net cash provided by continuing financing activities was $2.2 million, primarily attributed to funding from a private placement, and sales of ADSs under an at the market offering, as well as warrants exercises in the aggregate net amount of $4.7 million. The amount was offset by a repayment of short-term bank loans ($1.6 million) and net repayments related to the strategic long-term loan ($0.5 million), as well as by increased lease payments of $0.3 million.
Change in Cash and Cash Equivalents
As a result of the foregoing, our cash and cash equivalents from continuing operations increased in the amount of $4.3 million during the year ended December 31, 2024, compared to an increase in the amount of $7.5 million during the year ended December 31, 2023.
Strategic Funding
On August 8, 2022, we signed a strategic funding agreement with O.R.B. Spring Ltd., or O.R.B., as further amended, of up to $4.0 million to support the growth of our consumer access solutions and its customer acquisition program. The repayment of the funding was based on a revenue share model in connection with sales generated from new customers acquired with each funding installment. On October 27, 2022, we amended the agreement with O.R.B. to provide for the cancellation of funding milestones as well as the removal of any discretion previously granted to O.R.B. in connection with the additional $2 million funding out of the $4 million facility. On September 7, 2023, in furtherance of our decision to scale down operations of our consumer data collection business to focus on revenue that yields high return on investment and profitability, the Company and O.R.B. agreed to further amend the O.R.B. agreement. Pursuant to the amendment, O.R.B. agreed to (i) cancel and waive all rights in connection with the warrants issued to O.R.B. as part of the O.R.B. agreement (a total of warrants to purchase 5,006,386 ordinary shares of the Company in aggregate), (ii) waive any entitlement to a percentage, portion, or share of revenue in connection with the principal facility amount withdrawn by the Company (which amounted to an aggregate total of $2.55 million), and (iii) extend the repayment schedule of the principal facility from 24 to 30 months, at the Company’s discretion. Following final repayment of the principal facility, the Company is entitled to all future revenue generated by the customers which were acquired using the strategic funding. In consideration for said amendments of the O.R.B. agreement, O.R.B. was entitled to a total of $0.5 million.
45
As of December 31, 2024, we received aggregate funding of $2.6 million and repaid to O.R.B. an amount of approximately $1.5 million from the revenues that were generated as a result of the funding, and approximately $1.1 million is currently outstanding.
Shelf Registration Statement
On November 25, 2024, we filed a shelf Registration Statement on Form F-3 (File No. 333-283429), or the F-3, which became effective on November 29, 2024. We may offer and sell from time to time in one or more offerings up to a total amount of $100 million of ADSs. The current Form F-3 replaced the former F-3, which expired on March 31, 2024.
Current Outlook
As of December 31, 2024, our cash and cash equivalents and high rated long-term debt investments were approximately $25.0 million. We expect that our current resources will be sufficient to meet our anticipated cash needs for the foreseeable future and at least for the next 12 months. Our operating plans may change as a result of many factors that may currently be unknown to us, which may impact our funding plans. Our future capital requirements will depend on many factors, including:
| ● | the progress and costs of our research and development activities; | |
| ● | the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; | |
| ● | the scope of our general and administrative expenses; and |
| ● | potential future acquisitions. |
5.C Research and development, patents and licenses, etc.
For a description of our research and development programs and the amounts that we have incurred over the last two years pursuant to those programs, please see “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Operating Expenses” and “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Comparison of the year ended December 31, 2023, to the year ended December 31, 2022 — Research and Development Expenses, net.”
5.D Trend Information
The trends impacting us are described elsewhere in this annual report on Form 20-F, including in Items 3.D., 4.B., 5.A. and B. and 10.C.
46
5.E Critical Accounting Policies and Estimates
We describe our material accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2024, included elsewhere in this annual report in Form 20-F. We believe that the accounting policies below are critical to fully understand and evaluate our financial condition and results of operations.
We prepare our consolidated financial statements in accordance with IFRS Accounting Standards. At the time of the preparation of the consolidated financial statements, our management is required to use estimates, evaluations, and assumptions which affect the application of the accounting policy, and the amounts reported for assets, obligations, income, and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change in the estimate is made.
Goodwill Impairment
Goodwill arising from a business combination represents the excess of the overall amount of the consideration transferred, the amount of any non-controlling interests in the acquired company over the net amount as of acquisition date of the identifiable assets acquired and the liabilities assumed. Impairment reviews of the cash-generating-unit, or CGU, to which goodwill was allocated are undertaken annually and whenever there is any indication of impairment of a CGU. The carrying amount of our assets, including goodwill, is compared to the recoverable amount, which is the higher of, value in use and the fair value less costs to sell. Any impairment loss is allocated to reduce the carrying amount of the assets at the following order: first to reduce the carrying amount of any goodwill allocated to a CGU and subsequently to the remaining assets we have, which fall within the scope of the IAS 36, “Impairment of Assets,” on a proportionate basis based on the carrying amount of each of our assets. Any impairment loss is recognized immediately in profit or loss and is not subsequently reversed.
Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it may be impaired. For the 2024 and 2023 reporting periods, the recoverable amount of our CGUs was determined based on value-in-use calculations which require the use of assumptions. We recorded no impairment loss for the year ended December 31, 2024. For the year ended December 31, 2023, we recorded a goodwill impairment loss of $6,311 thousand.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| A. | Directors and Senior Management |
The following table sets forth information regarding our office holders 1 as of the date of this on annual report in Form 20-F:
| Name | Age | Position |
Audit Committee
(2)
Member |
Compensation
Committee Member |
||||
| Chen Katz | 53 | Chairman of the Board of Directors | ||||||
| Shachar Daniel | 46 | Chief Executive Officer, Director | ||||||
| Shai Avnit | 59 | Chief Financial Officer | ||||||
| Omer Weiss | 38 | Legal Counsel | ||||||
| Avi Rubinstein | 58 | Director | ||||||
| Yehuda Halfon | 46 | Director (3) | X | X | ||||
| Rakefet Remigolski | 53 | Director (3) | X | X | ||||
| Moshe Tal | 63 | Director (3) | X | X |
| (1) | “Office holder” as defined under the Israeli Companies Law: “general manager, chief business manager, deputy general manager, vice-general manager, any person filling any of these positions in the company even if he holds a different title, and a director or any other manager directly subordinate to the general manager”. |
| (2) | The Audit Committee serves also as the Financial Statements Examination Committee pursuant to regulations under the Israeli Companies Law. |
| (3) | Independent Director (pursuant to regulations under the Israeli Companies Law and Nasdaq Stock Market rules). |
47
Chen Katz, Chairman of the Board of Directors
Mr. Chen Katz has served as Chairman of our board of directors since January 2019. Mr. Katz is also a director of Nanomedic Technologies Ltd., Coral Smart Pool Inc. and Nicast Ltd., where he serves as the chairman of the board, Inrom Construction Industries Ltd. (TASE: INRM), Coral Smart Pool Ltd., Nanomedic Technologies Inc. NCK Capital Ltd. and Tripod Investments. Mr. Katz is also a Co-Founder and director of Connexa Capital Ltd. since February 2022. Between 2006 and 2020, Mr. Katz served as the chief executive officer of TechnoPlus Ventures Ltd. (TASE: TNPV), an Israeli investment firm. From 2012 until 2021, Mr. Katz served on the board of directors of Compulab Ltd. (TASE: CLAB) and from 2018 to 2024, he served on the board of directors of Aminach Furniture and Mattresses Industry Ltd. Mr. Katz is a member of the Israel Bar Association. Mr. Katz holds a European Master-in-Law and Economics (EMLE) from the Complutense University of Madrid and an LL.B. from the University of Haifa.
Shachar Daniel, Chief Executive Officer and Director
Mr. Shachar Daniel is one of our co-founders and has served as our Chief Executive Officer and director since June 2016. Prior to serving as the Chief Executive Officer of Safe-T Data, he served as Safe-T Data’s Chief Operating Officer from November 2013. Mr. Daniel has more than 10 years of experience in various managerial roles in operations and project management. From 2012 to 2013, he served as head of program at PrimeSense Ltd., which was acquired by Apple Inc. for $360 million on November 24, 2013. Prior to that, and from 2009 to 2012, he was head of operations project managers at Logic Industries Ltd., and from 2004 to 2009, he was a project manager at Elbit Systems Ltd. (Nasdaq/TASE: ESLT). Mr. Daniel holds a B.Sc. in Industrial Engineering from the Holon Institute of Technology, Israel and an M.B.A. from the College of Management Academic Studies, Israel and an executive post M.B.A from the Hebrew University.
Shai Avnit, Chief Financial Officer
Mr. Shai Avnit has served as our Chief Financial Officer since June 2016. Mr. Avnit has extensive experience in managing financial, operational, administrative and legal affairs in companies within the software, medical device and consumer electronics, as well as vast experience in public and private fund raising, mergers and acquisitions and structural reorganization. Mr. Avnit served as the chief financial officer and other leading financial positions in several hi-tech companies, both public and private including as the chief financial officer during 2001-2002 in Valor Computerized Systems (then a public company traded on the German stock exchange Neuer Markt), a controller during 1996-2000 in Card Guard Scientific Survival, a then public company then traded in the Six Swiss Exchange under the name LifeWatch (symbol LIFE), a part time chief financial officer during 2007-2017 in EnzySurge Ltd., a part time chief financial officer during 2011-2017 in BioProtect Ltd., a part time chief financial officer during 2008-2011 in BriefCam Ltd., a part time chief financial officer during 2006-2010 in Lumio Inc. and a part time Finance Director in Primavera-Prosight Ltd. (acquired by Oracle) during 2002-2011. Mr. Avnit holds a B.A. in Accounting Economics as well as an M.B.A. with majors in Finance and Marketing, both from Tel Aviv University.
Omer Weiss, Legal Counsel
Mr. Omer Weiss has served as our Legal Counsel since March 2024. Prior to joining us, he worked as a lawyer at the Capital Market Practice of the Tel Aviv law firm Raved, Magriso, Benkel Co. from 2012 to 2017. Following this, he continued his legal career at the Capital Market Practice of the Tel Aviv law firm Shibolet Co. from 2018 to 2024, where he earned a promotion to partner in 2022. With a robust background in commercial and capital market practices, Mr. Weiss has established a commendable track record representing a diverse array of public and private companies, both locally and globally. He holds a Bachelor of Laws (LL.B) and a Bachelor of Business Administration (B.B.A) from Reichman University, as well as a Master of Laws (LL.M) from Tel Aviv University.
48
Avi Rubinstein, Director
Mr. Avi Rubinstein has served on our board of directors since October 2021. Mr. Rubinstein also serves as the President of Ilanor Ltd. Prior to his appointment as a director, Mr. Rubinstein served as Chief Business Officer of our subsidiary, Safe-T Data A.R Ltd., from February 2020 until October 2021. Prior to joining Safe-T Data, from 2014 to 2015, Mr. Rubinstein served as Vice President, Product Marketing and Business Development of Nice Systems Ltd. (Nasdaq: NICE). Mr. Rubinstein co-founded Inpedio BV, a provider of cyber solutions, and served as its chief executive officer between 2016 and 2019. After serving as co-founder of Ectel Ltd., and general manager of Ectel US Inc. and was the co-founder of StorWiz in 2004, which was acquired by IBM in 2010. He also was the co-founder and chief executive officer of VideoCodes in 2004, which was acquired by Thompson in 2008. Mr. Rubinstein also served as a member of our advisory board between 2014 and 2019, and with CyberX Labs (cyber defense for critical infrastructure) since 2014 and also provided management and/or consulting services on an hourly basis to different companies between 2008 to 2020.
Yehuda Halfon, Director
Mr. Yehuda Halfon has served on our board of directors since March 2016. Between 2009 and January 2022, Mr. Halfon served as the chief executive officer at Cooperica Property Ltd., which owns and manages real estate properties in Israel. In addition, between 2010 and January 2022, Mr. Halfon served as the chief financial officer of Local Developing Germany GmbH, which owns a large portfolio of residential assets in Germany. Since 2022, he has been an independent real estate entrepreneur. Mr. Halfon holds a B.A. in Accounting and Economics from the Hebrew University in Jerusalem and an M.B.A from the Open University of Israel. Mr. Halfon is a certified public accountant in Israel.
Rakefet Remigolski, Director
Ms. Rakefet Remigolski has served on our board of directors since September 2020. Since 2018, Ms. Remigolski has served as Chief Finance Officer at Arazim Investments Ltd., an Israeli real-estate company publicly traded on the Tel Aviv Stock Exchange. Since September 2021, Ms. Remigolski has served as an external director at IDENTI Healthcare Ltd. Between 2015 and 2020, Ms. Remigolski served as a director and head of the audit committee at the Israeli National Sport Center, Tel Aviv. Since 2008, Ms. Remigolski has taught advanced courses in financial accounting at the Reichman University (IDC Herzliya) in Israel. Between 1995 and 2019, Ms. Remigolski taught advanced courses in financial accounting at the College of Management Academic Studies in Israel. Ms. Remigolski holds a B.A. in Business and an M.B.A. (Cum Laude) with a major in finance and accountancy, both from the College of Management Academic Studies in Israel. Ms. Remigolski is a certified public accountant and is a member of the Institute of Certified Public Accountants in Israel.
Moshe Tal, Director
Mr. Moshe Tal has served on our board of directors since May 2019. Since 2011, Mr. Tal serves as a partner with Shtainmetz Aminoach Co. accounting, a CPA (Isr.) Israeli Certified Public Accountant, Investment and Consulting. Mr. Tal is also a lecturer at the Department of Accounting at the Reichman University (IDC Herzliya) in Israel. Mr. Tal served in the Israeli tax Authority for 13 years and has vast experience with tax regulations and laws, both in Israel and outside of Israel. Between 2011 and 2013, Mr. Tal served as a director of Dash Ipax Holdings Ltd. and from 2010 until 2018 as a director at Netz Group Ltd. Mr. Tal is a certified Israeli public accountant.
Family Relationships
There are no family relationships between any of our office holders.
Arrangements for Election of Directors and Members of Management
There are no arrangements or understandings with major shareholders, customers, suppliers, or others pursuant to which any of our executive management or our directors were selected. See “Item 7.B. Related Party Transactions” for additional information.
49
B. Compensation
Compensation
The following table presents in the aggregate all compensation we paid to our office holders as a group for the year ended December 31, 2024. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing the Company with services during this period.
All amounts reported in the tables below reflect the cost to the Company, in thousands of U.S. Dollars, for the year ended December 31, 2024. Amounts paid in NIS are translated into U.S. dollars either upon the expense recognition date rate, or a rate of NIS 3.6997 = $1.00, based on the average representative rate of exchange between the NIS and the U.S. dollar as reported by the Bank of Israel in the year ended December 31, 2024, as applicable.
| Salary cost (1) | Bonus (2) |
Equity
Based Compensation (3) |
||||||||||
| All office holders as a group, consisting of 8 persons | $ | 886 | $ | 416 | $ | 603 | ||||||
| (1) |
Salary cost includes the office holders’ gross salary or fees plus payment of social benefits made by the Company on behalf of such office holders, if applicable. Such benefits may include, to the extent applicable to the office holders, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “Keren Hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurances and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with the Company’s policies
|
| (2) | Annual bonuses granted to the office holders in 2024 are based on formulas related to the Company’s revenues and profitability, discretionary decisions, or a combination of both, as approved by the relevant statutory authority within the Company. |
| (3) | Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year. Such numbers are based on the options and RSU grant date fair value in accordance with accounting guidance for equity-based compensation and does not necessarily reflect the cash proceeds to be received by the applicable officer upon the vesting and sale of the underlying shares. By December 31, 2024, all office holders had options to purchase an aggregate of 1,756,131 Ordinary Shares at exercise prices between NIS 1.27 (approximately $0.35) and NIS 6.04 (approximately $1.67) per share with expiration dates between August 1, 2030, and November 28, 2032, and 1,537,504 restricted share units, or RSUs, vesting fully until October 19 , 2027. The share-based compensation was calculated based on the binomial model. |
The table below reflects the compensation granted to the five most highly compensated senior officers 1 during or with respect to the year ended December 31, 2024.
Annual Compensation- in thousands of USD
| Office holders | Salary cost | Bonus/commissions |
Equity
Based Compensation* |
Total | ||||||||||||
| Shachar Daniel, Chief Executive Officer | 261 | 188 | 161 | 610 | ||||||||||||
| Jeffy Pinhas, Chief Revenue Officer, NetNut | 153 | 515 | 212 | 880 | ||||||||||||
| Moshe Kremer, Vice President Research and Development, NetNut | 251 | 274 | 120 | 645 | ||||||||||||
| David Matrikin, Vice President Products, NetNut | 238 | 103 | 78 | 419 | ||||||||||||
| Shai Avnit, Chief Financial Officer | 219 | 81 | 116 | 416 | ||||||||||||
| * | Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year. Such numbers are based on the options and RSU grant date fair value in accordance with accounting guidance for equity-based compensation and do not necessarily reflect the cash proceeds to be received by the applicable officer upon the vesting and sale of the underlying shares. |
50
The equity-based compensation resulted from options and RSU grants during the years 2022-2024:
| Office holder | RSUs | Options | Exercise prices of options | |||||||
| Shachar Daniel | 499,992 | 540,000 | NIS 1.51 (approximately $0.42) | |||||||
| Jeffy Pinhas | 700,008 | 24,972 | NIS 1.27 (approximately $0.35) | |||||||
| Moshe Kremer | - | 575,016 | NIS 0-1.27 (approximately $0-0.35) | |||||||
| David Matrikin | 265,008 | 97,500 | NIS 1.27 (approximately $0.35) | |||||||
| Shai Avnit | 300,000 | 350,004 | NIS 1.27 (approximately $0.35) | |||||||
| 1 |
“Senior officer” as defined under the Israeli Securities Law 5728-1968, or the Securities Law, includes the definition of an officer, as defined in the Israeli Companies Law, and also the chairman of the board of directors, a substitute director, an individual who under section 236 of the Israeli Companies Law was appointed on behalf of a corporate and who serves as director, accountant, internal auditor, independent signatory and every person who holds a said position, even if the title of his position is different, and also a senior officer in a body corporate controlled by the body corporate, who has substantive influence over the body corporate, and every individual who is employed by the body corporate in a different position and holds 5% or more of the nominal value of the issued share capital or of the voting power, as the case may be, for this purpose. We are providing this disclosure as good practice although we are not required to report or provide such disclosure pursuant to the Securities Law. |
Employment and Services Agreements with Executive Officers
We have entered into written employment or services agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and intellectual property assignment. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officer’s insurance, subject to certain exclusions. Members of our senior management may be eligible for bonuses. Generally, such bonuses are in accordance with our compensation policy and are payable upon meeting objectives and targets that are set by our Chief Executive Officer and approved annually by our board of directors that also set the bonus targets for our Chief Executive Officer.
For a description of the terms of our equity awards and equity incentive plan, see “Item 6.E. Share Ownership ” below.
Directors’ Service Contracts
Other than with respect to our directors that are also executive officers, we do not have written agreements with any director providing for benefits upon the termination of his directorship with our company.
51
| C. | Board Practices |
Introduction
Our board of directors presently consists of six members. Under the Israeli Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in or outside of Israel is required to appoint at least two external directors to serve on its board of directors. However, pursuant to regulations under the Israeli Companies Law, a board of directors is not required to have external directors if: (i) the company does not have a controlling shareholder (as such term is defined in the Israeli Companies Law); (ii) a majority of the directors serving on the board of directors are “independent,” as defined under Nasdaq Rule 5605(a)(2); and (iii) the company follows Nasdaq Rule 5605(e)(1), which requires that the nomination of directors be made, or recommended to the board of directors, by a nominating committee of the board of directors consisting solely of independent directors, or by a majority of independent directors. In 2021, our board of directors approved that the Company meets all of the above requirements and therefore has resolved to adopt the corporate governance exemption set forth above, and accordingly, we are currently not required to appoint external directors as such are defined in the Israeli Companies Law. The directors, Mr. Yehuda Halfon and Mr. Moshe Tal, each of whom was previously appointed as external directors, and Ms. Rakefet Remigolski, are “independent” for purposes of the Nasdaq Stock Market rules. Our amended and restated articles of association provide that the number of board of directors’ members shall be set by our board of directors, provided that it will consist of not less than three and not more than twelve. Pursuant to the Israeli Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer and all other executive officers are appointed by, and serve at the discretion of, our board of directors, subject to the employment or services agreement that we have entered into with them. Their terms of employment are subject to the approval of the board of directors’ compensation committee and of the board of directors and are subject to the terms of any applicable employment agreements that we may enter into with them and are subject to the Company’s compensation policy.
Each director, will hold office in accordance with our articles of association, or until he or she resigns or unless he or she is removed by a 65% majority vote of our shareholders at an annual general meeting of our shareholders, provided that such majority constitutes more than 50% of the our then issued and outstanding share capital, or upon the occurrence of certain events, in accordance with the Israeli Companies Law and our amended and restated articles of association. Our articles of association provide for a split of the board of directors into three classes with staggered three-year terms. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors will be for a term of office that expires on the third annual general meeting following such election or re-election, such that each year the term of office of only one class of directors will expire.
Our directors are divided among the three classes as follows:
| (i) | Class I directors are Ms. Rakefet Remigolski and Mr. Yehuda Halfon, whose current terms expire at the Company’s 2026 annual general meeting of shareholders and upon the election and qualification of their respective successors, |
| (ii) | Class II directors are Mr. Shachar Daniel and Mr. Moshe Tal, whose current terms expire at the Company’s 2027 annual general meeting of shareholders and upon the election and qualification of their respective successors; and |
| (iii) | Class III directors are Mr. Chen Katz and Mr. Avi Rubinstein, whose current terms expire at the Company’s 2025 annual general meeting of shareholders and upon the election and qualification of their respective successors. |
In addition, our amended and restated articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors or in addition to the acting directors (subject to the limitation on the number of directors), to serve for the remaining period of time during which the director whose service has ended would have held office, or in case of an addition to the board of directors, in accordance with the class assigned to such appointed director, as determined by the board of directors at the time of such appointment.
52
Under the Israeli Companies Law, any shareholder holding at least one percent of our outstanding voting power may nominate a director. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our board of directors. Any such notice must include certain information, including the consent of the proposed director nominee to serve as our director if elected, and a declaration that the nominee signed declaring that he or she possesses the requisite skills and has the availability to carry out his or her duties. Additionally, the nominee must provide details of such skills, and demonstrate an absence of any limitation under the Israeli Companies Law that may prevent his or her election, and affirm that all of the required election-information is provided to us, pursuant to the Israeli Companies Law.
However, under new exemptions according to the Companies Law Regulations (exemptions for companies whose securities are listed for trading on a stock exchange outside of Israel) 5760-2000, applicable as of March 12, 2024, or the New Exemptions, one or more shareholders of an Israeli company whose shares are listed outside of Israel, may request the company’s board of directors to include an appointment of a candidate for a position on the board of directors or the termination of a board member, as an item on the agenda of a future general meeting (if the company sees fit), provided that the shareholder holds at least five percent (5%) of the voting rights of the company, instead of one percent (1%) required in the past.
Under the Israeli Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is two – Mrs. Rakefet Remigolski, Mr. Moshe Tal and Mr. Yehuda Halfon qualify and declared their respective accounting and financial expertise to that effect.
The board of directors must elect one director to serve as the chairman of the board of directors to preside at the meetings of the board of directors, and may also remove that director as chairman. Pursuant to the Israeli Companies Law, neither the chief executive officer nor any of his or her relatives is permitted to serve as the chairman of the board of directors, and a company may not vest the chairman or any of his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman may not be vested with authorities of a person who reports, directly or indirectly, to the chief executive officer; and the chairman may not serve in any other position in the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, the Israeli Companies Law permits a company’s shareholders to determine, for a period not exceeding three years from each such determination, that the chairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities, and that the chief executive officer or his or her relative may serve as chairman or be vested with the chairman’s authorities. Such determination of a company’s shareholders requires either: (1) the approval of at least a majority of the shares of those shareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination) (shares held by abstaining shareholders shall not be considered); or (2) that the total number of shares opposing such determination does not exceed 2% of the total voting power in the company. Currently, we have a separate chairman and chief executive officer.
The board of directors may, subject to the provisions of the Israeli Companies Law, delegate any or all of its powers to committees of the board, and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations. Unless otherwise expressly provided by the board of directors, the committees shall not be empowered to further delegate such powers. The composition and duties of our audit committee, financial statement examination committee and compensation committee are described below.
The board of directors oversees how management monitors compliance with our risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by us. The board of directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to our audit committee.
53
External Directors
Under the Israeli Companies Law, except as provided below, companies incorporated under the laws of the State of Israel that are publicly traded, including Israeli companies with shares listed on the Nasdaq, are required to appoint at least two external directors who meet the qualification requirements set forth in the Israeli Companies Law. The definitions of an external director under the Israeli Companies Law and independent director under Nasdaq Stock Market rules are similar such that it would generally be expected that the two external directors will also comply with the independence requirement under Nasdaq Stock Market rules.
Pursuant to the regulations under the Israeli Companies Law, the board of directors of a company such as ours is not required to have external directors if: (i) the company does not have a controlling shareholder (as such term is defined in the Israeli Companies Law); (ii) a majority of the directors serving on the board of directors are “independent,” as defined under Nasdaq Rule 5605(a)(2); and (iii) the company follows Nasdaq Rule 5605(e)(1), which requires that the nomination of directors be made, or recommended to the board of directors, by a Nominating Committee of the board of directors consisting solely of independent directors, or by a majority of independent directors. The Company meets all of these requirements. On July 22, 2021, our board of directors resolved to adopt the corporate governance exemption set forth above, and accordingly we no longer have external directors as members of our board of directors.
Independent Directors Under the Israeli Companies Law
An “independent director” is either an external director or a director who meets the same non-affiliation criteria as an external director (except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications), as determined by the audit committee, and who has not served as a director of the company for more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Regulations promulgated pursuant to the Israeli Companies Law provide that a director in a public company whose shares are listed for trading on specified exchanges outside of Israel, including the Nasdaq Capital Market, who qualifies as an independent director under the relevant non-Israeli rules and who meets certain non-affiliation criteria, which are less stringent than those applicable to independent directors as set forth above, would be deemed an “independent” director pursuant to the Israeli Companies Law provided: (i) he or she has not served as a director of the company for more than nine consecutive years; (ii) he or she has been approved as such by the audit committee; and (iii) his or her remuneration shall be in accordance with the Israeli Companies Law and the regulations promulgated thereunder. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Furthermore, pursuant to these regulations, such company may reappoint a person as an independent director for additional terms, beyond nine years, which do not exceed three years each, if each of the audit committee and the board of directors determine, in that order, that in light of the independent director’s expertise and special contribution to the board of directors and its committees, the reappointment for an additional term is in the company’s best interest.
Mr. Yehuda Halfon, Mr. Moshe Tal and Ms. Rakefet Remigolski, are deemed independent for purposes of the Israeli Companies Law as well as under Nasdaq Stock Market rules.
54
Alternate Directors
Our amended and restated articles of association provide, as allowed by the Israeli Companies Law, that any director may, subject to the conditions set thereto including approval of the nominee by our board of directors, appoint a person as an alternate to act in his place, to remove the alternate and appoint another in his place and to appoint an alternate in place of an alternate whose office is vacated for any reason whatsoever. Under the Israeli Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is to replace an external director, he or she is required to be an external director and to have either “financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external director he or she is replacing. A person who does not have the requisite “financial and accounting experience” or the “professional expertise,” depending on the qualifications of the external director he or she is replacing, may not be appointed as an alternate director for an external director. A person who is not qualified to be appointed as an independent director, pursuant to the Israeli Companies Law, may not be appointed as an alternate director of an independent director qualified as such under the Israeli Companies Law. Unless the appointing director limits the time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment. On October 26, 2021, our board of directors appointed Mr. Avi Rubinstein as a director and member of the board until the conclusion of the next annual general meeting of shareholders of the Company.
Committees of the Board of Directors
Our board of directors has established three standing committees, the audit committee, the compensation committee, and the Financial Statements Examination Committee.
Audit Committee
Under the Israeli Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors. The audit committee may not include the chairman of the board; a controlling shareholder of the company or a relative of a controlling shareholder; a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling shareholder; or a director who derives most of his or her income from a controlling shareholder.
In addition, a majority of the members of the audit committee of a publicly traded company must be independent directors under the Israeli Companies Law. Our audit committee is comprised of Mr. Yehuda Halfon, Mr. Moshe Tal and Ms. Rakefet Remigolski.
Under the Israeli Companies Law, our audit committee is responsible for:
| (i) | determining whether there are deficiencies in the business management practices of our company, and making recommendations to the board of directors to improve such practices; | |
| (ii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Israeli Companies Law) and establishing the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest (see “—Approval of Related Party Transactions under Israeli Law”); | |
| (iii) | determining the approval process for transactions that are “non-negligible” (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee; | |
| (iv) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
55
| (v) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; | |
| (vi) | establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees; and | |
| (vii) | where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto. |
Our audit committee may not conduct any discussions or approve any actions requiring its approval (see “—Approval of Related Party Transactions under Israeli Law”), unless at the time of the approval a majority of the committee’s members are present, which majority consists of independent directors under the Israeli Companies Law, including at least one external director.
Our audit committee is acting pursuant to a written charter, which sets forth, among others, the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq Listing Rules (in addition to the requirements for such committee under the Israeli Companies Law), including, among others, the following:
| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; | |
| ● | recommending the engagement or termination of the person filling the office of our internal auditor, reviewing the services provided by our internal auditor and reviewing effectiveness of our system of internal control over financial reporting; |
| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors; and | |
| ● | reviewing and monitoring, if applicable, legal matters with significant impact, finding of regulatory authorities’ findings, receive reports regarding irregularities and legal compliance, acting according to “whistleblower policy” and recommend to our board of directors if so required. |
Nasdaq Stock Market Requirements for Audit Committee
Under the Nasdaq Stock Market rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial management expertise.
As noted above, the members of our audit committee include Mr. Yehuda Halfon (the chairman), Mr. Moshe Tal and Ms. Rakefet Remigolski, each of whom is “independent,” as such term is defined in under Nasdaq Stock Market rules. All members of our audit committee meet the requirements for financial literacy under the Nasdaq Stock Market rules. Our board of directors has determined that each member of our audit committee is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Stock Market rules.
Financial Statements Examination Committee
Under the Israeli Companies Law, the board of directors of a public company in Israel must appoint a financial statements examination committee, which consists of members with accounting and financial expertise or the ability to read and understand financial statements. According to a resolution of our board of directors, the audit committee has been assigned the responsibilities and duties of a financial statement examination committee, as permitted under relevant regulations promulgated under the Israeli Companies Law. From time to time, as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire board of directors regarding financial statement approval. As detailed above, the members of our audit committee are Mr. Yehuda Halfon, Mr. Moshe Tal and Ms. Rakefet Remigolski. The function of a financial statements examination committee is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with the preparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financial statements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; and (5) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent registered public accounting firm and our internal auditor are invited to attend all meetings of the audit committee when it is acting in the role of the financial statements examination committee.
56
Compensation Committee
Under the Israeli Companies Law, the board of directors of any public company must establish a compensation committee. Under the Nasdaq rules, we are required to maintain a compensation committee consisting of at least two members, each of whom must be independent directors.
Our compensation committee is acting pursuant to a written charter, and consists of Mr. Yehuda Halfon, Mr. Moshe Tal, and Ms. Rakefet Remigolski, each of whom is “independent,” as such term is defined under Nasdaq Stock Market rules. Our compensation committee complies with the provisions of the Israeli Companies Law, the regulations promulgated thereunder, and our amended and restated articles of association. Our compensation committee also complies with the committee membership and charter requirements prescribed under the Nasdaq Stock Market rules.
Our compensation committee reviews and recommends to our board of directors: with respect to our executive officers’ and directors’: (1) annual base compensation (2) annual incentive bonus, including the specific goals and amounts; (3) equity compensation; (4) employment agreements, severance arrangements, and change in control agreements and provisions; (5) retirement grants and/or retirement bonuses; and (6) any other benefits, compensation, compensation policies or arrangements.
The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. Such policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee. The compensation policy is then brought for approval by our shareholders, which requires a Special Majority (see “—Approval of Related Party Transactions under Israeli Law”). Under the Israeli Companies Law, the board of directors may adopt the compensation policy if it is not approved by the shareholders, provided that after the shareholders oppose the approval of such policy, the compensation committee and then the board of directors revisit the matter and determine, by detailed resolutions, that adopting the compensation policy despite shareholders declining the policy, would be in the best interests of the company. Our current compensation policy was approved by our shareholders on November 2, 2023.
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officers and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size, and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
| ● | the knowledge, skills, expertise and accomplishments of the relevant director or executive; |
| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her; | |
| ● | the relationship between terms offered and the average and median compensation of the other employees of the company; |
57
| ● | the possibility of reducing variable compensation at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable compensation; and | |
| ● | as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
The compensation policy must also include the following principles:
| ● | the link between variable compensation and long-term performance and measurable criteria; | |
| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of its grant; | |
| ● | the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later determined that the information upon which such compensation was based was inaccurate and required to be restated in the company’s consolidated financial statements; | |
| ● | the minimum holding or vesting period for variable, equity-based compensation; and | |
| ● | maximum limits for severance compensation. |
The compensation policy must also consider appropriate incentives from a long-term perspective and maximum limits for severance compensation.
The compensation committee is responsible for: (1) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by the shareholders); and (2) duties related to the compensation policy and to the compensation of a company’s office holders, including:
| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); | |
| ● | recommending to the board of directors’ periodic updates to the compensation policy; | |
| ● | assessing implementation of the compensation policy; | |
| ● |
determining whether the terms of compensation of certain office holders of the company need not be brought to approval of the shareholders; and
|
|
| ● | exercising all rights, authority and functions of the Board under the Company’s Clawback Policy (as defined below). |
In 2023, our compensation committee and the board of directors approved a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers, which was designed to comply with Section 10D of the Exchange Act, Rule 10D-1 promulgated under the Exchange Act, or Rule 10D-1, and the listing standards of Nasdaq under Nasdaq Listing Rule 5608, or a Clawback Policy. In addition, the Clawback Policy is designed to comply with the requirements under the Israeli Companies Law with respect to clawback provisions to be included in the Company’s compensation policy, as may be amended from time to time. In furtherance of Rule 10D-1, our Clawback Policy is attached as exhibit 97.1 to this annual report.
Nasdaq Stock Market Requirements for Compensation Committee
Under Nasdaq rules, we are required to maintain a compensation committee consisting of at least two members, all of whom are independent. In addition, in affirmatively determining the independence of any director who will serve on the compensation committee of a board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member.
58
As noted above, the members of our compensation committee include Mr. Yehuda Halfon, Mr. Moshe Tal and Ms. Rakefet Remigolski, each of whom is “independent,” as such term is defined under Nasdaq rules. Yehuda Halfon serves as the chairman of our compensation committee.
Internal Auditor
Under the Israeli Companies Law, the board of directors of an Israeli public company must appoint an internal auditor nominated by the audit committee. Our internal auditor is Ms. Dana Gottesman CPA, CIA, MA and partner of Risk Advisory Services Group, BDO Consulting Group. The role of the internal auditor is to examine, among other things, whether a company’s actions comply with the law and proper business procedure. The audit committee is required to oversee the activities, and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. An internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder and may not be a member of the company’s independent accounting firm or its representative. The Israeli Companies Law defines an interested party as a holder of 5% or more of the outstanding shares or voting rights of a company, any person or entity that has the right to appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. Our internal auditor is not an employee of the company, but a partner of a firm which specializes in internal auditing.
Remuneration of Directors
Under the Israeli Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directors and thereafter, unless exempted under the regulations promulgated under the Israeli Companies Law or under our compensation policy, by the general meeting of the shareholders. In case the remuneration of the directors is in accordance with regulations applicable to remuneration of the external directors then such remuneration shall be exempt from the approval of the general meeting. Where the director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply.
Fiduciary Duties of Office Holders
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and | |
| ● | all other important information pertaining to these actions. |
The duty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:
| ● | refrain from any conflict of interest between the performance of his duties in the company and his performance of his other duties or personal affairs; | |
| ● | refrain from any action that is competitive with the company’s business; | |
| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and | |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder. |
59
Insurance
Under the Israeli Companies Law, a company may obtain insurance for any of its office holders against the following liabilities incurred due to acts he or she performed as an office holder, if and to the extent provided for in the company’s articles of association:
| ● | breach of his or her duty of care to the company or to another person, to the extent such a breach arises out of the negligent conduct of the office holder; | |
| ● | a breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests; and | |
| ● | a financial liability imposed upon him or her in favor of another person. |
We currently have directors’ and officers’ liability insurance, providing total coverage of $20 million for the benefit of all of our directors and officers, which expires on June 15, 2026, as well as Public Offering of Securities Insurance providing a total coverage of $10 million for the benefit of all of our directors and officers, and covering a public offering of our securities on the Nasdaq Capital Market in August 2018, in respect of which we paid a seven-year premium of approximately $120,000, which expires on August 21, 2025.
Indemnification
The Israeli Companies Law and the Securities Law provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Israeli Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Israeli Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court: (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceeding of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and | |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the ISA), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
60
The Israeli Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and | |
| ● | an amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
We have entered into indemnification agreements with all of our directors and with all members of our senior management. Each such indemnification agreement provides the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officer’s insurance.
Exculpation
Under the Israeli Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.
Limitations
The Israeli Companies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Under the Israeli Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors (and, with respect to directors and the chief executive officer, by the shareholders). However, under regulations promulgated under the Israeli Companies Law, the insurance of office holders shall not require shareholder approval and may be approved by only the compensation committee, if the engagement terms are determined to be in accordance with the company’s compensation policy that was approved by the shareholders by the same special majority required to approve a compensation policy, provided that the insurance policy is on market terms and the insurance policy is not likely to materially impact the company’s profitability, assets or obligations. In addition, under regulations promulgated under the Israeli Companies Law, the insurance of office holders of a company in which there is a controlling shareholder who is also an office holder, a board approval is also required, subject to meeting the aforesaid conditions.
Our amended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Israeli Companies Law.
The foregoing descriptions summarize the material aspects and practices of our board of directors. For additional details, we also refer you to the full text of the Israeli Companies Law, as well as of our amended and restated articles of association, which articles are an exhibit to this annual report on Form 20-F, and are incorporated herein by reference.
61
There are no service contracts between the Company, on the one hand, and our directors in their capacity as directors, on the other hand, providing for benefits upon termination of service.
Approval of Related Party Transactions under Israeli Law
General
Under the Israeli Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:
| ● | the office holder acts in good faith and the act or its approval does not cause harm to the company; and | |
| ● | the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter. |
Disclosure of Personal Interests of an Office Holder
The Israeli Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have, and all related material information known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
| ● | the office holder’s relatives; or | |
| ● | any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager. |
An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Israeli Companies Law, an extraordinary transaction is a transaction:
| ● | not in the ordinary course of business; | |
| ● | not on market terms; or |
| ● | that is likely to have a material effect on the company’s profitability, assets or liabilities. |
The Israeli Companies Law does not specify to whom within us or the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our board of directors.
Under the Israeli Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is in the company’s interest. If the transaction is an extraordinary transaction in which an office holder has a personal interest, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. A director who has a personal interest in a transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majority of members of the board of directors or the audit committee, as the case may be, has a personal interest. If a majority of the board of directors has a personal interest, then shareholder approval is generally also required.
62
Disclosure of Personal Interests of a Controlling Shareholder
Under the Israeli Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of engagement and compensation of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee or the compensation committee, as the case may be, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’ meeting, in that order. In addition, the shareholder approval must fulfill one of the following requirements:
| ● | at least a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or | |
| ● | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.
The Israeli Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote. However, under the New Exemptions, by signing and submitting a proxy card in order to participate in a general meeting, a shareholder declares and approves that he or she has no personal interest in the approval of any of the items on the meeting agenda that requires such declaration under the Israeli Companies Law, with the exception of a personal interest that the shareholder positively informed the company about.
The term “controlling shareholder” is defined in the Israeli Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. In the context of a transaction involving a related party, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated.
Approval of the Compensation of Directors and Executive Officers
The compensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval of the company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify, insure or exculpate is inconsistent with the company’s stated compensation policy, or if the said office holder is the chief executive officer of the company (subject to a number of specific exceptions), then such arrangement is subject to the approval of our shareholders, subject to a Special Majority .
Directors . Under the Israeli Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Israeli Companies Law or under our compensation policy, the approval of the general meeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Israeli Companies Law have been considered by the compensation committee and board of directors, shareholder approval by a Special Majority will be required.
63
Executive officers other than the chief executive officer. The Israeli Companies Law requires the approval of the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) only if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders by a Special Majority. However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
Chief executive officer. Under the Israeli Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders by a Special Majority. However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may, under special circumstances, override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision, and after another review of the compensation arrangement, and reviewing in the aforementioned discussion, among other things, the shareholders’ objection. In addition, the compensation committee may exempt the engagement terms of a candidate to serve as the chief executive officer from shareholders’ approval, if the compensation committee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjecting the approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s chief executive officer (and provide detailed reasons for the latter).
The approval of each of the compensation committee and the board of directors, with regard to the office holders and directors above, must be in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committee and the board of directors may approve compensation terms of a chief executive officer that are inconsistent with the company’s compensation policy provided that they have considered those provisions that must be included in the compensation policy according to the Israeli Companies Law and that shareholder approval was obtained by a Special Majority requirement.
Duties of Shareholders
Under the Israeli Companies Law, a shareholder has a duty to refrain from abusing his power in the company and to act in good faith and in an acceptable manner in exercising his rights and performing his obligations toward the company and other shareholders, including, among other things, in voting at general meetings of shareholders (and at shareholder class meetings) on the following matters:
| ● | amendment of the articles of association; |
| ● | increase in the company’s authorized share capital; | |
| ● | merger; and | |
| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |
A shareholder also has a general duty to refrain from oppressing other shareholders. The remedies generally available upon a breach of contract will also apply to a breach of the above-mentioned duties, and in the event of oppression of other shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
64
| D. | Employees. |
As of December 31, 2024, we had 3 senior management positions on a full-time basis, all engaged as employees. In addition to our senior management, we had approximately 65 employees, sub-contractor’s employees and consultants, on full and part time basis, almost all of whom are located in Israel.
Out of the total number of employees, in sales and development/support activities we employed approximately 25 employees/consultants in each activity, while 15 employees were occupied in general, administrative and corporate activities. None of our employees is represented by labor unions or covered by collective bargaining agreements.
As of December 31, 2023, we had 2 senior management positions on a full-time basis, both engaged as employees. In addition to our senior management, we had approximately 50 employees, sub-contractor’s employees and consultants, on full and part time basis, almost all of whom are located in Israel.
As of December 31, 2022, we had 2 senior management positions on a full-time basis and one executive on part-time basis. All were engaged as employees. In addition to our senior management, we had approximately 50 employees, sub-contractor’s employees and consultants, on full and part time basis, almost all of whom are located in Israel.
| E. | Share Ownership. |
The following table lists as of March 10, 2025, the number of our shares beneficially owned by each of our office holders as a group:
|
No. of Shares
Beneficially Owned (1) |
Percentage Owned (2) |
|||||||
| Chen Katz (3) | 603,330 | * | ||||||
| Shachar Daniel (4) | 734,025 | 1.0 | ||||||
| Shai Avnit (5) | 369,586 | * | ||||||
| Omer Weiss (6) | 41,670 | * | ||||||
| Avi Rubinstein (7) | 104,391 | * | ||||||
| Rakefet Remigolski (8) | 100,000 | * | ||||||
| Yehuda Halfon (9) | 95,938 | * | ||||||
| Moshe Tal (10) | 95,938 | * | ||||||
| All office holders as a group (8 persons) | 2,144,878 | 3.0 | % | |||||
| * | Less than 1%. |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. |
65
| (2) | The percentages shown are based on 69,340,990 Ordinary Shares as issued and outstanding as of March 10, 2025. |
| (3) | Includes 108,330 Ordinary Shares issued from RSUs, and stock options to purchase 495,000 Ordinary Shares at exercise prices range between NIS 1.51 (approximately $0.42) and NIS 6.04 per share (approximately $1.66) that are exercisable within 60 days. In addition, Mr. Katz holds 191,670 RSUs, and options to purchase 45,000 Ordinary Shares at an exercise price of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Mr. Katz’s options have expiration dates ranging between August 1, 2030, to November 8, 2032. See also Item 7.A., with respect to certain Ordinary Shares over which the Chairman of the Company or another designee may exercise a proxy with respect to limited items. Such shares are not included in the table above, as they are based on the office of the chairperson rather than Mr. Katz’s personal beneficial ownership. |
| (4) | Includes 199,998 Ordinary Shares issued from RSUs, and stock options to purchase 534,027 Ordinary Shares at an exercise price range between NIS 1.51 (approximately $0.42) and NIS 6.04 per share (approximately $1.66) that are exercisable within 60 days. In addition, Mr. Daniel holds 299,994 RSUs, and options to purchase 90,000 Ordinary Shares at an exercise price of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Mr. Daniel’s options have expiration dates ranging from August 1, 2030, to November 8, 2032. |
| (5) | Includes 87,500 Ordinary Shares issued from RSUs, and stock options to purchase 282,086 Ordinary Shares at an exercise price range between NIS 1.27 (approximately $0.35) and NIS 4.00 per share (approximately $1.10) that are exercisable within 60 days. In addition, Mr. Avnit holds 212,500 RSUs, and options to purchase 87,501 Ordinary Shares at an exercise price of NIS 1.27 per share (approximately $0.35) that are not exercisable within 60 days. Mr. Avnit’s options have expiration dates ranging from August 25, 2031, to November 28, 2032. |
| (6) | Includes 41,670 Ordinary Shares issued from RSUs. In addition, Mr. Weiss holds 108,342 RSUs that are not exercisable within 60 days. |
| (7) | Includes 50,000 Ordinary Shares issued from RSUs, and stock options to purchase 54,391 Ordinary Shares at an exercise price range between NIS 1.51 (approximately $0.42) and NIS 4.00 per share (approximately $1.10) that are exercisable within 60 days, held by Mr. Rubinstein’s wholly owned affiliate. In addition, Mr. Rubinstein holds, through his wholly owned affiliate, 100,000 RSUs, and options to purchase 8,750 Ordinary Shares at an exercise price of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Mr. Rubinstein’s options have expiration dates ranging from August 25, 2031, to November 8, 2032. |
| (8) | Includes 50,000 Ordinary Shares issued from RSUs, stock options to purchase 50,000 Ordinary Shares at an exercise price range between NIS 1.51 (approximately $0.42) and NIS 4.60 per share (approximately $1.27) that are exercisable within 60 days. In addition, Ms. Remigolski holds 100,000 RSUs, and options to purchase 8,750 Ordinary Shares at an exercise price ranging of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Ms. Remigolski’s options have expiration dates ranging between July 22, 2031, to November 8, 2032. |
| (9) | Includes 50,000 Ordinary Shares issued from RSUs, stock options to purchase 45,938 Ordinary Shares at an exercise price range between NIS 1.51 (approximately $0.42) and NIS 4.60 per share (approximately $1.27) that are exercisable within 60 days. In addition, Mr. Halfon holds 100,000 RSUs, and options to purchase 8,750 Ordinary Shares at an exercise price ranging of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Mr. Halfon’s options have expiration dates ranging between July 22, 2031, to November 8, 2032. |
| (10) | Includes 50,000 Ordinary Shares issued from RSUs, stock options to purchase 45,938 Ordinary Shares at an exercise price range between NIS 1.51 (approximately $0.42) and NIS 4.60 per share (approximately $1.27) that are exercisable within 60 days. In addition, Mr. Tal holds 100,000 RSUs, and options to purchase 8,750 Ordinary Shares at an exercise price ranging of NIS 1.51 per share (approximately $0.42) that are not exercisable within 60 days. Mr. Tal’s options have expiration dates ranging between July 22, 2031, to November 8, 2032. |
66
Global Equity Incentive Plan
We maintain one equity incentive plan – the Amended and Restated Global Incentive Plan, or the Global Incentive Plan. As of the date of this Annual Report, the total number of Ordinary Shares reserved for the exercise of outstanding options or vesting of outstanding RSUs under the Global Incentive Plan was 12,374,589. The total number of Ordinary Shares issued under the Global Incentive Plan is 8,188,755, of which 4,825,467 options to purchase 4,825,467 Ordinary Shares were issued and outstanding, with exercise prices ranging between NIS 0.00 and NIS 6.04 (approximately $1.66) per share and 3,363,288 RSUs were granted, representing the right to receive 3,077,172 Ordinary Shares. An amount of 4,185,834 Ordinary Shares is reserved for future issuances under the Global Incentive Plan.
Our Global Incentive Plan was first adopted by our board of directors in July 2016, and expires in July 2026. Our employees, directors, officers, and services providers, including those who are our controlling shareholders, as well as those of our affiliated companies, are eligible to participate in this plan.
Our Global Incentive Plan is administered by our board of directors, regarding the granting of options, restricted shares or RSUs and the terms of such grants, including exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of this plan. Eligible Israeli employees, officers and directors, would qualify for provisions of Section 102(b)(2) of the Israeli Income Tax Ordinance of 1961 (New Version), or the Tax Ordinance. Pursuant to such Section 102(b)(2), qualifying options and shares issued upon exercise of such options are held in trust and registered in the name of a trustee selected by the board of directors. The trustee may not release these options or shares to the holders thereof for two years from the date of the registration of the options in the name of the trustee. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options or ordinary shares by the trustee to the employee or upon the sale of the options or ordinary shares, and gains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions. Our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(9) of the Tax Ordinance, which does not provide for similar tax benefits. The Global Equity Plan also permits granting options to Israeli grantees who do not qualify under Section 102(b)(2).
As a default, our Global Incentive Plan provides that upon termination of employment for any reason, other than in the event of death, retirement, disability or cause, all unvested options will expire and all vested options will generally be exercisable for 90 days following such termination, subject to the terms of the Global Incentive Plan and the governing option agreement. Notwithstanding the foregoing, in the event the employment is terminated for cause (including, inter alia, due to dishonesty toward the Company or its affiliate, substantial malfeasance or nonfeasance of duty, unauthorized disclosure of confidential information, and conduct substantially prejudicial to the business of the Company or affiliate; or any substantial breach by the optionee of his or her employment or service agreement) all options granted to such employee, whether vested or unvested, will not be exercisable and will terminate on the date of the termination of his employment.
Upon termination of employment due to death or disability, all the options vested at the time of termination and within 60 days after the date of such termination, will generally be exercisable for 12 months, or such other period as determined by the plan administrator, subject to the terms of the Global Incentive Plan and the governing option agreement.
On January 20, 2019, our board of directors adopted an appendix to the Global Incentive Plan for U.S. residents, which was thereafter amended by the board of directors, with effect from September 22, 2022. Under this appendix, the Global Incentive Plan provides for the granting of options to U.S. residents. The U.S. Global Incentive Plan and appendix have been approved by our shareholders on May 23, 2019. On September 22, 2022, our board of directors approved an amendment of the Global Incentive Plan, reflecting the addition of restricted shares and RSUs as an available means of award to be granted to participants eligible to participate in the Global Incentive Plan.
On September 13, 2023, our board of directors approved an increase in the number of Ordinary Shares reserved for issuance under the Global Incentive Plan by 5,000,000 Ordinary Shares, from 7,448,661 to 12,448,661.
| F. | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
Not applicable.
67
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
We are not aware of any beneficial owner of 5% or more of our outstanding Ordinary Shares.
Changes in Percentage Ownership by Major Shareholders
Over the course of 2024 and through March 2025, there were decreases in the percentage ownership of Mr. Yotam Benattia (from 5.8% to 2.3%).
Over the course of 2023 and through March 2024, there were decreases in the percentage ownership of Messrs. Yotam Benattia (from 8.5% to 5.8%) and Roni Lev (from 8.5% to 4.8%).
Over the course of 2022 and until March 24, 2023, there were no decreases in the percentage ownership of major shareholders. There were increases in the percentage ownership of some of our former major shareholders: (i) Mr. Roni Lev (from 6.4% to 8.5%), and (ii) Mr. Yotam Benattia (from 6.4% to 8.5%) .
Record Holders
The number of record holders is not representative of the number of beneficial holders of our Ordinary Shares, as the shares of all shareholders for a publicly traded company such as ours which is listed on the Tel Aviv Stock Exchange are recorded in the name of our Israeli share registrar, The Tel Aviv Stock Exchange Nominee Company Ltd. Accordingly, as of March 10, 2025, there are two shareholders of record of our Ordinary Shares, one which is located in Israel and another which is located in the U.S. Based upon a review of the information provided to us by The Bank of New York Mellon, the depository of the ADSs, as of March 10, 2025, there were 104 holders of record of the ADSs on record with the Depository Trust Company.
These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were held of record by brokers or other nominees.
The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to the Company which would result in a change in control of the Company at a subsequent date.
B. Related Party Transactions
Employment and Services Agreements
We have entered into written employment or services agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors’ and officers’ insurance. Members of our senior management are eligible for bonuses each year. The bonuses are payable upon meeting objectives and targets that are set by our Chief Executive Officer and approved annually by our board of directors that also set the bonus targets for our Chairman and Chief Executive Officer, all in accordance with our compensation policy.
68
Options
Since our inception, we have granted options to purchase our Ordinary Shares and RSUs, or, collectively, equity incentive awards, to our officers and directors. Such equity incentive award agreements may contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our equity incentive plans under “Share Ownership—Stock Option Plans.” If the relationship between us and an executive officer or a director is terminated, except for cause (as defined in the various equity incentive plan agreements), and unless otherwise approved by our board of directors and shareholders, as applicable, options that are vested will generally remain exercisable for three months after such termination. Any unvested RSUs at the time of such termination shall be automatically cancelled.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
Dividends
We have never declared or paid any cash dividends on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Payment of dividends may be subject to Israeli withholding taxes. See “Item 10.E. Taxation”, for additional information.
Legal Proceedings
On February 16, 2025, we, along with our Chief Executive Officer, Mr. Shachar Daniel, and our Chief Financial Officer, Mr. Shai Avnit, were served with a motion to certify a claim as a class action in the Economic Department at the District Court in Tel Aviv, Israel, or the Motion. The Motion refers to statements between March 14, 2024 and August 26, 2024. In the Motion, Tal Machanian, or the Plaintiff, alleges that based on our announcement dated August 26, 2024, which included financial outlook for third quarter of 2024, we allegedly made various untrue and misleading statements regarding our business, operations and prospects. We have also been made aware of, but not formally served with, a complaint of similar nature filed in the United States District Court for the District of New Jersey, or the U.S. Complaint, against us, Mr. Daniel, Mr. Avnit, and our chairman, Mr. Chen Katz.
After an initial review of the Motion and the U.S. Complaint, we believe that both actions are unfounded, relying on false chronological and factual basis and without legitimate grounds. We intend to defend itself vigorously against the proceedings.
69
B. Significant Changes
No significant change, other than as otherwise described in this annual report on Form 20-F, has occurred in our operations since the date of our consolidated financial statements included in this annual report on Form 20-F.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our ADSs are traded on the Nasdaq Capital Market and TASE under the symbol “ALAR”.
B. Plan of Distribution
Not applicable.
C. Markets
Our Ordinary Shares are listed on the TASE. Our ADSs are listed on the Nasdaq Capital Market.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this annual report on Form 20-F. The information called for by this Item is set forth in Exhibit 2(d) to this annual report on Form 20-F and is incorporated by reference into this annual report on Form 20-F.
C. Material Contracts
Except as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20-F, other than contracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above, “Item 4.B. Business Overview” above, see “Item 5.B Liquidity and Capital Resources - Change in cash and cash equivalents” above or “Item 7.A. Major Shareholders” above.
70
Strategic Funding
On August 8, 2022, we signed a strategic funding agreement with O.R.B., as further amended, of up to $4.0 million to support the growth of our consumer access solutions and its customer acquisition program. The repayment of the funding was based on a revenue share model in connection with sales generated from new customers acquired with each funding installment. On October 27, 2022, we amended the agreement with O.R.B. to provide for the cancellation of funding milestones as well as the removal of any discretion previously granted to O.R.B. in connection with the additional $2 million funding out of the $4 million facility. On September 7, 2023, in furtherance of our decision to scale down operations of our consumer data collection business in order to focus on revenue that yields high return on investment and profitability, the Company and O.R.B. agreed to further amend the O.R.B. agreement. Pursuant to the amendment, O.R.B. agreed to (i) cancel and waive all rights in connection with the warrants issued to O.R.B. as part of the O.R.B. agreement (a total of warrants to purchase 5,006,386 ordinary shares of the Company in aggregate), (ii) waive any entitlement to a percentage, portion, or share of revenue in connection with the principal facility amount withdrawn by the Company (which amounted to an aggregate total of $2.55 million), and (iii) extend the repayment schedule of the principal facility from 24 to 30 months, at the Company’s discretion. Following final repayment of the principal facility, the Company is entitled to all revenue generated from the customers acquired under the strategic funding. In consideration of said amendments of the O.R.B. agreement, O.R.B. was entitled to a total of $0.5 million.
As of December 31, 2024, we received aggregate funding of $2.6 million and repaid to O.R.B. an amount of approximately $1.5 million from the revenues that were generated as a result of the funding. As of December 31, 2024, approximately $1.1 million was outstanding.
D. Exchange Controls
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The ownership or voting of our Ordinary Shares by non-residents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is not restricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.
E. Taxation.
ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS
The following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income tax considerations concerning the ownership and disposition of our Ordinary Shares by holders that purchase Ordinary Shares pursuant to the offering and hold such Ordinary Shares as capital assets. This summary does not discuss all the aspects of Israeli income tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annual report on Form 20-F and does not take into account possible future amendments which may be under consideration.
General Corporate Tax Structure in Israel
In 2024, Israeli resident companies like us are generally subject to corporate tax at the rate of 23.0%. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise or Preferred Technological Enterprise (as discussed below) may be considerably less.
Capital gains derived by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli resident” for tax purposes if it meets one of the following: (a) it was incorporated in Israel; or (b) the management and control of its business are exercised in Israel.
71
Taxation of our Israeli Individual Shareholders on Receipt of Dividends
Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Ordinary Shares (other than bonus shares or share dividends) at a rate of 25.0%, or 30.0% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding 12-month period.
As of January 1, 2017, an additional income tax at a rate of 3.0% is imposed on high earners whose annual taxable income or gain exceeds certain thresholds (NIS 721,560 for 2024). On January 1, 2025, the tax rate on passive income that exceeded the thresholds was increased to 5%.
A “substantial Shareholder” is generally a person who alone, or together with his or her relative, as defined under section 88 of the Israeli Income Tax Ordinance [New Version], 1961, or the Israeli Tax Ordinance, or another person who collaborates with him based on an agreement on substantive matters of the company on a regular basis, holds, directly or indirectly, at least 10.0% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote in a general meeting of shareholders or receive profits, nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or she is to exercise such right(s), and whether by virtue of shares, rights to shares or other rights, or in any other manner, including by means of voting or trusteeship agreements.
The term “Israeli resident” for individuals is generally defined under the Israeli Tax Ordinance, as an individual whose center of life is in Israel. According to the Israeli Tax Ordinance, in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including, but not limited to: (a) the place of the individual’s permanent home; (b) the place of residence of the individual and the individual’s family; (c) the place of the individual’s regular or permanent place of business or the place of the individual’s permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activities in organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for 183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence in Israel in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by the assessing officer.
Taxation of Israeli Resident Corporations on Receipt of Dividends
Israeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Ordinary Shares unless the distribution is from a Preferred Enterprise, as defined below.
Capital Gains Taxes Applicable to Israeli Resident Shareholders
The income tax rate applicable to Real Capital Gain, which is the excess of the total capital gain over inflationary surplus computed generally on the basis of the increase in the Israeli consumer price index between the date of purchase and the date of disposal, derived by an Israeli individual from the sale of shares which had been purchased after January 1, 2012, whether listed on a stock exchange or not, is 25.0%. However, if such shareholder is considered a “Substantial Shareholder” (as defined above) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30.0%. As of January 1, 2025, an additional income tax at a rate of 5% is imposed on high earners whose annual taxable income exceeds certain thresholds (NIS 721,560) (2% of this tax is imposed on passive income that exceeds the thresholds). During the years 2017-2024 the rate of this tax was 3%.
Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary business income, are taxed in Israel at ordinary income rates (currently, up to 47.0% +3% for individuals and the corporate tax rate is 23.0%).
72
Taxation of Non-Israeli Shareholders on Receipt of Dividends
Non-Israeli residents (individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our Ordinary Shares at the rate of 25.0% (or 30.0% if such person or entity is a “substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date), which tax will be withheld at source, unless a tax certificate is obtained from the Israeli Tax Authority, or ITA, authorizing withholding-exempt remittances or a reduced rate of tax pursuant to an applicable tax treaty.
Notwithstanding the foregoing, a dividend paid by the Company arising from the profits of a preferred enterprise and/or a preferred technological enterprise entitled to tax benefits under the Capital Investment Encouragement Law shall generally be taxable at 20% for individuals, unless subject to a lower rate under the relevant double taxation treaties. Corporations will generally be subject to a withholding tax rate of either 20% (Preferred Enterprise) or a reduced rate of 4% (Preferred Technological Enterprise), subject to fulfillment of certain conditions.
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by such taxpayer, and such taxpayer has no other taxable sources of income in Israel.
For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25.0%, or 15.0% in the case of dividends paid out of the profits of an Approved Enterprise, subject to certain conditions. Where the recipient is a U.S. corporation owning 10.0% or more of the issued and outstanding voting shares of the paying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) and not more than 25.0% of the gross income of the paying corporation for such prior taxable year (if any) consists of certain interest or dividends and the dividend is not paid from the profits of an Approved Enterprise, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.
Capital Gains Income Taxes Applicable to Non-Israeli Shareholders
Provided certain conditions are met, non-Israeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Ordinary Shares, provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations’ shareholders will not be entitled to the foregoing exemptions if Israeli residents (i) have a controlling interest of more than 25.0% in such non-Israeli corporation or (ii) are the beneficiaries of or are entitled to 25.0% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Ordinary Shares, the payment of the consideration may be subject to withholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
Law for the Encouragement of Capital Investments
The Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible intangible assets) by “Industrial Enterprises” (as defined under the Investment Law). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law, referred to as an Approved Enterprise, a Beneficiary Enterprise, a Preferred Enterprise, a Preferred Technological Enterprise, or a Special Preferred Technological Enterprise, is entitled to benefits as discussed below. These benefits may include cash grants from the Israeli government and tax benefits based upon, among other things, the geographic location in Israel of the facility in which the investment is made.
73
On January 1, 2011, new legislation amending the Investment Law came into effect, or the 2011 Amendment. The 2011 Amendment introduced a new status of Preferred Enterprise. Subject to certain conditions, a Preferred Enterprise entitles the company to reduced corporate tax rates, without limitations on dividends and other distributions, instead of full exemption from corporate tax. These preferred corporate tax rates vary from 7.5% for Preferred Enterprises residing in a “development zone,” or 16.0% for Preferred Enterprises residing in other zones in Israel. Dividend distributions are subject to 20% tax rate, subject to the provision of the relevant tax treaty.
In order to gain the status of Preferred Enterprise, a company must meet the conditions of competitive industrial company that contributes to the GDP or comparative industrial company in the field of renewable energy.
The Investment Law was significantly amended effective as of January 1, 2017, or the 2017 Amendment. The 2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and is effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technological Enterprises,” as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The 2017 Amendment provides that a preferred company, which is defined as either (i) a company incorporated in Israel which is not wholly owned by a governmental entity, or (ii) a limited partnership that: (a) was registered under the Israeli Partnerships Ordinance; and (b) all of its limited partners are companies incorporated in Israel, but not all of them are governmental entities; which has, among other things, Preferred Enterprise status and is controlled and managed from Israel, or a Preferred Company, satisfying certain conditions will qualify as having a “Preferred Technological Enterprise” and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technological Income,” as defined in the Investment Law. The corporate tax rate may be further reduced to 7.5% with respect to a Preferred Technological Enterprise located in development zone “A,” as defined under the Investment Law. In addition, a Preferred Technological Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the Israel Innovation Authority.
Dividends distributed by a Preferred Technological Enterprise, paid out of Preferred Technological Income, are generally subject to tax at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate).
The withholding tax rate applicable to distribution of dividend from such income to non-Israeli residents is 25% (or 30% if distributed to a “substantial shareholder” at the time of the distribution or at any time during the preceding twelve months period), which may be reduced by applying in advance for a withholding certificate from the ITA. A “substantial shareholder” is generally a person who, alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “Means of Control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right.
In addition, if such dividends are distributed to a foreign company that holds solely or together with other foreign companies 90% or more in the Israeli company and other conditions are met (including that less than 25% of the shareholder of the foreign company are Israeli residents), the withholding tax rate will be 4% (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld.
Alarum, CyberKick and Safe-T Data are currently in a loss position for Israeli tax purposes, while NetNut is profitable. We have obtained a tax ruling from the Israel Tax Authority regarding NetNut’s status as a preferred Technological Enterprise, which is in effect for the years 2024-2028, subject to certain provisions. In order to remain eligible for the tax benefits as a Preferred Technological Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and under the condition that there will be no change in the business activity and/or in the business model or a significant reduction in the scope of research and development.
To date, we believe that NetNut is qualified as a Preferred Technological Enterprise under the 2017 Amendment. However, in the future, if these tax benefits are reduced, cancelled or discontinued, NetNut’s income from the Preferred Technological Enterprise would be subject to regular Israeli corporate tax rates. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs.
74
Material U.S. Federal Income Tax Considerations to U.S. Holders
The following discussion describes the material U.S. federal income tax considerations relating to the ownership and disposition of our Ordinary Shares by U.S. Holders (as defined below). This discussion applies to U.S. Holders that hold such Ordinary Shares as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold Ordinary Shares as part of a “straddle”, “hedge”, “conversion transaction”, “synthetic security” or integrated investment, persons who received their Ordinary Shares as compensatory payments, persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through attribution 10% or more of our shares by vote or value, persons subject to special tax accounting rules as a result of any item of gross income with respect to the shares being taken into account in an applicable financial statement, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities, and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax or Medicare tax consequences.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of Ordinary Shares that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Ordinary Shares, the U.S. federal income tax consequences relating to an investment in the ordinary shares will depend in part upon the status and activities of such entity or arrangement and the particular partner. Any such entity or arrangement should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the ownership and disposition of Ordinary Shares.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Passive Foreign Investment Company Consequences
In general, a corporation organized outside the United States will be treated as PFIC for any taxable year in which either (1) at least 75% of its gross income is “passive income”, the PFIC income test, or (2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income, the PFIC asset test. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
75
Our status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which, generally may be determined based on the fair market value of each asset, with the value of goodwill and going concern value being determined in large part by reference to the market value of our Ordinary Shares, which may be volatile). Based upon the estimated value of our assets, including any goodwill, and the nature and estimated composition of our income and assets, we do not expect to be classified as a PFIC for the taxable year ended December 31, 2024 and in future taxable years, although there can be no assurance in this regard. In particular, so long as we do not generate revenue from operations for any taxable year and do not receive any research and development grants, or even if we receive a research and development grant, if such grant does not constitute gross income for U.S. federal income tax purposes, we likely will be classified as a PFIC for such taxable year. Even if we determine that we are not a PFIC for a taxable year, there can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge our position. Our status as a PFIC is a fact-intensive determination made on an annual basis after the end of each taxable year. Accordingly, our U.S. counsel expresses no opinion with respect to our PFIC status for our taxable year ended December 31, 2024 and also expresses no opinion with regard to our expectations regarding our PFIC status in the future.
If we are a PFIC in any taxable year during which a U.S. Holder owns Ordinary Shares, the U.S. Holder could be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the Ordinary Shares, and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of the Ordinary Shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for Ordinary Shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.
If we are a PFIC for any year during which a U.S. Holder holds Ordinary Shares, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds the Ordinary Shares, unless we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the Ordinary Shares. If the election is made, the U.S. Holder will be deemed to sell the Ordinary Shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s Ordinary Shares would not be treated as shares of a PFIC unless we subsequently become a PFIC.
If we are a PFIC for any taxable year during which a U.S. Holder holds Ordinary Shares and one of our non-U.S. corporate subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to our non-U.S. subsidiaries.
If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on Ordinary Shares if such U.S. Holder makes a valid “mark-to-market” election for our Ordinary Shares. A mark-to-market election is available to a U.S. Holder only for “marketable stock.” Our Ordinary Shares will be marketable stock as long as they remain listed on the Nasdaq Capital Market and are regularly traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take into account, as ordinary income for each taxable year of the U.S. holder, the excess of the fair market value of Ordinary Shares held at the end of such taxable year over the adjusted tax basis of such Ordinary Shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such Ordinary Shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in Ordinary Shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of Ordinary Shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss.
76
A mark-to-market election will not apply to Ordinary Shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any non-U.S. subsidiaries that we may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier PFICs that we may organize or acquire in the future notwithstanding the U.S. Holder’s mark-to-market election for the Ordinary Shares.
The tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able to make a valid QEF election. At this time, we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election. Prospective investors should assume that a QEF election will not be available.
Each U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
The U.S. federal income tax rules relating to PFICs are very complex. U.S. Holders are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the ownership and disposition of Ordinary Shares, the consequences to them of an investment in a PFIC, any elections available with respect to the Ordinary Shares and the IRS information reporting obligations with respect to the ownership and disposition of Ordinary Shares of a PFIC.
Distributions
We do not anticipate declaring or paying dividends to holders of our ordinary stock in the foreseeable future. However, if we make a distribution contrary to the expectation, subject to the discussion above under “— Passive Foreign Investment Company Consequences ,” a U.S. Holder that receives a distribution with respect to Ordinary Shares generally will be required to include the gross amount of such distribution in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s Ordinary Shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s Ordinary Shares, the remainder will be taxed as capital gain. Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported to them as dividends.
Distributions on Ordinary Shares that are treated as dividends generally will constitute income from sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Subject to certain complex conditions and limitations, Israeli taxes withheld on any distributions on Ordinary Shares may be eligible for credit against a U.S. Holder’s federal income tax liability. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
77
Dividends paid by a “qualified foreign corporation” are eligible for taxation to non-corporate U.S. holders at a reduced capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain requirements are met. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances. Distributions on Ordinary Shares that are treated as dividends generally will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information provision, or (b) with respect to any dividend it pays on Ordinary Shares that are readily tradable on an established securities market in the United States. We believe that we qualify as a resident of Israel for purposes of, and are eligible for the benefits of, the U.S.-Israel Treaty, although there can be no assurance in this regard. Further, the IRS has determined that the U.S.-Israel Treaty is satisfactory for purposes of the qualified dividend rules and that it includes an exchange of information provision. Our Ordinary Shares will also generally be considered to be readily tradable on an established securities market in the United States if they are listed on The Nasdaq Capital Market. Therefore, subject to the discussion above under “—Passive Foreign Investment Company Consequences,” if the U.S.-Israel Treaty is applicable, or if our Ordinary Shares are readily tradable on an established securities market in the United States, such dividends will generally be “qualified dividend income” in the hands of individual U.S. Holders, provided that certain conditions are met, including holding period and the absence of certain risk reduction transaction requirements. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion above under “— Passive Foreign Investment Company Consequences ,” a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of Ordinary Shares in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the Ordinary Shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the Ordinary Shares were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other disposition of Ordinary Shares will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Information Reporting and Backup Withholding
U.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in Ordinary Shares, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “ Passive Foreign Investment Company Consequences ”, each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying more than US $100,000 for Ordinary Shares may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting.
Dividends on and proceeds from the sale or other disposition of Ordinary Shares may be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder (1) fails to provide an accurate United States taxpayer identification number or otherwise establish a basis for exemption (usually on IRS Form W-9), or (2) is described in certain other categories of persons. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
U.S. Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
78
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports with the SEC. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also be available to the public through the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing consolidated financial statements audited by an independent registered public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited quarterly financial information.
In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to, the TASE and the ISA, as required under Chapter Six of the Securities Law. Copies of our filings with the ISA can be retrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).
We maintain a corporate website https://alarum.io/. Information contained on, or that can be accessed through, our website and the other websites referenced above do not constitute a part of this annual report on Form 20-F. We have included these website addresses in this annual report on Form 20-F solely as inactive textual references.
I. Subsidiary Information.
Not applicable.
J. Annual Report to Security Holders.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.
79
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-minus. Accordingly, a substantial majority of our cash is held in deposits that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of NIS/U.S. dollar exchange rates, which is discussed in detail in the following paragraph.
Foreign Currency Exchange Risk
Our sales contracts are primarily denominated in U.S. dollars. A material portion of our operating expenses is incurred outside the United States and can be denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the NIS. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of profit or loss. The effect of a hypothetical 10% adverse change in foreign exchange rates on monetary assets and liabilities on December 31, 2024, can be material to our financial condition or results of operations. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.
As our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our non-U.S. expansion as well as the Israeli headquarters costs.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
C. Other Securities.
Not applicable.
80
D. American Depositary Shares
Fees and Expenses
| Persons depositing or withdrawing shares or ADS holders must pay : | For: | |
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs). |
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property.
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates. |
|
| $.05 (or less) per ADS. | Any cash distribution to ADS holders. | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs. | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders. | |
| $.05 (or less) per ADS per calendar year. | Depositary services. | |
| Registration or transfer fees. | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares. | |
| Expenses of the depositary. |
Cable (including SWIT) and facsimile transmissions (when expressly provided in the deposit agreement).
Converting foreign currency to U.S. dollars. |
|
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes. | As necessary. | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities. | As necessary. |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads, or commissions.
The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
As an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights. The Depositary is the holder of the shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the Depositary, ADS holders, and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the Depositary. New York law governs the deposit agreement and the ADSs.
81
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
| (a) | Disclosure Controls and Procedures |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
| (b) | Management’s Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2024 based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
| (c) | Attestation Report of the Registered Public Accounting Firm |
Our internal control over financial reporting as of December 31, 2024, has been audited by Kesselman Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, as stated in their report which is included under “Item 18—Financial Statements.”
| (d) | Changes in Internal Control over Financial Reporting |
During the year ended December 31, 2024, there were no changes to our internal control over financial reporting , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [Reserved].
82
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that each member of our audit committee is an audit committee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaq Stock Market rules.
ITEM 16B. CODE OF ETHICS
We have adopted a written code of ethics that applies to our directors, executive officers and employees. Our Code of Business Ethics is posted on our website at https://www.alarum.io. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report on Form 20-F and is not incorporated by reference herein. If we make any amendment to the Code of Business Ethics or grant any waivers, including any implicit waiver, from a provision of the code, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC including the instructions to Item 16B of Form 20-F. We have not granted any waivers under our Code of Business Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kesselman Kesselman, a member firm of PricewaterhouseCoopers International Limited, has served as our principal independent registered public accounting firm for each of the two years ended December 31, 2024, and 2023.
The following table provides information regarding fees paid by us to Kesselman Kesselman, a member firm of PricewaterhouseCoopers International Limited for all services, including audit services, for the years ended December 31, 2024, and 2023:
|
Year Ended
December 31, |
||||||||
| 2024 | 2023 | |||||||
| Audit fees (1) | $ | 195,500 | $ | 276,500 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees (2) | 19,000 | 11,750 | ||||||
| All other fees | - | - | ||||||
| Total | $ | 214,500 | $ | 288,250 | ||||
| (1) | This category includes services such as consents and assistance with and review of documents filed with the SEC as well as fees related to our registration statements and public offerings. |
| (2) | Includes professional services rendered by our independent registered public accounting firm for tax compliance and tax advice on actual or contemplated transactions. |
Pre-Approval of Auditors’ Compensation
Our audit committee has a pre-approval policy for the engagement of our independent registered public accounting firm to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit services, audit-related services and tax services that may be performed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general pre-approval, it will require specific pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the prohibited non-audit functions defined in applicable SEC rules.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
83
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a result of the listing of the ADSs on the Nasdaq Capital Market we are required to comply with the Nasdaq Stock Market rules. Under those rules, we may elect to follow certain corporate governance practices permitted under the Israeli Companies Law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by the Nasdaq Stock Market rules for U.S. domestic issuers.
In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq Stock Market rules, we have elected to follow the provisions of the Israeli Companies Law, rather than the Nasdaq Stock Market rules, with respect to the following requirements:
| ● | Distribution of periodic reports to shareholders; proxy solicitation. As opposed to the Nasdaq Stock Market rules, which require listed issuers to make such reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. In addition to making such reports available on a public website, we currently make our audited consolidated financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules. |
| ● | Quorum . While the Nasdaq Stock Market rules require that the quorum for purposes of any meeting of the holders of a listed company’s common voting stock, as specified in the company’s bylaws, be no less than 33 1/3% of the company’s outstanding common voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our amended and restated articles of association provide that a quorum of two or more shareholders holding at least 15% of the voting rights in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our amended and restated articles of association with respect to an adjourned meeting consists of at least one shareholder present in person or by proxy. |
| ● | Compensation of officers. Israeli law and our amended and restated articles of association do not require that the independent members of our board of directors (or a compensation committee composed solely of independent members of our board of directors) determine an executive officer’s compensation, as is generally required under the Nasdaq Stock Market rules with respect to the chief executive officer and all other executive officers. Instead, compensation of executive officers is determined and approved by our compensation committee and our board of directors, and in certain circumstances by our shareholders, either in consistency with our office holder compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Israeli Companies Law. | |
Shareholder approval is generally required for officer compensation in the event (i) approval by our board of directors and our compensation committee is not consistent with our office holder compensation policy, or (ii) compensation required to be approved is that of our chief executive officer or an executive officer who is also the controlling shareholder of our company (including an affiliate thereof). Such shareholder approval shall require a majority vote of the shares present and voting at a shareholders meeting, provided either (i) such majority includes a majority of the shares held by non-controlling shareholders who do not otherwise have a personal interest in the compensation arrangement that are voted at the meeting, excluding for such purpose any abstentions disinterested majority, or (ii) the total shares held by non-controlling and disinterested shareholders voted against the arrangement does not exceed 2% of the voting rights in our company.
84
Additionally, approval of the compensation of an executive officer who is also a director requires a simple majority vote of the shares present and voting at a shareholders meeting, if consistent with our office holder compensation policy. Our compensation committee and board of directors may, in special circumstances, approve the compensation of an executive officer (other than a director or a controlling shareholder) or approve the compensation policy despite shareholders’ objection, based on specified arguments and taking shareholders’ objection into account. Our compensation committee may further exempt an engagement with a nominee for the position of chief executive officer, who meets the non-affiliation requirements set forth for an external director, from requiring shareholder approval, if such engagement is consistent with our office holder compensation policy and our compensation committee determines based on specified arguments that presentation of such engagement to shareholder approval is likely to prevent such engagement. To the extent that any such transaction with a controlling shareholder is for a period exceeding three years, approval is required once every three years.
A director or executive officer may not be present when the board of directors of a company discusses or votes upon a transaction in which he or she has a personal interest, except in case of ordinary transactions, unless the chairman of the board of directors determines that he or she should be present to present the transaction that is subject to approval.
| ● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Israeli Companies Law, rather than seeking approval for corporation actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Stock Market rule, shareholder approval is generally required for: (i) an acquisition of shares/assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption/amendment of equity compensation arrangements (although under the provisions of the Israeli Companies Law there is no requirement for shareholder approval for the adoption/amendment of the equity compensation plan); and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (and/or via sales by directors/officers/5% shareholders) if such equity is issued (or sold) below a specified minimum price. By contrast, under the Israeli Companies Law, shareholder approval is required for, among other things: (i) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (ii) extraordinary transactions with controlling shareholders of publicly held companies, which require the Special Majority, and (iii) terms of employment or other engagement of the controlling shareholder of us or such controlling shareholder’s relative, which require special approval. In addition, under the Israeli Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
| ● | Approval of Related Party Transactions . All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transaction as set forth in the Israeli Companies Law, which requires the approval of the audit committee, or the compensation committee, as the case may be, the board of directors and shareholders, as may be applicable, for specified transactions, rather than approval by the audit committee or other independent body of our board of directors as required under the Nasdaq Stock Market rules. |
| ● | Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined under Nasdaq Stock Market Rule 5605(a)(2), and rather requires we have at least two external directors who meet the requirements of the Israeli Companies Law, as described above under “Item 6.C. Board Practices—External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the applicable Nasdaq and SEC criteria for independence (as we cannot exempt ourselves from compliance with that SEC independence requirement, despite our status as a foreign private issuer), and we must also ensure that a majority of the members of our audit committee are “unaffiliated directors” as defined in the Israeli Companies Law. Furthermore, Israeli law does not require, nor do our independent directors conduct, regularly scheduled meetings at which only they are present, which the Nasdaq Stock Market rules otherwise require. |
| ● | Annual Shareholders Meeting. As opposed to the Nasdaq Stock Market Rule 5620(a), which mandates that a listed company hold its annual shareholders meeting within one year of the company’s fiscal year-end, we are required, under the Israeli Companies Law, to hold an annual shareholders’ meeting each calendar year and within 15 months of the last annual shareholders meeting. |
85
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Item 16J. INSIDER TRADING POLICIES
We have
The Policy prohibits, among other things, insider trading and certain speculative transactions in our securities (including short sales, buying put and selling call options and other hedging or derivative transactions in our securities) and establishes a regular blackout period schedule during which directors, senior management, employees, and other covered persons may not trade in the Company’s securities, as well as certain pre-clearance procedures that directors and officers of the Company, the Company’s subsidiaries and/or affiliates must observe prior to effecting any transaction in our securities.
The Company believes that the Policy is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of the Policy is filed as Exhibit 11.1 to this Form 20-F.
ITEM 16K. CYBERSECURITY
Our approach to risk management is a combination of proactive steps, accountability, and know-how, spearheaded by internal and external cyber specialists who keep a watchful eye in searching for cyber risks and defend our organization and business from the menace of cyberspace.
To
design a consistent and responsive approach to protecting our assets and business against possible threats, we have embedded cyber security
risk management into our general framework. We incorporated cyber security risk management processes into our overall risk management
strategy and monitor cyber and business risks that potentially can impact our business continuity, reputation, or business growth.
As
part of our commitment to robust cybersecurity risk management, we engage externally qualified assessors and consultants to enhance the
effectiveness of our cybersecurity risk management processes. We employ
86
We
recognize that other organizations that provide us with services are of utmost importance to our operations. Accordingly, we have put
in place specific measures for managing and identifying potential cyber threats associated with outsourcing some of our services.
We recognize that the nature of our activities is exposed to cybersecurity threats. Similar to any other connected and online service provider we are regularly challenged by cybersecurity threats and so-called “bad actors”, all of which to date we have been able to quickly identify and contain. Although these occurrences did not materially affect our business plans, overall performance, or financial state, we acknowledge that the nature of online threats keeps on changing. As such, any future attacks may have a significant impact on our three main concerns: (a) denial of service to customers, and our business continuity, (b) financial loss, and (c) impairment of our ability to meet legal and regulatory requirements.
We are constantly taking proactive measures to enhance our cybersecurity resilience in response to persistent cybersecurity breach attempts. These measures include investing in advanced threat detection and response capabilities, conducting regular cybersecurity training for employees, and continuously refining our incident response procedures. By incorporating lessons learned from other businesses’ previous incidents, we aim to strengthen our defenses and minimize the likelihood of material impacts on our business.
Our
CISO is the key managerial role who is responsible for assessing and managing our material risks from cybersecurity threats.
Our CISO is a veteran in the cyber field, technology, and governance, risk and compliance, with more than 25 years of experience in the field of cyber security working with multinational companies and governments, securing complex high availability systems and critical infrastructure in multiple countries and environments.
87
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide consolidated financial statements and related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20-F beginning on page F-1.
ITEM 19. EXHIBITS.
88
89
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F filed on its behalf.
| ALARUM TECHNOLOGIES LTD. | ||
| By: | /s/ Shachar Daniel | |
| Shachar Daniel | ||
| Chief Executive Officer | ||
Date: March 20, 2025
90
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024
TABLE OF CONTENTS
F- 1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Alarum Technologies Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Alarum Technologies Ltd. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of profit or loss and other comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F- 2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. We determined there are no critical audit matters.
/s/
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
March 20, 2025
We have served as the Company’s auditor since 2013.
F- 3
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31 | ||||||||||
| 2024 | 2023 | |||||||||
| Note | U.S. dollars in thousands | |||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | 4 |
|
|
|||||||
| Accounts receivable: | ||||||||||
| Trade, net | 5 |
|
|
|||||||
| Other |
|
|
||||||||
|
|
|
|||||||||
| Non-current assets: | ||||||||||
| Long-term deposits |
|
|
||||||||
| Other non-current assets |
|
|
||||||||
| Property and equipment, net |
|
|
||||||||
| Right-of-use assets | 10 |
|
|
|||||||
| Deferred tax assets | 7 |
|
|
|||||||
| Debt investments at fair value through OCI | 3 |
|
||||||||
| Debt investments at fair value through profit or loss | 3 |
|
||||||||
| Intangible assets, net | 6 |
|
|
|||||||
| Goodwill | 6 |
|
|
|||||||
|
|
|
|||||||||
| Total assets |
|
|
||||||||
| Liabilities and equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accruals: | ||||||||||
| Trade |
|
|
||||||||
| Other | 8 |
|
|
|||||||
| Current maturities of long-term loans | 9 |
|
|
|||||||
| Contract liabilities |
|
|
||||||||
| Derivative financial instruments |
|
|
||||||||
| Short-term lease liabilities | 10 |
|
|
|||||||
|
|
|
|||||||||
| Non-current liabilities: | ||||||||||
| Long-term lease liabilities | 10 |
|
|
|||||||
| Long-term loans, net of current maturities | 9 |
|
|
|||||||
|
|
|
|||||||||
| Total liabilities |
|
|
||||||||
| Equity: | 13 | |||||||||
| Ordinary shares | ||||||||||
| Share premium |
|
|
||||||||
| Other equity reserves |
|
|
||||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||||
| Total equity |
|
|
||||||||
| Total liabilities and equity |
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (LOSS)
| Year ended December 31 | ||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||
| Note | U.S. dollars in thousands (except per share amounts) | |||||||||||||
| Continuing operations | ||||||||||||||
| Revenue | 15 |
|
|
|
||||||||||
| Cost of revenue | 15 |
|
|
|
||||||||||
| Gross profit |
|
|
|
|||||||||||
| Operating expenses: | ||||||||||||||
| Research and development | 16 |
|
|
|
||||||||||
| Selling and marketing | 17 |
|
|
|
||||||||||
| General and administrative | 18 |
|
|
|
||||||||||
| Impairment of goodwill |
|
|
||||||||||||
| Total operating expenses |
|
|
|
|||||||||||
| Operating profit (loss) |
|
(
|
) |
(
|
) | |||||||||
| Financial expense |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Financial income |
|
|
|
|||||||||||
| Financial income (expense), net | 19 |
|
(
|
) |
(
|
) | ||||||||
| Profit (loss) from continuing operations, before income tax |
|
(
|
) |
(
|
) | |||||||||
| Tax benefit (expense) | 7 |
(
|
) |
|
|
|||||||||
| Profit (loss) from continuing operations, net of income tax |
|
(
|
) |
(
|
) | |||||||||
| Discontinued operations | ||||||||||||||
| Profit (loss) from discontinued operations, net of income tax |
|
(
|
) | |||||||||||
| Net profit (loss) for the year |
|
(
|
) |
(
|
) | |||||||||
| Other comprehensive income (loss) for the year | 3 | |||||||||||||
| Change in the fair value of debt investments at fair value through OCI |
(
|
) | ||||||||||||
| Total comprehensive income (loss) for the year |
|
(
|
) |
(
|
) | |||||||||
| Basic profit (loss) per share: | 20 | |||||||||||||
| Continuing operations |
|
(
|
) |
(
|
) | |||||||||
| Discontinued operations |
|
(
|
) | |||||||||||
| Basic profit (loss) per share |
|
(
|
) |
(
|
) | |||||||||
| Diluted profit (loss) per share: | 20 | |||||||||||||
| Continuing operations |
|
(
|
) |
(
|
) | |||||||||
| Discontinued operations |
|
(
|
) | |||||||||||
| Diluted profit (loss) per share |
|
(
|
) |
(
|
) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F- 5
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Ordinary shares | ||||||||||||||||||||||||
| Number of shares | Amount |
Share
premium |
Other equity
reserves |
Accumulated
deficit |
Total | |||||||||||||||||||
| U.S. dollars in thousands (except share data) | ||||||||||||||||||||||||
| Balance at January 1, 2022 |
|
|
|
(
|
) |
|
||||||||||||||||||
| Changes in the year 2022: | ||||||||||||||||||||||||
| Exercise of options |
|
|
(
|
) | ||||||||||||||||||||
| Exercise of pre-funded warrants |
|
|
(
|
) | ||||||||||||||||||||
| Expiration of options | - |
|
(
|
) | ||||||||||||||||||||
| Share-based payments | - |
|
|
|||||||||||||||||||||
| Issuance of shares for service provider |
|
|
|
|||||||||||||||||||||
| Issuance of shares related to payment of earn-out consideration |
|
|
(
|
) | ||||||||||||||||||||
| Net loss for the year | - |
(
|
) |
(
|
) | |||||||||||||||||||
| Balance at January 1, 2023 |
|
|
|
(
|
) |
|
||||||||||||||||||
| Changes in the year 2023: | ||||||||||||||||||||||||
| Exercise of options |
|
|
(
|
) |
|
|||||||||||||||||||
| Exercise of warrants |
|
|
(
|
) |
|
|||||||||||||||||||
| Expiration of options | - |
|
(
|
) | ||||||||||||||||||||
| Repurchase of warrants related to the O.R.B. agreement | - |
|
(
|
) |
(
|
) | ||||||||||||||||||
| Share-based payments | - |
|
|
|||||||||||||||||||||
|
At-the-market offering, net of issuance costs of $
|
|
|
|
|||||||||||||||||||||
|
Private placement, net of issuance costs of $
|
|
|
|
|
||||||||||||||||||||
| Classification of warrants issued under private placement to equity | - |
|
|
|||||||||||||||||||||
| Issuance of shares related to payment of earn-out consideration |
|
|
(
|
) | ||||||||||||||||||||
| Net loss for the year | - |
(
|
) |
(
|
) | |||||||||||||||||||
| Balance at December 31, 2023 |
|
|
|
(
|
) |
|
||||||||||||||||||
| Changes in the year 2024: | ||||||||||||||||||||||||
| Exercise of options and vesting of RSUs |
|
|
(
|
) |
|
|||||||||||||||||||
| Exercise of warrants |
|
|
(
|
) |
|
|||||||||||||||||||
| Expiration of options | - |
|
(
|
) | ||||||||||||||||||||
| Expiration of warrants | - |
|
(
|
) | ||||||||||||||||||||
| Share-based payments | - |
|
|
|||||||||||||||||||||
| Net profit for the year | - |
|
|
|||||||||||||||||||||
| Other comprehensive loss for the year | - |
(
|
) |
(
|
) | |||||||||||||||||||
| Balance at December 31, 2024 |
|
|
|
(
|
) |
|
||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Cash flows from operating activities | ||||||||||||
| Net profit (loss) for the year |
|
(
|
) |
(
|
) | |||||||
| Adjustments for: | ||||||||||||
| Effect of exchange rate differences on cash and cash equivalents and restricted deposits balances |
|
(
|
) |
|
||||||||
| Issuance costs |
|
|||||||||||
| Change in fair value of derivative financial instruments |
|
|
(
|
) | ||||||||
| Interest income related to debt investments at fair value through OCI |
(
|
) | ||||||||||
| Change in fair value of debt investments at fair value through profit or loss |
|
|||||||||||
| Change in fair value of short-term investments |
|
|||||||||||
| Change in Israel Innovation Authority liability |
(
|
) | ||||||||||
| Interest income related to short-term investments |
(
|
) | ||||||||||
| Interest and other finance expenses related to long-term loan |
|
|
|
|||||||||
| Interest expenses related to short-term bank loans |
|
|
||||||||||
| Interest income related to short-term bank deposits |
(
|
) |
(
|
) | ||||||||
| Interest portion of lease payments |
|
|
|
|||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Impairment of goodwill and intangible assets |
|
|
||||||||||
| Gain from sale of discontinued operations |
(
|
) | ||||||||||
| Loss on disposal of property and equipment |
|
|||||||||||
| Share-based payments |
|
|
|
|||||||||
|
|
|
|
||||||||||
| Changes in asset and liability items: | ||||||||||||
| Trade receivables, net |
(
|
) |
(
|
) |
(
|
) | ||||||
| Other receivables |
|
|
(
|
) | ||||||||
| Trade payables |
(
|
) |
(
|
) |
|
|||||||
| Other payables |
|
|
(
|
) | ||||||||
| Deferred tax assets |
(
|
) |
(
|
) |
(
|
) | ||||||
| Contract liabilities |
|
|
|
|||||||||
|
|
(
|
) |
|
|||||||||
| Net cash provided by (used in) operating activities |
|
|
(
|
) | ||||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of debt investments at fair value through OCI |
(
|
) | ||||||||||
| Interest income related to debt investments at fair value through OCI |
|
|||||||||||
| Purchase of debt investments at fair value through profit or loss |
(
|
) | ||||||||||
| Purchase of short-term investments |
(
|
) | ||||||||||
| Sale of short-term investments |
|
|||||||||||
| Interest income related to short-term investments |
|
|||||||||||
| Interest related to short-term bank deposits |
|
|
||||||||||
| Investment in long-term deposits |
(
|
) |
(
|
) |
(
|
) | ||||||
| Withdrawal of long-term deposits |
|
|
||||||||||
| Investment in short-term restricted deposit |
(
|
) | ||||||||||
| Investment in long-term restricted deposits |
(
|
) |
(
|
) | ||||||||
| Withdrawal of short-term restricted deposits |
|
|||||||||||
| Withdrawal of long-term restricted deposits |
|
|
||||||||||
| Purchase of property and equipment |
(
|
) |
(
|
) |
(
|
) | ||||||
| Proceeds from sale of property and equipment |
|
|||||||||||
| Net cash provided by (used in) investing activities |
(
|
) |
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F- 7
ALARUM TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from public and private offerings |
|
|||||||||||
| Issuance costs in connection with public and private offerings |
(
|
) |
(
|
) | ||||||||
| Proceeds from at-the-market offering |
|
|||||||||||
| Issuance costs in connection with at-the-market offering |
(
|
) | ||||||||||
| Proceeds from exercise of options and warrants |
|
|
||||||||||
| Short-term bank loans received |
|
|
||||||||||
| Repayment of short-term bank loans |
(
|
) |
(
|
) | ||||||||
| Interest expenses related to short-term bank loans |
(
|
) |
(
|
) | ||||||||
| Long-term loans received |
|
|
||||||||||
| Long-term loans interest payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Long-term loans principal payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Other payments related to long-term loans |
(
|
) | ||||||||||
| Interest portion of lease payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Principal portion of lease payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Net cash provided by financing activities |
|
|
|
|||||||||
| Changes in cash and cash equivalents |
|
|
(
|
) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
(
|
) |
|
(
|
) | |||||||
| Cash and cash equivalents at beginning of the year |
|
|
|
|||||||||
| Cash and cash equivalents at end of the year |
|
|
|
|||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
| Addition of right-of-use assets |
|
|
|
|||||||||
| Proceeds for sale of discontinued operations |
|
|||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F- 8
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL:
Background
Alarum Technologies Ltd. (Nasdaq, TASE: ALAR) (“Alarum”, and collectively referred to with its wholly-owned subsidiaries as the “Company”) is a global provider of web data collection solutions.
The Company currently operates in
War in Israel
On October 7, 2023, Hamas Organization (“Hamas”) launched an unprecedented attack on Israel, infiltrating its southern border and targeting civilians and military sites while firing rockets. In response, Israel declared war on Hamas, and the conflict is ongoing. Following the attack, Hezbollah Organization (“Hezbollah”) also launched strikes on northern Israel, prompting Israeli retaliatory strikes. In October 2024, Israel initiated a ground operation in Lebanon. By the end of November 2024, Israel and Hezbollah reached a ceasefire agreement, and in January 2025, Israel and Hamas also reached a ceasefire agreement, though the stability of both agreements remains uncertain. To date, there is no material adverse impact on Company’s operations and financial results as a result of this war. However, at this time, it is not possible to predict the intensity or duration of the war, nor can the Company predict how this war will ultimately affect Israel’s economy in general. The Company continues to monitor the situation closely and examine the potential disruptions that could adversely affect its operations.
NOTE 2 - MATERIAL ACCOUNTING POLICIES:
Basis of presentation of financial statements
The consolidated financial statements as of December 31, 2024 and 2023, and for each of the three years in the period ended December 31, 2024, are in compliance with IFRS Accounting Standards, as issued by the International Accounting Standards Board.
In connection with the presentation of these consolidated financial statements, the following should be noted:
| 1) | The material accounting policies described below have been applied consistently to all the years presented, unless otherwise stated. |
| 2) | The consolidated financial statements have been prepared under the historical cost basis, except for certain financial assets and liabilities (including derivative instruments) measured at fair value. |
The preparation of consolidated financial statements in conformity with IFRS Accounting Standards requires the use of certain critical accounting estimates. It also requires the Company’s management to exercise its judgment in the process of applying the Company’s accounting policies. Actual results may differ materially from estimates and assumptions used by management. The Company’s critical accounting estimates and judgements that may result in a material adjustment to the carrying amounts of assets and liabilities are related to goodwill impairment. For further details see below.
Segments
Operating segments are reported in a manner consistent
with the internal reporting, which are provided to the chief operating decision maker. The chief operating decision maker is the Company’s
Chief Executive Officer (“CEO”), who is responsible for allocating resources and assessing the performance of the operating
segments. Historically, the Company had
F- 9
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition, following the scale down in the operations
of the Company’s wholly-owned subsidiary CyberKick Ltd. (“CyberKick”) commencing in the second quarter of 2023, as further
described in Note 6, the Company’s CEO is no longer assessing the performance of the consumer internet access segment. Therefore,
as of December 31, 2024, the Company concluded it has
Consolidated financial statements
Subsidiaries are all entities over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Intercompany balances and transactions, including income and expenses on transactions between the Company’s subsidiaries, are eliminated. The accounting policies applied by the subsidiaries are consistent with the accounting policies adopted by the Company.
Translation of foreign currency balances and transactions
Functional and presentation currency
Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the “Functional Currency”) The consolidated financial statements of the Company are presented in U.S. dollars, which is the Company’s and the Company’s subsidiaries Functional Currency.
Transactions and balances
Transactions made in a currency which is different from the functional currency are translated into the Functional Currency using the exchange rates prevailing at the dates of the transactions or valuations where the items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the end-of-year exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss as finance income (expense).
Trade receivables
The trade receivables balance represents the unconditional right to consideration because only the passage of time is required before the payment is due from Company customers for services rendered in the ordinary course of business. If collection is expected within one year or less, trade receivables are classified as current assets. If not, trade receivables are presented as non-current assets. Trade receivables are initially recognized based on their transaction price, and subsequently measured at amortized cost using the effective interest method, less a provision for expected credit losses.
The Company measures the loss allowance for expected credit losses on trade receivables that are within the scope of IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) and on financial assets for which the credit risk has increased significantly since initial recognition based on lifetime expected credit losses. Otherwise, the Company measures the loss allowance at an amount equal to 12-month expected credit losses at the current reporting date.
Debt investments at fair value through other comprehensive income
Debt investments consist of debt marketable securities which the Company classifies as financial assets measured at fair value through other comprehensive income (“OCI”). Financial assets measured at fair value through OCI are financial assets held within a business model whose purpose is both to collect contractual cash flows and to sell the financial assets, where the cash flows of the assets represent solely payments of principal and interest. Financial assets measured at fair value through OCI are initially recognized at fair value plus transaction costs. Gains or losses arising from changes in the fair value of the financial assets are taken through OCI, except for the recognition of impairment gains or losses, interest income using the effective rate method and foreign exchange gains and losses, which are recognized in profit or loss.
F- 10
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss. Foreign exchange gains and losses, impairment expenses as well as interest income from these financial assets are included in financial income (expense) in the consolidated statements of profit or loss and other comprehensive income (loss).
Intangible assets
Research and development
Through December 31, 2024 and 2023, the Company has not met the criteria for capitalizing development expenses as intangible assets, and accordingly, no asset has so far been recognized in the consolidated financial statements in respect of capitalized development expenses. Consequently, the research and development expenses of the Company are fully recognized as incurred.
Technologies
Technologies which were acquired either separately
or as part of a business combination are initially measured at fair value at the acquisition date and amortized over a period of
Customer relations
Customer relations which were acquired as part
of a business combination are initially measured at fair value at the acquisition date and amortized over a period
Goodwill
Goodwill arising from a business combination represents the excess of the overall amount of the consideration transferred, the amount of any non-controlling interests in the acquired company over the net amount as of acquisition date of the identifiable assets acquired and the liabilities assumed. Impairment reviews of the cash-generating-unit (“CGU”) to which goodwill was allocated are undertaken annually and whenever there is any indication of impairment of a CGU.
Goodwill is tested annually for impairment in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that it may be impaired. For the 2024, 2023 and 2022 reporting periods, the recoverable amount of the Company’s CGUs was determined based on value-in-use calculations. These calculations require the use of assumptions. For further details, see Note 6.
Impairment of non-monetary assets other than goodwill
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value, less selling costs and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels of identifiable cash flows. Non-monetary assets, other than goodwill, that were impaired are reviewed annually for possible reversal of the impairment recognized at each statement of financial position date. Impairment loss of technologies is recorded under cost of revenue, and of customer relations under selling and marketing expenses. For further details, see Note 6.
Financial liabilities at amortized cost
Financial liabilities at amortized cost are initially recognized at their fair value less transaction costs that are directly attributable to the issue of the financial liability and are subsequently measured at amortized cost. For further information regarding the Company’s accounting policy related to long-term loans, see Note 9.
F- 11
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Employee benefits
Vacation and recreation pay
Every employee is legally entitled to vacation and recreation benefits, which are computed on an annual basis. This entitlement is based on the term of employment. The Company charges liability and expense due to vacation and recreation pay, based on the benefits that have been accumulated for each employee.
Income taxes
Tax benefit (expense) for the reported years comprise current and deferred taxes.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the financial position date in the countries where the Company operates and generates taxable income. The Company’s management periodically evaluates the tax aspects applicable to its taxable income based on the relevant tax laws and makes provisions in accordance with the amounts payable to the applicable authorities.
Deferred income tax is provided using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the financial position date and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Share-based payments
The Company operates a number of equity-settled, share-based compensation plans, under which the Company receives services from employees as consideration for equity instruments (options and restricted share units or “RSUs”) of the Company. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted excluding the impact of any service and non-market performance vesting conditions. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the date of each financial position, the Company revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the consolidated statements of profit or loss and other comprehensive income (loss), with a corresponding adjustment to equity.
Profit (loss) per share
Basic profit (loss) per share is calculated by dividing net profit (loss) for the year by the weighted average number of ordinary shares, including pre-funded warrants, vested RSUs and vested options with zero-exercise price. When calculating the diluted profit (loss) per share, the Company adjusts the profit (loss) attributable to holders of ordinary shares and the weighted average number of shares in issue, to reflect the effect of all potentially dilutive ordinary shares.
Revenue recognition
The Company derives its revenues mainly from the following sources:
Software as a Service
The Company generates revenue from the sale of subscriptions to customers who access the Company’s platforms.
The Company’s subscription contracts are generally offered on a periodical basis, generally monthly, and include a fixed price. Customers do not have the ability to take possession of the software, and instead receive continuous access to the platform throughout the contract period. Therefore, these arrangements are accounted for as service contracts. The Company’s subscription contracts are primarily charged and paid upfront and are non-cancelable.
F- 12
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company considers the terms and conditions of the contracts and the Company’s customary business practices in identifying its contracts under IFRS 15. The Company determines it has a contract with a customer when the contract has been approved by both parties, it can identify each party’s rights regarding the services to be transferred and the payment terms for the services, it has determined the customer to have the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s payment history or, in the case of a new customer, credit and financial information pertaining to the customer.
The Company’s performance obligations consist of access to its platforms and related support services which are considered one performance obligation.
The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services to the customer. Payment terms are generally upfront at the time of the transaction, except for certain enterprise customers which are generally up to net 60 days. The Company applied the practical expedient in IFRS 15 and did not evaluate payment terms of one year or less for the existence of a significant financing component.
Revenue is recognized ratably over the term of the subscription contract generally beginning on the date that the platform is made available to a customer. Amounts that have been invoiced are recorded in trade receivables and in contract liabilities or revenue, depending on whether transfer of control to customers has occurred.
The Company applies the practical expedient in IFRS 15 for incremental costs of obtaining contracts when the associated revenues are recognized over less than one year.
Advertising
Until the second half of 2023, the Company generated revenues from the distribution of security and privacy products of third-party developers in various digital properties. Commencing in the second half of 2023, advertising revenue is immaterial.
Advertising revenue is recognized at the point in time when a user purchases a product of a customer and is considered a single performance obligation.
Management evaluates whether its revenues should be presented on a gross basis, which is the amount that a customer pays for the service, or on a net basis, which is the amount of the customer payment less amounts the Company pays to digital property owners for placing the customers’ products on their digital property, also known as “traffic acquisition costs”. Traffic acquisition costs are based on a cost-per click or cost-per impression arrangements and are charged to cost of revenue as incurred. The evaluation to present revenue on a gross versus net basis requires significant judgment. Management has determined that it acts as the principal and recognizes revenue as it relates to these transactions on a gross basis as the Company controls the service to the customer and it is the primary obligor in the transaction .
Leases
The Company’s leases include property and vehicle leases.
At the commencement date, the Company measures the lease liability at the present value of the lease payments that are not paid at that date, including, inter alia, the exercise price of a purchase option if the Company is reasonably certain to exercise that option. Simultaneously, the Company recognizes a right-of-use asset in the amount of the lease liability.
The discount rate applied by the Company is the rate of interest that the Company would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The lease term is the non-cancellable period for which the Company has the right to use an underlying asset, together with both the periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
F- 13
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
After the commencement date, the Company measures
the right-of-use asset applying the cost model, less any accumulated depreciation and any accumulated impairment losses and adjusted for
any remeasurement of the lease liability. Assets are depreciated by the straight-line method over the lease period, which is
Interest on the lease liability is recognized in profit or loss in each period during the lease term in an amount that produces a constant periodic rate of interest on the remaining balance of the lease liability.
Payments associated with short-term leases are
not recognized as right-of-use assets or lease liabilities but are recognized on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of
New standards and amendments adopted
Several new standards, amendments to standards and interpretations that are effective for annual periods beginning on January 1, 2024, have been applied in preparing these consolidated financial statements. None of these had a material effect on the Company’s consolidated financial statements.
New standards and amendments not yet adopted
IFRS 18, “Presentation and Disclosure in Financial Statements” (“IFRS 18”)
IFRS 18 replaces IAS 1, “Presentation of Financial Statements” (“IAS 1”). As part of the new disclosure requirements, companies will be required to present new defined subtotals in the statement of profit or loss, as follows: (i) operating profit and (ii) profit before financing and tax. In addition, items in the statement of profit or loss will be classified into three defined categories: operating, investment and financing. The standard also includes a requirement to provide a separate disclosure in the financial statements regarding the use of management-defined performance measures (“non-GAAP measures”), and specific instructions were added for the grouping and splitting of items in the financial statements and their accompanying notes. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with an option for early adoption. The Company is currently in a preliminary stage of assessing the expected effect of this new standard.
NOTE 3 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
Financial risk management
The Company’s activities expose it to a variety of financial risks. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. Risk management is carried out by the Company’s finance department in accordance with a policy approved by the Board of Directors. The Company’s finance department identifies, evaluates and hedges the financial risks. The Board of Directors provides written principles for the overall management of the risks.
Credit risk
Credit risk arises mainly from cash and cash equivalents, bank deposits, trade receivables and debt investments measured at fair value through OCI. For cash, cash equivalents and bank deposits, the Company estimates that since the liquid instruments are mainly invested with highly rated institutions, the credit and interest risks associated with these balances are low. Credit risk of trade receivables is the risk that customers may fail to pay their debts. The Company mitigates the risk by ensuring its customers have sufficient funds to meet their needs and by selling to customers of high credit quality. The Company has not historically experienced material credit losses. Additionally, all of the Company’s debt investments measured at fair value through OCI are considered to have low credit risk. Management considers “low credit risk” for marketable bonds to be an investment grade credit rating with at least one major rating agency.
F- 14
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the New Israeli Shekel (“NIS”). Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated in foreign currency. These foreign currency-denominated transactions consist primarily of personnel, leases and other overhead costs. For the 2024, 2023 and 2022 reporting periods, foreign currency exchange gains and losses were immaterial.
Liquidity risk
Prudent liquidity risk management requires maintaining sufficient cash and cash equivalents. The Company works to maintain sufficient cash and cash equivalents, taking into account forecasts as to the cash flows required to fund its activities, in order to minimize the liquidity risk to which it is exposed. Cash flow forecasting is performed by the Company’s finance department on a consolidated basis. The Company monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs. Surplus cash held by the operating entities of the Company over and above the balance required for working capital management is invested in interest bearing current accounts and time deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts.
The table below categorizes non-derivative financial liabilities into relevant maturity groupings based on the remaining period at financial position date to the contractual maturity date.
|
Less than
one year |
Between
one to two years |
More than
two years |
||||||||||
| U.S. dollars in thousands | ||||||||||||
| December 31, 2024: | ||||||||||||
| Lease liabilities |
|
|
||||||||||
| Long-term loans |
|
|
||||||||||
| Accounts payable and accruals |
|
|||||||||||
|
|
|
|||||||||||
| December 31, 2023: | ||||||||||||
| Lease liabilities |
|
|
|
|||||||||
| Long-term loans |
|
|
|
|||||||||
| Accounts payable and accruals |
|
|||||||||||
|
|
|
|
||||||||||
Fair value estimation
Below analyzes financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
| ● | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); | |
| ● | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and | |
| ● | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). |
F- 15
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present the Company’s financial instruments measured at fair value by levels as of December 31, 2024 and 2023:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| U.S. dollars in thousands | ||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||
| Financial assets | ||||||||||||||||
| Debt investments at fair value through profit or loss | ||||||||||||||||
| Mutual Fund |
|
|
||||||||||||||
| Unlisted equity securities |
|
|
||||||||||||||
| Debt investments at fair value through OCI | ||||||||||||||||
| U.S. corporate bonds |
|
|
||||||||||||||
| Israel corporate bonds |
|
|
||||||||||||||
| U.K. corporate bonds |
|
|
||||||||||||||
| Other corporate bonds |
|
|
||||||||||||||
| Israel government bonds |
|
|
||||||||||||||
| Total financial assets |
|
|
|
|
||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative financial instruments |
|
|
||||||||||||||
| Total financial liabilities |
|
|
||||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Financial assets | ||||||||||||||||
| Unlisted equity securities |
|
|
||||||||||||||
| Total financial assets |
|
|
||||||||||||||
| Financial liabilities | ||||||||||||||||
| Derivative financial instruments |
|
|
||||||||||||||
| Total financial liabilities |
|
|
||||||||||||||
Level 3 financial instruments
The following table presents the changes in level 3 financial liabilities for each of the three years in the period ended December 31, 2024:
|
Derivative
financial instruments |
Total | |||||||
| U.S. dollars in thousands | ||||||||
| Balance as of January 1, 2024 |
|
|
||||||
| Changes within profit or loss |
|
|
||||||
| Balance as of December 31, 2024 |
|
|
||||||
| Balance as of January 1, 2023 |
|
|
||||||
| Initial recognition |
|
|
||||||
| Classification to equity |
(
|
) |
(
|
) | ||||
| Changes within profit or loss |
|
|
||||||
| Balance as of December 31, 2023 |
|
|
||||||
| Balance as of January 1, 2022 |
|
|
||||||
| Changes within profit or loss |
(
|
) |
(
|
) | ||||
| Balance as of December 31, 2022 |
|
|
||||||
F- 16
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation processes of the Company
The Company used the Black-Scholes model to evaluate the fair value of derivative financial instruments related to several warrants previously granted to investors as of December 31, 2024 and 2023, using the following principal assumptions:
| Year ended December 31 | ||||
| 2024 | 2023 | |||
| Risk-free interest rate |
|
|
||
| Expected term (in years) |
|
|
||
| Expected volatility |
|
|
||
The Company also used the binomial model to evaluate the fair value of derivative financial instruments related to warrants previously granted to investors as of December 31, 2023, using the following principal assumptions:
|
Year ended
December 31 |
||
| 2023 | ||
| Risk-free interest rate |
|
|
| Expected term (in years) |
|
|
| Expected volatility |
|
In addition, the Company used the Black-Scholes model to evaluate the fair value of warrants issued to investors under a private placement on September 14, 2023. See Note 13 for details regarding the valuation processes of the Company with respect to these warrants.
Financial instruments
Financial assets
|
Financial
assets at fair value through profit or loss |
Financial
assets at fair value through OCI |
Financial
assets at amortized cost |
Total | |||||||||||||
| U.S. dollars in thousands | ||||||||||||||||
| December 31, 2024 | ||||||||||||||||
| Cash and cash equivalents |
|
|
||||||||||||||
| Accounts receivable (excluding prepaid expenses) |
|
|
||||||||||||||
| Long-term deposits and restricted deposits |
|
|
||||||||||||||
| Debt investments at fair value through profit or loss |
|
|
||||||||||||||
| Unlisted equity securities |
|
|
||||||||||||||
| Debt investments at fair value through OCI |
|
|
||||||||||||||
|
|
|
|
|
|||||||||||||
| December 31, 2023 | ||||||||||||||||
| Cash and cash equivalents |
|
|
||||||||||||||
| Accounts receivable (excluding prepaid expenses) |
|
|
||||||||||||||
| Long-term deposits and restricted deposits |
|
|
||||||||||||||
| Unlisted equity securities |
|
|
||||||||||||||
|
|
|
|
||||||||||||||
F- 17
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial liabilities
|
Financial
liabilities at fair value through profit or loss |
Financial
liabilities at amortized cost |
Total | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| December 31, 2024 | ||||||||||||
| Lease liabilities |
|
|
||||||||||
| Accounts payable and accruals |
|
|
||||||||||
| Long-term loans |
|
|
||||||||||
| Derivative financial instruments |
|
|
||||||||||
|
|
|
|
||||||||||
| December 31, 2023 | ||||||||||||
| Lease liabilities |
|
|
||||||||||
| Accounts payable and accruals |
|
|
||||||||||
| Long-term loans |
|
|
||||||||||
| Derivative financial instruments |
|
|
||||||||||
|
|
|
|
||||||||||
Assets and liabilities which are not measured on a recurring basis at fair value, are presented at their carrying amount, which approximates their fair value.
NOTE 4 - CASH AND CASH EQUIVALENTS:
As of December 31, 2024 and 2023, the balance of cash and cash equivalents was comprised of cash at hand and short-term bank deposits of up to 3 months, as follows:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Cash at hand |
|
|
||||||
| Short-term bank deposits up to 3 months |
|
|
||||||
| Cash and cash equivalents |
|
|
||||||
NOTE 5 - TRADE RECEIVABLES:
As of December 31, 2024 and 2023, the balance of trade receivables was comprised of open accounts, net of a provision for expected credit losses, as follows:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Open accounts |
|
|
||||||
| Provision for expected credit losses |
(
|
) | ||||||
| Trade receivables, net |
|
|
||||||
F- 18
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - GOODWILL INTANGIBLE ASSETS:
Composition
| Cost | Accumulated amortization | |||||||||||||||||||||||||||||||||||
| Balance at | Additions | Impairment | Balance | Balance at | Additions | Impairment | Balance | |||||||||||||||||||||||||||||
| beginning | during | during | at end | beginning | during | during | at end | Amortized | ||||||||||||||||||||||||||||
| of year | the year | the year | of year | of year | the year | the year | of year | balance | ||||||||||||||||||||||||||||
| U.S. dollar in thousands | ||||||||||||||||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||||||||||
| Technologies |
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| Customer relations |
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| Goodwill |
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||||||
| Technologies |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Customer relations |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Goodwill |
|
(
|
) |
|
|
|||||||||||||||||||||||||||||||
|
|
(
|
) |
|
|
|
|
|
|
||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||
| Technologies |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Customer relations |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Goodwill |
|
(
|
) |
|
|
|||||||||||||||||||||||||||||||
|
|
(
|
) |
|
|
|
|
|
|
||||||||||||||||||||||||||||
Amortization expenses for the years ended December
31, 2024, 2023 and 2022 were $
Impairment losses of intangible assets (rather
than goodwill) for the years ended December 31, 2024, 2023 and 2022 were $
Testing of goodwill impairment
For the year ended December 31, 2024
NetNut CGU
The Company performed the annual goodwill impairment
test for its NetNut CGU at December 31, 2024. The recoverable amount was assessed by management based on value-in-use calculation which
uses cash flow projections covering a
F- 19
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, 2023
NetNut CGU
The Company performed the annual goodwill impairment
test for its NetNut CGU at December 31, 2023. The recoverable amount was assessed by management based on value-in-use calculation which
uses cash flow projections covering a 5 year period and terminal growth rate of
Based on the impairment test performed, the estimated
recoverable amount was determined to be substantially higher than its carrying amount. A hypothetical decrease in the terminal growth
rate of
CyberKick CGU
During the second quarter of 2023, the Company
identified triggering events for potential impairment in its CyberKick CGU. The triggering events include a purchase pause by CyberKick’s
largest customer as well as higher customer churn rates, which resulted in a material decrease in forecasted operating results. As a result,
the Company decided to scale down the operations of CyberKick, with material reductions of expenses and headcount, and to continue to
maintain its operations only to current paying customers. Accordingly, the Company performed an impairment test for the intangible assets
constituting its CyberKick CGU and thereafter for the entire CGU at June 30, 2023. The recoverable amount of the customer relations was
assessed by management based on value-in-use calculation which uses cash flow projections covering a
As of December 31, 2024 and 2023, the entire carrying amount of goodwill
of $
NOTE 7 - TAXES ON INCOME:
Corporate taxation
The taxable income of Alarum, Safe-T Data A.R
Ltd. (“Safe-T Data”) and CyberKick is subject to the Israeli regular corporate tax rate of
The taxable income of NetNut, based on management
assessment, meets the criteria of a Preferred Technological Enterprise (“PTE”) under the Law for the Encouragement of Capital
Investments and accordingly, is eligible for a reduced tax rate of
The taxable income of NetNut Networks Inc. (“NetNut
Networks”) is subject to a regular U.S. federal tax rate of
Tax assessments
Tax assessments filed by the Company, NetNut and Safe-T Data through 2019 are considered final.
Tax assessments filed by NetNut Networks through 2020 are considered final.
CyberKick has not been assessed since its incorporation.
F- 20
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Carryforward tax losses
Carryforward tax losses in Israel of the Company
amounted to $
Carryforward tax losses in Israel of Safe-T Data
amounted to $
Carryforward tax losses in Israel of CyberKick
amounted to $
Carryforward tax losses in Israel have no expiration date. Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized if utilization of the related tax benefit against a future taxable income is expected.
Deferred taxes
|
Intangible
assets, net |
Carryforward
tax losses |
Carryforward
research and development expenses |
Other | Total | ||||||||||||||||
| U.S. dollar in thousands | ||||||||||||||||||||
| Balance as of January 1, 2024 |
(
|
) |
|
|
|
|
||||||||||||||
| Changes during the year: | ||||||||||||||||||||
| Charged to profit or loss |
|
(
|
) |
|
|
|
||||||||||||||
| Balance as of December 31, 2024 |
(
|
) |
|
|
|
|
||||||||||||||
| Balance as of January 1, 2023 |
(
|
) |
|
(
|
) | |||||||||||||||
| Changes during the year: | ||||||||||||||||||||
| Charged to profit or loss |
|
(
|
) |
|
|
|
||||||||||||||
| Balance as of December 31, 2023 |
(
|
) |
|
|
|
|
||||||||||||||
| Balance as of January 1, 2022 |
(
|
) |
|
(
|
) | |||||||||||||||
| Changes during the year: | ||||||||||||||||||||
| Charged to profit or loss |
|
|
|
|||||||||||||||||
| Balance as of December 31, 2022 |
(
|
) |
|
(
|
) | |||||||||||||||
F- 21
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Theoretical tax reconciliation
Following is a reconciliation of the theoretical taxes on income, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see above) and the actual tax expense:
| Year ended December 31 | ||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||
| % |
U.S. dollars
in thousands |
% |
U.S. dollars
in thousands |
% |
U.S. dollars
in thousands |
|||||||||||||||||||
| Profit (loss) before income tax |
|
(
|
) |
|
|
|
|
|||||||||||||||||
| Theoretical tax expense (benefit) |
|
(
|
) |
(
|
) | |||||||||||||||||||
| Change in effective tax rate due to: | ||||||||||||||||||||||||
| Tax benefits arising from reduced tax rate under the PTE regime |
(
|
) |
(
|
) |
|
|||||||||||||||||||
| Decrease in taxes resulting from utilization of losses in the reported year for which deferred taxes were not recognized in prior years |
(
|
) |
(
|
) | ||||||||||||||||||||
| Increase in taxes resulting from non-deductible expenses |
|
|
|
|||||||||||||||||||||
| Increase in taxes resulting from losses in the reported year for which deferred taxes were not recognized |
|
|
|
|||||||||||||||||||||
| Tax expense (benefit) |
|
(
|
) |
(
|
) | |||||||||||||||||||
NOTE 8 -
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Accrued expenses |
|
|
||||||
| Provision for income taxes |
|
|||||||
| Employees and related institutions |
|
|
||||||
|
|
|
|||||||
The carrying amounts of other payables, which are financial liabilities, is a reasonable approximation of their fair value since the effect of discounting is immaterial.
NOTE 9 - STRATEGIC FUNDING:
On August 8, 2022, the Company signed a strategic
funding agreement with O.R.B. Spring Ltd. (“O.R.B.”) of up to $
On October 27, 2022, the Company signed an amendment
to the O.R.B. agreement which provides for a cancellation of the milestone, as defined in the O.R.B. agreement, as well as removed any
discretion previously granted to O.R.B. in connection with the additional $
F- 22
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company will repay the funding using a revenue
share model that is based on sales generated only from customers of the new consumer internet access solution acquired with each funding
installment. Each such funding installment shall be repaid within 24 months and if the repayments does not cover
The Company recognized a financial liability for each tranche upon drawdown, at the amount drawn less transaction costs attributable to that tranche.
Upon initial recognition, the effective interest
rate was calculated by estimating the future cash flows throughout the expected life of that tranche, taking into account the transaction
costs allocated to that tranche. The weighted effective interest rate upon the initial recognition was approximately
In consideration for the cash commitment, the
Company granted
| ● |
|
| ● |
|
| ● |
|
| ● |
|
In case that the Company will not exercise the
funding or a portion of it, with respect to Tranches 3-8, until September 1, 2023, then up to
The Company accounted for the above warrants,
which represent the consideration for providing the cash commitment, in accordance with the provisions of IFRS 2 “Share-based payment”
(“IFRS 2”). As such, the fair value of these warrants was accounted for as transaction costs. Total transaction costs recognized
by the Company at the initial date totaled $
These transaction costs were recorded under “other
non-current assets” in the consolidated statement of financial position and are allocated to each tranche drawdown on a pro rata
basis, while the remaining
On January 30, 2023, the Company signed a second
amendment to the O.R.B. agreement, according to which, O.R.B. will fund the Company with 18 tranches of $
F- 23
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On September 7, 2023, the Company signed a third
amendment to the O.R.B. agreement., according to which O.R.B. agreed to waive all rights to future revenue share after
Reconciliation of movements of long-term loans to cash flow from financing activities is as follows:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Balance at the beginning of year |
|
|
||||||
| Changes from financing cash flows: | ||||||||
| Long-term loans received |
|
|||||||
| Long-term loans payments (interest and principal) |
(
|
) |
(
|
) | ||||
| Payments related to extinguishment of long-term loans |
(
|
) | ||||||
| Non-cash changes: | ||||||||
| Allocation of transaction costs to equity |
(
|
) | ||||||
| Financial expense, net |
|
|
||||||
| Balance at the end of year |
|
|
||||||
NOTE 10 - LEASES:
The Company’s leases include property and
vehicle leases. The lease agreements are for periods of between
In June 2023, the Company entered into a new operating lease agreement for the offices it uses. The lease periods are for two years expiring in October 2025, with an option to extend the lease periods for an additional year, which the Company is reasonably certain to exercise.
Expenses relating to short-term leases for the
years ended December 31, 2024, 2023 and 2022 were $
F- 24
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Right-of-use assets
| Property | Vehicles | Total | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Cost: | ||||||||||||
| Balance as of January 1, 2024 |
|
|
|
|||||||||
| Additions |
|
|
||||||||||
| Disposals |
(
|
) |
(
|
) | ||||||||
| Balance as of December 31, 2024 |
|
|
|
|||||||||
| Accumulated amortization: | ||||||||||||
| Balance as of January 1, 2024 |
(
|
) |
(
|
) |
(
|
) | ||||||
| Additions |
(
|
) |
(
|
) |
(
|
) | ||||||
| Disposals |
|
|
||||||||||
| Balance as of December 31, 2024 |
(
|
) |
(
|
) |
(
|
) | ||||||
|
|
|
|
||||||||||
| Cost: | ||||||||||||
| Balance as of January 1, 2023 |
|
|
|
|||||||||
| Additions |
|
|
|
|||||||||
| Disposals |
(
|
) |
(
|
) | ||||||||
| Balance as of December 31, 2023 |
|
|
|
|||||||||
| Accumulated amortization: | ||||||||||||
| Balance as of January 1, 2023 |
(
|
) |
(
|
) |
(
|
) | ||||||
| Additions |
(
|
) |
(
|
) |
(
|
) | ||||||
| Disposals |
|
|
||||||||||
| Balance as of December 31, 2023 |
(
|
) |
(
|
) |
(
|
) | ||||||
|
|
|
|
||||||||||
Lease liabilities
| Property | Vehicles | Total | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Balance as of January 1, 2024 |
|
|
|
|||||||||
| Additions |
|
|
||||||||||
| Disposals |
(
|
) |
(
|
) | ||||||||
| Interest expense |
|
|
|
|||||||||
| Payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Balance as of December 31, 2024 |
|
|
|
|||||||||
| Short-term lease liabilities |
|
|
|
|||||||||
| Long-term lease liabilities |
|
|
|
|||||||||
| Balance as of December 31, 2024 |
|
|
|
|||||||||
| Balance as of January 1, 2023 |
|
|
|
|||||||||
| Additions |
|
|
|
|||||||||
| Disposals |
(
|
) |
(
|
) | ||||||||
| Interest expense |
|
|
|
|||||||||
| Payments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Balance as of December 31, 2023 |
|
|
|
|||||||||
| Short-term lease liabilities |
|
|
|
|||||||||
| Long-term lease liabilities |
|
|
|
|||||||||
| Balance as of December 31, 2023 |
|
|
|
|||||||||
F- 25
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE BASED PAYMENT:
The Company maintains a share-based payment plan
for employees, directors and consultants (the “Plan”). According to the Plan, the Company can grant options and RSUs. The
options and the RSUs vest over a period of up to
| Date of grant | Amount |
Exercise
price ($) (*) |
Fair value
at the date of grant (U.S. dollars in thousands) |
Volatility |
Risk-free
interest rate |
Contractual
term (in years) |
||||||||||||||||||
| 2024 | ||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||
| January 1, 2024 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| March 13, 2024 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| July 16, 2024 |
|
|
|
|||||||||||||||||||||
| September 25, 2024 |
|
|
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||
| RSUs | ||||||||||||||||||||||||
| January 1, 2024 |
|
|
||||||||||||||||||||||
| March 13, 2024 |
|
|
||||||||||||||||||||||
| July 16, 2024 |
|
|
||||||||||||||||||||||
| September 9, 2024 |
|
|
||||||||||||||||||||||
| September 25, 2024 |
|
|
||||||||||||||||||||||
| November 24, 2024 |
|
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||
| April 20, 2023 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| May 18, 2023 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| November 27, 2023 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
|
|
||||||||||||||||||||||||
| RSUs | ||||||||||||||||||||||||
| July 19, 2023 |
|
|
||||||||||||||||||||||
| September 13, 2023 |
|
|
||||||||||||||||||||||
| November 27, 2023 |
|
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||
| March 13, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| May 30, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| August 31, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| November 28, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| December 19, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
| December 21, 2022 |
|
|
|
|
% |
|
% |
|
||||||||||||||||
|
|
||||||||||||||||||||||||
| (*) |
|
F- 26
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of the options was determined using
the binomial model. Volatility is based on volatility data of the traded share price of the Company. The early exercise multiple used
for the fair value calculations for grants during 2024, 2023 and 2022 is
Movement in the number of share options and RSUs outstanding and their related weighted average exercise prices are as follows:
Options
| 2024 | 2023 | 2022 | ||||||||||||||||||||||
|
Number of
options |
Average
exercise price ($) |
Number of
options |
Average
exercise price ($) |
Number of
options |
Average
exercise price ($) |
|||||||||||||||||||
| Outstanding at beginning of year: |
|
|
|
|
|
|
||||||||||||||||||
| Granted |
|
|
|
|
|
|
||||||||||||||||||
| Exercised |
(
|
) |
|
(
|
) |
|
(
|
) | ||||||||||||||||
| Forfeited |
(
|
) |
|
(
|
) |
|
(
|
) |
|
|||||||||||||||
| Expired |
(
|
) |
|
(
|
) |
|
(
|
) |
|
|||||||||||||||
| Outstanding at end of year |
|
|
|
|
|
|
||||||||||||||||||
| Exercisable at end of year |
|
|
|
|
|
|
||||||||||||||||||
RSUs
| 2024 | 2023 | |||||||
|
Number of
RSUs |
Number of
RSUs |
|||||||
| Outstanding at beginning of year: |
|
|||||||
| Granted |
|
|
||||||
| Vested |
(
|
) | ||||||
| Forfeited |
(
|
) | ||||||
| Outstanding at end of year |
|
|
||||||
The following table summarizes information about exercise price and the remaining contractual life of options outstanding at the end of 2024, 2023 and 2022:
| 2024 | 2023 | 2022 | ||||||||||||||||||||||
| Exercise prices ($) |
Number
outstanding at end of year |
Remaining
contractual life (in years) |
Number
outstanding at end of year |
Remaining
contractual life (in years) |
Number
outstanding at end of year |
Remaining
contractual life (in years) |
||||||||||||||||||
| 0.00 |
|
|
|
|
|
|
||||||||||||||||||
| 0.21-1.09 |
|
|
|
|
|
|
||||||||||||||||||
| 1.23-1.77 |
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
||||||||||||||||||||||
Shares issuance
During the year ended December 31, 2024,
During the year ended December 31, 2023,
F- 27
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the year ended December 31, 2022,
Expenses recognized in the financial statements
The costs which were recognized in the Company’s financial statements in respect of services received from its employees and consultants are presented in the table below:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Share-based payment plans |
|
|
|
|||||||||
The plans are intended to be governed under rules set for that purpose
in the Plan. The exercise prices of the options that are exercisable into shares as of December 31, 2024, range between $
NOTE 12 - RETIREMENT BENEFITS OBLIGATION:
Liability for employee rights upon retirement
Labor laws and agreements require the Company to pay severance pay and/or pensions to employees dismissed or retiring from their employment in other certain circumstances. The amounts of benefits those employees are entitled to upon retirement are based on the number of years of service and the last monthly salary.
Also, under labor laws and labor agreements in effect, including the Expansion Order (Combined Version) for Obligatory Pension under the Collective Agreements Law of 1957 (the “Expansion Order”), the Company is liable to make deposits with provident funds, pension funds or other such funds, to cover its employees’ pension insurance as well as some of its severance pay liabilities.
Under the terms of the Expansion Order, the Company deposits for severance pay as required under the Expansion Order as well as other deposits made by those companies “in lieu of severance pay” and which were announced as such as required under the Expansion Order, replace all payment of severance pay under Section 14 of the Israeli Severance Pay Law, 1963 (the “Severance Pay Law”) with respect to the wages, components, periods and rates for which the deposit alone was made.
Defined contribution plans
The Company’s severance pay liability to
Israeli employees for which the said liability is covered under section 14 of the Severance Pay Law is covered by regular deposits with
defined contribution plans. The amounts funded above are not reflected in the consolidated statements of financial position. The amounts
recognized as expense in respect of defined contribution plans in 2024, 2023 and 2022 are $
NOTE 13 - SHAREHOLDERS’ EQUITY :
Share capital
As of December 31, 2024 and 2023, the Company’s share capital is composed as follows:
| Number of shares | ||||||||||||||||
| Authorized |
Issued
and paid |
Authorized |
Issued
and paid |
|||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||||
| Ordinary shares of no-par value |
|
|
|
|
||||||||||||
F- 28
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On November 2, 2023, the Company’s shareholders
approved to increase the Company’s authorized share capital to
The last reported market price for the Company’s securities on
December 31, 2024 was $
Rights conferred by ordinary shares
The ordinary shares confer upon their holders voting rights, the right to receive dividends, the right to a share in excess assets upon liquidation of the Company and other rights as set out in the Company’s articles of association.
Private placement
On September 14, 2023, the Company completed a
private placement offering of an aggregate of
The Company’s Chairman of Board of Directors
(“Chairman”), CEO and Chief Financial Officer (“CFO”), invested an aggregate of $
The PP Warrants are exercisable at any time
after the date of issuance for a period of 30 months from the offering date upon payment of an exercise price of $
The Company initially accounted for the PP Warrants
as a financial liability measured at fair value (level 3) as reflected in a valuation carried out as of the date of the offering, due
to the cashless exercise mechanism included within, while the equity component was recognized by subtracting the fair value of the PP
Warrants from the consideration received. Issuance costs were allocated on a pro-rata basis between the components mentioned above. The
fair value of the financial liability was determined using the Black-Scholes model with the following principal assumptions: risk-free
interest rate
In addition, the Company issued an aggregate amount
of
The fair value of the services that were rendered
by the agents amounted to $
As of December 31, 2024, all PP Warrants and all
Agents Warrants were exercised for aggregate consideration of $
F- 29
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At the Market Offering (“ATM”)
In 2023, the Company issued
Shares issuance
During the year ended December 31, 2024,
Earn-out Share issuance
In August 2023 and July 2022, the Company issued
NOTE 14 - DISCONTINUED OPERATIONS:
On July 4, 2023, the Company signed an agreement
with TerraZone Ltd. (“TerraZone”) for the sale of its enterprise cybersecurity segment in exchange for
Financial performance
| Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| U.S. dollars in thousands | ||||||||
| Revenue |
|
|||||||
| Expenses |
|
|||||||
| Loss before taxes on income |
(
|
) | ||||||
| Gain from sale of discontinued operations |
|
|||||||
| Taxes on income | ||||||||
| Profit (loss) from discontinued operations, net of tax |
|
(
|
) | |||||
| Basic and diluted profit (loss) per share from discontinued operations (in U.S. dollars) |
|
(
|
) | |||||
Cash flows
| Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| U.S. dollars in thousands | ||||||||
| Net cash used in operating activities |
(
|
) | ||||||
| Net cash used in financing activities |
(
|
) | ||||||
| Net cash outflow |
(
|
) | ||||||
F- 30
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15 - REVENUE AND COST OF REVENUE:
Revenue
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Software as a Service: | ||||||||||||
| Web data collection |
|
|
|
|||||||||
| Consumer internet access |
|
|
|
|||||||||
| Advertising services |
|
|
|
|||||||||
|
|
|
|
||||||||||
The Company recognized $
Revenue by Geographic Area
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| China |
|
|
|
|||||||||
| U.S. |
|
|
|
|||||||||
| United Arab Emirates |
|
|
|
|||||||||
| Europe |
|
|
|
|||||||||
| Asia Pacific |
|
|
|
|||||||||
| U.K. Virgin Islands |
|
|
|
|||||||||
| Hong-Kong |
|
|
|
|||||||||
| Middle East Africa |
|
|
|
|||||||||
| Israel |
|
|
|
|||||||||
| Other |
|
|
|
|||||||||
|
|
|
|
||||||||||
No single customer in 2024 exceeded
As of December 31, 2024, 2023 and 2022, all of the Company’s property and equipment is located in Israel.
Cost of revenue
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Payroll and related expenses |
|
|
|
|||||||||
| Share-based payment |
|
|
|
|||||||||
| Internet protocols addresses’ costs |
|
|
|
|||||||||
| Networks and servers |
|
|
|
|||||||||
| Traffic acquisition costs |
|
|
|
|||||||||
| Platform providers fees |
|
|
|
|||||||||
| Amortization and impairment of intangible assets and depreciation |
|
|
|
|||||||||
| Other |
|
|
|
|||||||||
|
|
|
|
||||||||||
F- 31
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 - RESEARCH AND DEVELOPMENT EXPENSES:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Payroll and related expenses |
|
|
|
|||||||||
| Share-based payment |
|
|
|
|||||||||
| Subcontractors |
|
|
|
|||||||||
| Depreciation |
|
|
|
|||||||||
| Other |
|
|
|
|||||||||
|
|
|
|
||||||||||
NOTE 17 - SELLING AND MARKETING EXPENSES:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Payroll and related expenses |
|
|
|
|||||||||
| Share-based payment |
|
|
|
|||||||||
| Payment processing fees |
|
|
|
|||||||||
| Media costs |
|
|
||||||||||
| Professional fees |
|
|
|
|||||||||
| Marketing |
|
|
|
|||||||||
| Amortization and impairment of intangible assets and depreciation |
|
|
|
|||||||||
| Other |
|
|
|
|||||||||
|
|
|
|
||||||||||
NOTE 18 - GENERAL AND ADMINISTRATIVE EXPENSES:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Payroll and related expenses |
|
|
|
|||||||||
| Share-based payment |
|
|
|
|||||||||
| Professional fees |
|
|
|
|||||||||
| Impairment loss on trade receivables |
|
|
|
|||||||||
| Other |
|
|
|
|||||||||
|
|
|
|
||||||||||
F- 32
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 19 - FINANCIAL INCOME (EXPENSES), NET:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Financial expenses: | ||||||||||||
| Bank fees and interest |
(
|
) |
(
|
) |
(
|
) | ||||||
| Issuance expenses |
(
|
) | ||||||||||
| Interest expenses |
(
|
) |
(
|
) |
(
|
) | ||||||
| Change in fair value of derivative financial instruments |
(
|
) |
(
|
) | ||||||||
| Changes in fair value of debt investments at fair value through profit or loss |
(
|
) |
(
|
) | ||||||||
| Exchange rate differences |
(
|
) |
(
|
) |
(
|
) | ||||||
| Total financial expenses |
(
|
) |
(
|
) |
(
|
) | ||||||
| Financial income: | ||||||||||||
| Change in fair value of derivative financial instruments |
|
|
||||||||||
| Interest income related to debt investments through OCI |
|
|||||||||||
| Interest income |
|
|
|
|||||||||
| Total financial income |
|
|
|
|||||||||
| Financial income (expenses), net |
|
(
|
) |
(
|
) | |||||||
NOTE 20 - PROFIT (LOSS) PER SHARE:
Basic
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Profit (loss) from continuing operations (U.S. dollars in thousands) |
|
(
|
) |
(
|
) | |||||||
| The weighted average of the number of ordinary shares in issue (in thousands) |
|
|
|
|||||||||
| Basic profit (loss) per share from continuing operations (U.S. dollar) |
|
(
|
) |
(
|
) | |||||||
F- 33
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Diluted
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Profit (loss) from continuing operations, used in computation of basic profit (loss) per share (U.S. dollars in thousands) |
|
(
|
) |
(
|
) | |||||||
| Adjustments (U.S. dollars in thousands) | ||||||||||||
|
|
(
|
) |
(
|
) | ||||||||
| The weighted average of the number of ordinary shares in issue used in computation of basic profit (loss) per share from continuing operations (in thousands) |
|
|
|
|||||||||
| Adjustments (in thousands): | ||||||||||||
| Options and RSUs |
|
|||||||||||
| Warrants in connection with public and private offerings |
|
|||||||||||
|
|
|
|
||||||||||
| Diluted profit (loss) per share from continuing operations (U.S. dollar) |
|
(
|
) |
(
|
) | |||||||
The calculation of diluted loss per share for the year December 31, 2024, does not give effect to the potential issuance of ordinary shares upon exercise of warrants issued in connection with convertible debenture agreements, as their effect was anti-dilutive.
The calculation of diluted loss per share for the year December 31, 2023, does not give effect to the potential issuance of ordinary shares upon the exercise of options to employees and service providers and warrants issued in connection with convertible debenture agreements and with public and private offerings, as their effect was anti-dilutive.
The calculation of diluted loss per share for the year December 31, 2022, does not give effect to the potential issuance of ordinary shares upon the exercise of options to employees and service providers, convertible debentures and greenshoe option, as their effect was anti-dilutive.
NOTE 21 - RELATED PARTIES TRANSACTIONS AND BALANCES:
“Related Parties” - as defined in IAS 24, “Related Party Disclosures” (“IAS 24”). Key management personnel - included together with other entities in the definition of “related parties” in IAS 24, include the members of the Board of Directors and senior executives. See also Note 14 for further information.
Transactions with related parties
Compensation to related parties
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Compensation to directors employed by the Company |
|
|
|
|||||||||
| Compensation to other key management personnel |
|
|
|
|||||||||
| Compensation to directors who are not employed by the Company |
|
|
|
|||||||||
F- 34
ALARUM TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Compensation to key management personnel, including employed directors
The compensation paid to key management personnel for work services they provide to the Company is as follows:
| Year ended December 31 | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollar in thousands | ||||||||||||
| Payroll, management fees, and other short-term benefits |
|
|
|
|||||||||
| Share-based payments |
|
|
|
|||||||||
|
|
|
|
||||||||||
Balances with related parties
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollar in thousands | ||||||||
| Employees payable |
|
|
||||||
| Accounts payable |
|
|
||||||
|
|
|
|||||||
NOTE 22 - SUBSEQUENT EVENTS:
Options and RSUs grants
During 2025, the Company granted employees and
consultants an amount of
A motion to certify a claim as a class action
On February 16, 2025, the Company, along with its CEO, Mr. Shachar Daniel, and its Chief Financial Officer, Mr. Shai Avnit, were served with a motion to certify a claim as a class action in the Economic Department at the District Court in Tel Aviv, Israel (the “Motion”). The Motion refers to statements made between March 14, 2024 and August 26, 2024. In the Motion, one shareholder alleges that based on the Company’s announcement dated August 26, 2024, which included financial outlook for third quarter of 2024, the Company allegedly made various untrue and misleading statements regarding the Company’s business, operations and prospects. The Company has also been made aware of, but not formally served with, a complaint of similar nature filed in the United States District Court for the District of New Jersey against the Company, Mr. Daniel, Mr. Avnit, and the Company’s chairman, Mr. Chen Katz. The Company believes that both actions are unfounded, relying on false chronological and factual basis and without legitimate grounds. The Company intends to defend itself vigorously against these proceedings.
F- 35