UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
20-F
OR
For
the fiscal year ended December
31 , 2022
OR
For
the transition period from ____________ to __________
OR
Date
of event requiring this shell company report: ______
Commission
file number: 333-255462
(Exact
name of Registrant as specified in its charter and translation of Registrant’s name into English)
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(Jurisdiction
of incorporation or organization) |
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972-50-222-2755
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(Address
of principal executive offices) |
m@holdme.co.il,
(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact)
Securities
registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title
of Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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: As of December 31, 2022, the registrant had outstanding 2,282,124
Ordinary Shares, par value NIS 0.01 per share, and 10,000,000 shares of preferred stock, par value NIS 0.01 per share.
Indicate by check
mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes ☐ No
☒
If this report
is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Yes ☐ No
☒
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) 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:
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Large accelerated
filer ☐ |
Accelerated
filer ☐ |
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Emerging
growth company
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If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 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. 762(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
International Financial
Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant
elected to follow.
Item
17 ☐ Item 18 ☐
If
this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes ☒
No
(Applicable
only to Issuers involved in bankruptcy proceedings during the past five years).
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐
Yes ☐ No
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TABLE
OF CONTENTS
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| PART
II
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| PART
III
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INTRODUCTION
We
define certain terms used in this annual report as follows:
“API”
means Application Programming Interface, a computing interface that defines interactions between multiple software intermediaries.
“APP”
means an Application, especially as downloaded by a user to a mobile device.
"Companies Law"
means the Israeli Companies Law, 5759-1999.
“NIS”
means New Israeli Shekel, the currency of the State of Israel.
“Platform”
means our mobile digital payment platform, as discussed in greater detail in Item 4 of this annual report.
“VAT”
means Value Added Tax.
Unless the context
provides otherwise, “we,” “us,” “our company,” “our,” the “Company” and “Hold
Me” is to Hold Me Ltd., an Israel company.
Presentation
of Financial and Share Information
Our
financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). We
present our consolidated financial statements in New Israeli Shekel.
Industry
and Market Data
This
annual report contains information about our market share, market position and industry data. Unless otherwise indicated, this statistical
and other market information is based on a variety of sources, information from independent analysts and publications, as well as our
own estimates and research. Our estimates are derived from publicly available information released by third-party sources, as well as
data from our internal research, which we believe to be reasonable. None of the independent industry publications used in this annual
report were prepared on our behalf.
We
have not independently verified the accuracy of market data and industry forecasts contained in this annual report that were taken or
derived from these industry publications. We generally state that the information they contain has been obtained from sources believed
to be reliable, but the accuracy and completeness of such information is not guaranteed.
Special
Note Regarding Forward-Looking Statements
We
have made statements under the captions “Item 3. Key Information - D - Risk Factors,” “Item 4 – Information on
the Company,” “Item 5. Operating and Financial Review and Prospects,” and in other sections of this annual report that
are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,”
“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential” or “continue,” the negative of these terms and other comparable terminology.
These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future
financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions
based on our current expectations and projections about future events. There are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed
or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 3. Key Information
- D. Risk Factors.” You should specifically consider the numerous risks outlined under “Item 3. Key Information - D. Risk
Factors.”
Although
we believe the expectations reflected in the forward-looking statements contained in this annual report are reasonable, we cannot guarantee
future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements
after the date of this annual report to conform our prior statements to actual results or revised expectations, except as otherwise required
by law.
2
PART
I
ITEM
1. IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISORS
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 consider carefully the risks described below making an investment decision. Additional risks not presently known to us or that
we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could
be materially and adversely affected by any of these risks. The trading price and value of our ordinary shares could decline due to any
of these risks, and you may lose all or part of your investment. This annual report also contains forward-looking statements that involve
risks and uncertain. Our actual results could differ materially from those anticipated in these forward-looking statements as a result
of certain factors, including the risks faced by us described below and elsewhere in this annual report.
3
Risks
Relating to our business and industry
Our
financial situation creates doubt whether we will continue as a going concern.
There
can be no assurances that we will ever be able to achieve a level of revenues adequate to generate sufficient cash flow from operations
or obtain additional financing through private placements, public offerings and/or bank financing necessary to support our working capital
requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient,
we will have to raise additional working capital and no assurance can be given that additional financing will be available, or if available,
will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working
capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
Our
consolidated financial statements for the year ended December 31, 2022 were prepared assuming that we would continue as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying financial
statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that
might be necessary should the Company be unable to continue as a going concern.
The
report of our independent registered public accounting firm on our audited consolidated financial statements as of December 31, 2022 and
2021 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern based upon our recurring
losses, cash used in operations and accumulated deficit.
We
are solely dependent on one customer. If we fail to acquire new customers or retain existing customers in a cost-effective manner, our
business, financial condition and results of operations may be materially and adversely affected.
As
of the date of this annual report, we only have one customer in Israel, Galileo Tech Ltd. (“Galileo”). For the year ended
December 31, 2022, this customer accounted for all of our revenues, an aggregate of NIS 108,672, all of our sales for said year.
Our
ability to cost-effectively attract new customers and retain our sole existing customer is crucial to driving net revenues growth and
achieving profitability. We have invested significantly in branding, sales and marketing to acquire and retain customers since our inception.
For example, we attend domestic and international expos and exhibitions in marketing our products and attracting new customers. We also
expect to continue to invest significantly to acquire new customers and retain our sole customer. There can be no assurance that new customers
will stay with us, or the net revenues from new customers we acquire will ultimately exceed the cost of acquiring those customers. In
addition, if our existing customer no longer finds our products appealing, or if our competitors offer more attractive products, prices,
discounts or better customer services, our customers may lose interest in us, decrease their orders or even stop ordering from us. If
we are unable to retain our existing customer or acquire new customers in a cost-effective manner, our revenues may decrease, and our
results of operations will be adversely affected.
In
the past, our sole customer was not able to provide us with all the cash payments in a timely manner in the amounts and dates agreed for
the license granted to the customer. If our customer is once again not able to pay us in a timely manner, this will have a material negative
impact on our financial condition. We will not be able to market our services and therefore our revenues will decrease.
4
If
the market for digital payments does not continue to grow, our business will be adversely affected.
The
market for digital payments may not continue to grow. Continued growth of this market will depend, in large part, upon:
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the
continued expansion of Internet usage and the number of organizations adopting or expanding intranets; |
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the
continued adoption of “cloud” infrastructure by organizations; |
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the
ability of the infrastructures implemented by organizations to support an increasing number of users and services; |
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the
continued development of new and improved services for implementation across the Internet and between the Internet and intranets; |
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the
adoption of data security measures as it pertains to data encryption and data loss prevention technologies; |
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continued
access to mobile API’s, APPs and application stores with Apple, Google and Microsoft, etc.; |
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government
regulation of the Internet and governmental and non-governmental requirements and standards with respect to data security and privacy;
and |
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general
economic conditions in the markets in which we, our customers and our suppliers operate. |
In
2022, global and regional economies around the world and financial markets remained volatile as a result of a multitude of factors, including
COVID-19 pandemic, economic and political uncertainty, terrorism, governmental instability and other factors. During this period, many
organizations limited their expenditures and a significant portion of such organizations have remained reluctant to increase expenditures.
If challenging conditions continue or worsen, it may cause our customers to reduce or postpone their technology spending significantly,
which could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price
competition.
Further,
if the necessary infrastructure or complementary products and services are not developed in a timely manner and, consequently, the enterprise
security, data security, Internet or intranet markets fail to grow or grow more slowly than we currently anticipate, our business, results
of operations and financial condition may be materially adversely affected.
We
may not be able to successfully compete, which could adversely affect our business and results of operations.
The
digital payment market is profoundly shifting in the Covid-19 pandemic context. The crisis has affected the way people think about payments
and financial services, with the use of cash declining and the rise of contactless encouraged by many countries. All the actors are being
impacted by this move towards a cashless society, including retailers, merchants, consumers, governments, financial institutions, and
service providers.
The
market for digital payment is intensely competitive and we expect that competition will continue to increase in the future. Our competitors
include big tech companies, such as Google, Apple and PayPal who are eagerly looking to grab an increasing share in the digital payment
market. Apple launched its digital payment service, Apple Pay, in Israel on May 5, 2021, which may substantially impact our ability to
compete for customers in our primary market. In addition, Google launched its digital payment service, Google Pay, in Israel on December
7, 2021, which may substantially impact our ability to compete for customers in our primary market. We also compete with several other
companies, including wallet factory and dejamobile, with respect to digital wallets that we offer. In addition, there are hundreds of
small and large companies that offer digital payment products that we may compete with from time to time.
5
Some
of our current and potential competitors have various advantages over us, including longer operating histories; access to larger customer
bases; significantly greater financial, technical and marketing resources; a broader portfolio of products, applications and services;
and larger patent and intellectual property portfolios. As a result, they may be able to adapt better than we can to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the promotion and sale of their products. Furthermore, some of
our competitors with more diversified product portfolios and larger customer bases may be better able to withstand a reduction in spending
on digital payment solutions, as well as a general slowdown or recession in economic conditions in the markets in which they operate.
In addition, some of our competitors have greater financial resources than we do, and they have offered, and in the future may offer,
their products at lower prices than we do, or may bundle digital payment products with their other offerings, which may cause us to lose
sales or to reduce our prices in response to competition.
In
addition, consolidation in the markets in which we compete may affect our competitive position. This is particularly true in circumstances
where customers are seeking to obtain a broader set of products and services than we are able to provide.
The
markets in which we compete also include many niche competitors, generally smaller companies at a relatively early stage of operations,
which are focused on specific digital payment needs. These companies’ specialized focus may enable them to adapt better than we
can to new or emerging technologies and changes in customer requirements in their specific areas of focus. In addition, some of these
companies can invest relatively large resources on very specific technologies or customer segments. The effect of these companies’
activities in the market may result in price reductions, reduced gross margins and loss of market share, any of which will materially
adversely affect our business, results of operations and financial condition.
We
may not be able to continue competing successfully against our current and future competitors, and increased competition within the market
may result in price reductions, reduced gross margins and operating margins, reduced net income, and loss of market share, any or all
of which may materially adversely affect our business, results of operations and financial condition.
We
may not be able to maintain and improve the network effects of our digital economy, which could negatively affect our business and prospects.
Our ability to
maintain a healthy and vibrant digital economy that creates strong network effects among financial institutions, consumers, merchants,
brands, retailers and other participants is critical to our success. The extent to which we are able to maintain and strengthen these
network effects depends on our ability to:
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offer secure and
open platforms for all participants and balance the interests of these participants; |
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provide a wide
range of high-quality product, service and content offerings to consumers; |
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attract and retain
consumers, merchants, brands and retailers of all sizes; |
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provide effective
technologies, infrastructure and services that meet the evolving needs of financial institutions, consumers, merchants, brands, retailers
and other businesses; |
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secure and trusted
digital payment services; |
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address user concerns
with respect to data security and privacy measures; |
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attract and retain
third-party service providers that are able to provide quality services on commercially reasonable terms to our customers; |
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maintain the quality
of our customer service; and |
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continue adapting
to the changing demands of the digital payment market. |
6
In
addition, changes to current operations we may make to enhance and improve our digital economy or to comply with regulatory requirements
may be viewed positively from one participant group’s perspective, such as our customers, but may have negative effects from another
group’s perspective, such as the clients of our customers. If we fail to balance the interests of all participants in our digital
economy, our customers may spend less time, mind-share and resources on our Platform and may conduct fewer transactions or use alternative
platforms, any of which could result in a material decrease in our revenue and net income.
Raising
additional capital and the conversion of our outstanding preferred shares owned by our majority controlling shareholder would cause significant
dilution to our existing shareholders and may affect the rights of existing shareholders.
We
will have to 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 our shares.
In
addition, Mr. Shalom, our principal executive officer, a director and majority shareholder, owns 10,000,000 preferred shares, with each
share being convertible at any time by Mr. Shalom to 100 ordinary shares. Accordingly, if Mr. Shalom would convert some or all his preferred
shares, your ownership interest in the Company will be further diluted.
We
may not be able to introduce products acceptable to customers and we may not be able to improve the technology used in our current systems
in response to changing technology and end-user needs.
The
markets in which we operate are subject to rapid and substantial innovation, regulation and technological change, mainly driven by technological
advances and end-user requirements and preferences, as well as the emergence of new standards and practices. Even if we are able to complete
the development of our products, our ability to compete in the digital market will depend, in large part, on our future success in enhancing
our existing products and developing new systems that will address the varied needs of prospective end-users, and respond to technological
advances and industry standards and practices on a cost-effective and timely basis to otherwise gain market acceptance.
Even
if we successfully introduce our existing products in development, it is likely that new systems and technologies that we develop will
eventually supplant our existing systems or that our competitors will create systems that will replace our systems. As a result, any of
our products may be rendered obsolete or uneconomical by our or others’ technological advances.
We
may need to change our pricing models to compete successfully.
The
intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on
us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace
considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes
may reduce margins and could adversely affect results of operations.
7
If
our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be harmed.
Hackers
and other malevolent actors are increasingly sophisticated, often affiliated with organized crime and operate large scale and complex
attacks. In addition, their techniques change frequently and generally are not recognized until launched against a target. If we fail
to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such threats
in time to protect our customers’ high-value business data, our business and reputation will suffer.
In
addition, an actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the breach
is attributable to the failure of our products, could adversely affect the market’s perception of our products. Despite our best
efforts, there is no guarantee that our products will be free of flaws or vulnerabilities, and even if we discover these weaknesses we
may not be able to correct them promptly, if at all. Our customers may also misuse our products, which could result in a breach or theft
of business data.
Defects
in products could give rise to product returns 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. This could result in 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,
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, which could cause us to fail to retain or attract customers. Currently, we do not maintain product liability insurance,
which will be necessary prior to the commercialization of our products. It is likely that any product liability insurance that we will
have in the future will be subject to significant deductibles and there is no guarantee that such insurance will be available or adequate
to protect against all such claims, or we may elect to self-insure with respect to certain matters. 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.
We
expect that we will need to raise substantial additional capital before we can expect to become profitable from sales of our products.
This additional capital may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may
force us to delay, limit or terminate our product development efforts or other operations.
We
expect that we will require substantial additional capital to commercialize our products. In addition, our operating plans may change
as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future
capital requirements will depend on many factors, including but not limited to:
the
scope, rate of progress, results and cost of product development, and other related activities;
the
cost of establishing commercial supplies of our products;
the
cost and timing of establishing sales, marketing, and distribution capabilities; and
the
terms and timing of any collaborative, licensing, and other arrangements that we may establish.
8
Any
additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our products. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders
and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price
of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to
agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise
would be desirable, and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable
to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have
sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we
have specific strategic considerations.
If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our
research or development programs or the commercialization of our products or be unable to expand our operations or otherwise capitalize
on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Since
we are solely dependent on Amazon Cloud, our business, financial condition and results of operations may be materially and adversely affected
if this agreement is terminated or if there are service issues with the cloud that affects our application and operations.
As
of the date of this annual report, Amazon Cloud (also known as Amazon Web Services) is our sole cloud provider. Our entire technology
was developed in Amazon’s cloud environment and is currently deployed on it. Our reliance on a single vendor for our business involves
high risks. Our agreement with Amazon was not negotiated but the standard, boilerplate agreement which Amazon utilizes with all its customers.
Amazon has the ability to terminate its services to us at any time. Accordingly, if Amazon terminates the agreement, our business may
be severely interrupted, and our financial condition and results of operations may be materially and adversely affected. In addition,
all our software and code are held in Amazon cloud and could be subject to attacks, deletion or other bad effects.
If
our relationships with other suppliers for our products and services were to terminate or our software development arrangements were to
be disrupted, our business could be interrupted.
Our
products depend on certain third-party technology, and we purchase component parts that are used in our products from third-party suppliers,
some of whom may compete with us. For example, we developed our products via a software company situated in India. Our reliance on a single
or limited number of vendors involves several risks, including:
| • |
potential shortages of some key personnel
or talented developers; | |
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developers performance shortfalls, if traceable
to particular persons since the developers of our software cannot readily be replaced; | |
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discontinuation of service and talent-pool
on which we rely; | |
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potential insolvency of these vendors; and | |
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reduced control over delivery schedules,
quality and costs. |
If
certain suppliers were to decide to discontinue their service with us, the unanticipated change in the availability of supplies, or unanticipated
supply limitations, could cause delays in, or loss of, developments, integrations, sales, increased production or related costs and consequently
reduced margins, and damage to our reputation. If we were unable to find a suitable supplier on time, we could be required to modify our
existing development and production settings or the end-solution that we offer to our customers.
9
A
significant interruption in the operations of our third-party suppliers could potentially disrupt our operations.
We
have limited control over the operations of our third-party suppliers and other business partners and any significant interruption in
their operations may have an adverse impact on our operations. For example, a significant interruption in the operations of the India
software company, one of our suppliers, may cause interruption to our business. If we could not solve the impact of the interruptions
of operations of our third-party suppliers, our business operations and financial results may be materially and adversely affected.
Mr.
Menachem Shalom, our principal executive officer and a member of our board of directors, beneficially owns 100% of our outstanding preferred
shares and his interests may differ from the interests of other shareholders, which could cause a material decline in the value of our
shares.
Mr.
Menachem Shalom, our principal officer and a member of our board of directors, currently beneficially owns 100% of our outstanding preferred
shares and 87.64% of the outstanding ordinary shares. Accordingly, he has a significant influence on determining the outcome of any matters
submitted to the shareholders for approval, including mergers, consolidations, the election of directors and other significant corporate
actions. Without his consent, we may be prevented from entering into transactions that could be beneficial to us or our minority shareholders.
His interest may differ from the interests of our other shareholders. The concentration in the ownership of our shares may cause a material
decline in the value of our shares.
We
cannot assure you that Mr. Shalom will act in the best interests of all of our shareholders given Mr. Shalom’s ability to control
the Company. See “Related Party Transactions.”
We
are dependent upon our Mr. Shalom and we cannot assure his retention.
Our
success depends, in part, upon the continued services of Mr. Shalom, whose knowledge of the market, our business and our Company represents
a key strength of our business, which cannot be easily replicated. The success of our business strategy and our future growth also depend
on our ability to attract, train, retain and motivate skilled managerial, sales, administration, development and operating personnel.
Even though we have a management agreement with Mr. Shalom, there is no required time period in which he needs to be employed by us.
There
can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy, or that we will be able to hire
or retain experienced, qualified employees to carry out our strategy. The loss of Mr. Shalom or the failure to attract and retain additional
key personnel, could have a material adverse effect on our business, financial condition and results of operations.
If
we fail to adopt new technologies to evolving customer needs or emerging industry standards, our business may be materially and adversely
affected.
To
remain competitive, we must continue to stay abreast of the constantly evolving industry trends and to enhance and improve our technology
accordingly. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in
our business. There can be no assurance that we will be able to use new technologies effectively or meet customer’s requirements.
If we are unable to adapt in a cost-effective and timely manner in response to changing market conditions or customer preferences, whether
for technical, legal, financial or other reasons, our business may be materially and adversely affected.
10
We
may experience significant liability claims or complaints from customers, or adverse publicity involving our products and our services.
We
face an inherent risk of liability claims or complaints from our customers. We take our customers’ complaints seriously and endeavor
to reduce such complaints by implementing various remedial measures. Nevertheless, we cannot assure you that we can successfully prevent
or address all customer complaints.
Any
complaints or claims against us, even if meritless and unsuccessful, may divert management attention and other resources from our business
and adversely affect our business and operations. Customers may lose confidence in us and our brand, which may adversely affect our business
and results of operations. Furthermore, negative publicity including but not limited to negative online reviews on social media and crowd-sourced
review platforms, industry findings or media reports related to safety and quality of our products, whether or not accurate, and whether
or not concerning our products, can adversely affect our business, results of operations and reputation.
We
may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We
cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate intellectual
property rights held by third parties. We have not but in the future may be, subject to legal proceedings and claims relating to the intellectual
property rights of others. There could also be existing intellectual property of which we are not aware that our products may inadvertently
infringe. We cannot assure you that holders of intellectual property purportedly relating to some aspect of our technology or business,
if any such holders exist, would not seek to enforce such intellectual property against us in Israel, or any other jurisdictions. If we
are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities
or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our
own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our
business and operations to defend against these infringement claims, regardless of their merits. Successful infringement or licensing
claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting
or prohibiting our use of the intellectual property in question, and our business, financial position and results of operations could
be materially and adversely affected.
Further,
the application and interpretation of Israel’s patent laws and the procedures and standards for granting patents in Israel are still
evolving and are uncertain, and we cannot assure you that the courts or regulatory authorities in Israel would agree with our analysis.
We
may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
Although
we regard our know-how, proprietary technologies, and similar intellectual property as critical to our success, we have no patents or
trademarks protecting our intellectual property. We may become an attractive target to intellectual property attacks in the future with
the increasing recognition of our brand. Any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated,
or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, there can be no assurance
that (i) all of our intellectual property rights will be adequately protected, or (ii) our intellectual property rights will not be challenged
by third parties or found by a judicial authority to be invalid or unenforceable.
11
Because
we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not “emerging growth companies.”
We
are an “emerging growth company” as defined under the Jumpstart our Business Startups Act (“JOBS Act”). We will
remain an “emerging growth company” for up to five years, or until the earliest of:
| (i) |
the last day of the first fiscal year in
which our total annual gross revenues exceed $1.07 billion, |
| (ii) |
the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held
by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or |
| (iii) |
the date on which we have issued more than
$1 billion in non-convertible debt during the preceding three-year period. |
As
an “emerging growth company”, we may take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies that are not “emerging growth companies” including, but not limited to:
| • |
not being required to comply with the auditor
attestation requirements of section 404(b) of the Sarbanes-Oxley Act (“Sarbanes Oxley”) (we also will not be subject to the
auditor attestation requirements of section 404(b) as long as we are a “smaller reporting company”, which includes issuers
that had a public float of less than $75 million as of the last business day of their most recently completed second fiscal quarter); |
| • |
reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements; and |
| • |
exemptions from the requirements of holding
a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
In
addition, section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition
period provided in section 7(a)(2)(B) of the Securities Act of 1933 (the “Securities Act”) for complying with new or revised
accounting standards. Under this provision, an “emerging growth company” can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition
period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards
is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition
period for complying with new or revised accounting standards is irrevocable.
The
nature of our business requires the application of complex revenue recognition rules. Significant changes in U.S. generally accepted accounting
principles, or GAAP, including the adoption of the new revenue recognition rules, could materially affect our financial position and results
of operations.
We
prepare our financial statements in accordance with GAAP, which is subject to interpretation or changes by the Financial Accounting Standards
Board, or FASB, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. New accounting
pronouncements and changes in accounting principles have occurred in the past and are expected to occur in the future, which may have
a significant effect on our financial results. For example, pursuant to the new revenue recognition rules, effective as of January 1,
2018, an entity recognizes sales and usage-based royalties as revenue only when the later of the following events occurs: (1) the subsequent
sale or usage occurs or (2) the performance obligation to which some or all of the sales-based or usage-based royalty allocated has been
satisfied (or partially satisfied). Recognizing royalty revenue on a lag time basis is not permitted. As a result, the royalties we generate
from customers is based on royalty of units shipped during the quarter as estimated by our customers, not a quarter in arrears that we
previously report. Adoption of this standard and any difficulties in implementation of changes in accounting principles, including uncertainty
associated with royalty revenues for the quarter based on estimates provided by our customer, could cause us to fail to meet our financial
reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.
12
Risks
Related to Our Proposed Non-Bank Loan Business Activity
Our
credit standards and on-going credit assessment processes might not protect us from significant credit losses.
Having
obtained a non-bank lending license, we intend to engage in the non-bank credit field by extending loans to consumers and/or other business.
We envision managing credit risk in our loans through a program of underwriting standards, the review of certain credit decisions and
an ongoing process of assessment of the quality of the credit already extended. While these procedures will be designed to provide us
with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no
assurance that such measures will be effective in avoiding future undue credit risk, and credit losses may occur in the future.
The
amount of our future loan losses could be influenced by changes in economic, operating and other conditions, including changes in interest
rates, which may be beyond our control, and these losses may exceed current estimates. While the risk of nonpayment is inherent in providing
financing, we could experience greater nonpayment levels than we anticipate. Deterioration in the quality of our loan portfolio could
cause our interest income and net interest margin to decrease and our provisions for loan losses to increase further, which could adversely
affect our results of operations and financial condition.
Our
allowance for loan losses may not be adequate to cover actual losses, which could materially and adversely affect our operating results.
We
intend to maintain an allowance for loan losses that is appropriate to provide for any potential losses in our loan portfolio. The allowance
is based upon factors such as the credit risk of specific customers, historical trends and experience, ongoing review of the quality,
size and diversity of our loan portfolio, the amount and quality of collateral securing the loans, current economic conditions, geographic
and industry loan concentrations and other information which we believe adequately covers all anticipated losses in respect of trade receivables.
There can be no assurance that this allowance will be adequate.
Our
business will be subject to interest rate risk, and variations in interest rates may negatively affect financial performance.
Changes
in the interest rate environment may reduce our profits. Loan volume and yields are affected by market interest rates on loans, and rising
interest rates generally are associated with a lower volume of loan originations. We cannot ensure that we can minimize our interest rate
risk. While an increase in the general level of interest rates may increase the loan yield and the net interest margin, it may adversely
affect the ability of certain borrowers with variable rate loans to pay the interest and principal of their obligations. Accordingly,
changes in levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination
volume and our overall profitability.
Our
proposed lending business will also subject us to specific Israeli laws and regulations.
13
If
we commence operations to extend credit to consumers and businesses, there are numerous Israeli laws and regulations specifically affecting
non-bank lenders. These requirements relate to, among other things:
| • |
Minimum shareholder equity; | |
| • |
Annual and periodic reporting; | |
| • |
Limitations on marketing and solicitation
of customers; | |
| • |
Prohibition on misleading or fraudulent
communications with our current or prospective customers; | |
| • |
Prohibition on false or misleading advertisements
and solicitations; | |
| • |
Prohibition on linking the Company’s
credit products with its other products; and | |
| • |
Prohibition on extending credit to minors
and other consumer-protection limitations. |
Failure to comply
with any of these laws and regulations may expose us to fines, penalties, and enforcement actions which would materially and adversely
impact our business.
Over
the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional
banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it
cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit
extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory
supervision of us or otherwise adversely affect our business.
Risks
relating to legal uncertainty and doing business in Israel
Conditions
in Israel could materially and adversely affect our business.
Our
executive offices are located in Israel. In addition, our sole officer and all of the members of our board of directors are residents
of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business
and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and
its neighboring countries, as well as terrorist acts committed within Israel, the Palestinian Authority areas and Lebanon by hostile elements.
Civil
unrest and political turbulence has occurred in many other countries in the region, including those which share a common border with Israel,
and is affecting the political stability of those countries. This instability and any intervention may lead to deterioration of the political
and economic relationships that exist between the State of Israel and some of these countries and may have the potential for additional
conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran
is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, and Hezbollah in Lebanon. Iran
is known to support the government of Syria in its battles against various rebel militia groups in Syria.
Any
future armed conflict, political instability, continued violence in the region or restrictions could have a material adverse effect on
our business, operating results and financial condition. While such hostilities did not in the past have a material adverse impact on
our business, we cannot guarantee that hostilities will not be renewed and have such an effect in the future. The political and security
situation in Israel may result in parties with whom we have contracts claiming that they are not obligated to perform their commitments
under those agreements pursuant to force majeure provisions.
Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely
affect our operations and could make it more difficult for us to raise capital or obtain components used in our products. Since our facility
is located in Israel, we could experience serious disruptions if acts associated with this conflict result in any serious damage to our
facilities. Any future armed conflict or political instability in the region could negatively affect business conditions and harm our
results of operations.
14
Our
commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli
government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure
you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred
by us could have a material adverse effect on our business.
Furthermore,
several countries still restrict trade with Israeli companies and additional countries may impose such restrictions as a result of changes
in the military and/or political conditions in Israel and/or the surrounding countries, which may limit our ability to make sales in,
or purchase components from, those countries. In addition, such boycott, restrictive laws, policies, or practices may change over time
in unpredictable ways, and could, individually or in the aggregate, have a material adverse effect on our business in the future. Should
the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli institutions (including universities) and
products become increasingly influential in the United States, Europe and around the world, this may also adversely affect our business
and financial condition.
In
addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year
until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event
of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant
call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could
be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely
affect our business, prospects, financial condition and results of operations.
The
Israeli government has recently been pursuing legislative changes which, if adopted, will alter the current state of separation of powers
among the three branches of government and, as a result, have sparked a considerable political debate. Many individuals, organizations
and institutions, within and outside of Israel, have voiced concerns over the potential negative impacts of such changes and the controversy
surrounding them on the business and financial environment in Israel. Such negative impacts may include, among others, a downgrade in
Israel’s sovereign credit rating, increased interest rates, currency fluctuations, inflation, civil unrest and volatility in securities
markets, which could adversely affect the conditions in which we operate and potentially deter foreign investors and organizations from
investing or transacting business in Israel. These risks have an adverse effect on our business, our results of operations and our ability
to raise additional funds.
The
legislative power of the State of Israel resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide
voting under a system of proportional representation. Israel has held four general elections in the last three years (on April 9, 2019,
September 17, 2019, March 2, 2020, and March 23, 2021) due to the difficulty of forming a stable government under the conditions of Israel’s
parliamentary system. The uncertainty surrounding future elections and/or the results of such elections in Israel may continue and the
political situation in Israel may further deteriorate. Actual or perceived political instability in Israel or any negative changes in
the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial
condition, results of operations and prospects.
It
may be difficult to enforce a U.S. judgment against us, our officer and director or to assert U.S. securities laws claims in Israel or
serve process on our officers and directors.
Since
our directors and officers are not residents of the United States and all of our assets are located outside the United States, service
of process upon us or our non-U.S. resident director and officers may be difficult to obtain within the United States. We have been informed
by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in
Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear
a claim based on a violation of U.S. securities laws against us or our non-U.S. officer and director because Israel may not be the most
appropriate forum 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 proved
as a fact, 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 addressing the matters described above. Additionally, Israeli courts might not enforce judgments
obtained in the United States against us or our non-U.S. directors and executive officers, which may make it difficult to collect on judgments
rendered against us or our non-U.S. officers and directors.
15
Moreover,
an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments
of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of
Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given
in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal
in Israel at the time the foreign action was brought. For more information, see "Enforceability of civil liabilities."
Your
rights and responsibilities as our shareholder are governed by Israeli law, which may differ in some respects from the rights and responsibilities
of shareholders of U.S. corporations.
We
are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our articles of
association and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in typical U.S. corporations. In particular, pursuant to the Companies Law each shareholder of an Israeli company has to act in good faith
and in a customary manner in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders
on amendments to a company's articles of association, increases in a company's authorized share capital, mergers and certain transactions
requiring shareholders' approval under the Companies Law. In addition, a controlling shareholder of an Israeli company or a shareholder
who knows that it possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment
of a director or officer in the company or has other powers toward the company has a duty of fairness toward the company. However, Israeli
law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications
of these provisions that govern shareholder behavior.
We
are not in compliance with certain corporate governance requirements under the Companies Law.
The
Companies Law imposes various corporate governance requirements upon public companies, including the requirement to establish an audit
committee and compensation committee, appoint two external directors, and retain an internal auditor. As of the date of this Annual Report,
we are not in compliance with these requirements. As a result of this non-compliance, we are at risk of fines, penalties, and enforcement
actions by the Israel Securities Authority (ISA), which may materially and adversely affect our business. While we intend to remediate
these corporate governance failures prior to being listed on any share exchange, there can be no guarantee that the ISA will not enforce
these requirements before we achieve compliance, or that the ISA will penalize us for past non-compliance even after we achieve compliance.
16
Provisions
of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of
our shares or assets.
Provisions
of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make it more
difficult for a third-party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing
so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the
future for our ordinary shares. Among other things:
| • |
Israeli corporate law regulates mergers
and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased; |
| • |
Israeli corporate law does not provide for
shareholder action by written consent, thereby requiring all shareholder actions to be taken at a general meeting of shareholders; |
| • |
our articles of association divide our directors
into three classes, each of which is elected once every three years; |
| • |
our articles of association generally require
a vote of the holders of a majority of our outstanding ordinary shares entitled to vote present and voting on the matter at a general
meeting of shareholders (referred to as simple majority), and the amendment of a limited number of provisions, such as the provision dividing
our directors into three classes, requires a vote of the holders of at least 65% of the total voting power of our shareholders; |
| • |
our articles of association do not permit
a director to be removed except by a vote of the holders of at least 65% of the total voting power of our shareholders and any amendment
to such provision requires the approval of at least 65% of the total voting power of our shareholders; and |
| • |
our articles of association provide that
director vacancies may be filled by our board of directors. |
Further,
Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence
does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax.
We
may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act and other U.S. and foreign anti-corruption anti-money laundering,
export control, sanctions and other trade laws and regulations, and any determination that we violated these laws could have a material
adverse effect on our business.
We
are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations
and various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Control.
We are also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C.
§ 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act 2010, the Proceeds of Crime Act 2002, Chapter 9 (sub-chapter
5) of the Israeli Penal Law, 1977, the Israeli Prohibition on Money Laundering Law—2000 and possibly other anti-bribery and anti-money
laundering laws in countries outside of the United States in which we conduct our activities. Compliance with these laws has been the
subject of increasing focus and activity by regulatory authorities, both in the United States and elsewhere, in recent years. Anti-corruption
laws are interpreted broadly and prohibit companies and their employees and third-party intermediaries from authorizing, promising, offering,
providing, soliciting or accepting, directly or indirectly, improper payments or benefits to or from any person whether in the public
or private sector.
Noncompliance
with anti-corruption, anti-money laundering, export control, sanctions and other trade laws could subject us to whistleblower complaints,
investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other
civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges,
reputational harm, adverse media coverage and other collateral consequences. If any subpoenas or investigations are launched, or governmental
or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations
and financial condition could be materially harmed. Responding to any action will likely result in a materially significant diversion
of management's attention and resources and significant defense and compliance costs and other professional fees. In addition, regulatory
authorities may seek to hold us liable for successor liability for violations committed by companies in which we invest or that we acquire.
As a general matter, enforcement actions and sanctions could harm our business, results of operations and financial condition.
17
Risks
relating to our ordinary shares
An
active trading market for our ordinary shares may not develop and the trading price for our shares may fluctuate significantly.
There
has not been an active public market for our ordinary shares, and we cannot assure you that a liquid public market for our shares will
ever develop. If an active public market for our shares does not develop, the market price and liquidity of our shares may be materially
and adversely affected.
Our
Ordinary Shares are subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which
makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s
account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions
in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b)
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also
deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which,
in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the
broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing
to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our common stock. Disclosure also has to be made about the risks
of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or
dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in
cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The
trading price of our shares is likely to be volatile, which could result in substantial losses to investors.
If
we are successful at developing a market for our shares, the trading price of our shares is likely to be volatile and could fluctuate
widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and
fluctuation of the market prices of other companies with business operations located mainly in Israel that have listed their securities
in the United States. In addition to market and industry factors, the price and trading volume for our shares may be highly volatile for
factors specific to our own operations, including the following:
| • |
variations in our revenues, earnings and
cash flow; |
| • |
announcements of new investments, acquisitions,
strategic partnerships or joint ventures by us or our competitors; |
18
| • |
announcements of new offerings, solutions
and expansions by us or our competitors; |
| • |
changes
in financial estimates by securities analysts; |
| • |
detrimental
adverse publicity about us, our services or our industry; |
| • |
additions
or departures of key personnel; |
| • |
sales of additional equity securities; and |
| • |
potential
litigation or regulatory investigations. |
Any
of these factors may result in large and sudden changes in the volume and price at which our shares will trade.
In
the past, shareholders of public companies have often brought securities class action suits against those companies following periods
of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount
of our management’s attention and other resources from our business and operations and require us to incur significant expenses
to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be
required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
Our
majority shareholder and principal officer has substantial influence over our company and his interests may not be aligned with the interests
of our shareholders.
Menachem
Shalom, our majority shareholder and principal officer, currently owns all the total voting power of our outstanding preferred shares
and 87.64% of the issued and outstanding ordinary shares. As a result, he maintains substantial influence over our business, including
significant corporate actions such as mergers, consolidations, sales of all or substantially all of our assets, election of directors
and other significant corporate actions.
Mr.
Shalom may take actions that are not in the best interest of our other shareholders. This concentration of ownership may discourage, delay
or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares
as part of a sale of our company and may reduce the price of the shares. These actions may be taken even if they are opposed by our other
shareholders. In addition, the significant concentration of share ownership may adversely affect the trading price of the shares due to
investors’ perception that conflicts of interest may exist or arise. For more information regarding our principal shareholders and
their affiliated entities, see “Principal Shareholders.”
If
securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations
regarding our shares, the market price for our shares and trading volume could decline.
The
trading market for our shares will be influenced by research or reports that industry or securities analysts publish about our business.
If one or more analysts who cover us downgrade our shares, the market price for our shares would likely decline. If one or more of these
analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn
could cause the market price or trading volume for our shares to decline.
19
If
we are successful at creating a market for our shares, the sale or availability for sale of substantial amounts of our shares could adversely
affect their market price.
Sales
of substantial amounts of our shares in the public market, or the perception that these sales could occur, could adversely affect the
market price of our shares and could materially impair our ability to raise capital through equity offerings in the future. Shares held
by our existing shareholders may now or in the future be sold in the public market. There are 2,282,124 ordinary shares outstanding, of
which 282,124 are freely tradeable without any restrictions. In addition, there are 10,000,000 preferred shares outstanding, all owned
by Mr. Shalom, which are convertible into an aggregate of up to 1,000,000,000 of our ordinary shares at the option of the holder and may
be resold as restricted shares in the future or be registered for resale without restriction. We cannot predict what effect, if any, market
sales of securities held by Mr. Shalom or any other shareholder or the availability of these securities for future sale will have on the
market price of our shares.
Negative
publicity may harm our brand and reputation and have a material adverse effect on our business.
Negative
publicity about us, including our services, management, business model and practices, compliance with applicable rules, regulations and
policies, or our network partners may materially and adversely harm our brand and reputation and have a material adverse effect on our
business. We cannot assure you that we will be able to defuse any such negative publicity within a reasonable period of time, or at all.
Additionally, allegations, directly or indirectly against us, may be posted on the internet by anyone on a named or anonymous basis, and
can be quickly and widely disseminated. Information posted may be inaccurate, misleading and adverse to us, and it may harm our reputation,
business or prospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be
negatively affected as a result of the public dissemination of negative and potentially inaccurate or misleading information about our
business and operations, which in turn may materially adversely affect our relationships with our customers, employees or business partners,
and adversely affect the price of our shares.
Because
we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our shares for return on your investment.
We
currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. In addition, the Companies Law imposes restrictions on our ability to declare and pay dividends. As a result, we do not expect
to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our shares as a source for any
future dividend income.
Subject
to applicable law and the provisions of our articles of association, our board of directors has complete discretion as to whether to distribute
dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any,
will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any,
received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board
of directors. Accordingly, the return on your investment will likely depend entirely upon any future price appreciation of our shares.
There is no guarantee that our shares will appreciate in value or even maintain the price at which you purchased the shares. You may not
realize a return on your investment in our shares and you may even lose your entire investment in our shares.
20
We
are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to United States domestic public companies.
Because
we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations
in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing
of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation
of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange
Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from
trades made in a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation
FD.
We
will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. However, the information we
are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the
SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available
to you, were you investing in a U.S. domestic issuer.
We
are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements
applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company
until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion;
(b) the last day of our fiscal year following the fifth anniversary of the completion of our public offering; (c) the date on which we
have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are
deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our Shares that
are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter.
We
may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As
discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and
current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business
day of an issuer's most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to
us on June 30, 2023. In the future, we would lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities
are owned by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet
additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will
be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and
extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements,
and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions
of Section 16 of the Exchange Act. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional
legal, accounting, SEC reporting, and other expenses that we will not incur as a foreign private issuer.
If
we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or
comply with applicable regulations could be impaired.
As
a small business company, we have limited accounting personnel and other resources with which to address our internal controls and procedures.
Our management has not completed an assessment of the effectiveness of our internal controls over financial reporting, and our independent
registered public accounting firm has not conducted an audit of our internal control over financial reporting. In the course of auditing
our financial statements for the years ended December 31, 2022, we identified several material weaknesses in our internal control over
financial reporting and other control deficiencies as of December 31, 2022. A “material weakness” is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
21
The
material weaknesses identified to date relate to (i) a lack of accounting staff and resources with appropriate knowledge of generally
accepted accounting principles in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements; (ii) a lack
of sufficient documented financial closing policies and procedures; (iii) a lack of independent directors and an audit committee; (iv)
lack of risk assessment in accordance with the requirement of COSO 2013 framework and (v) a lack of an effective review process by the
accounting manager which led to material audit adjustments to the financial statements.
Following
the identification of the material weaknesses and control deficiencies, we plan to continue to take remedial measures including (i) hiring
more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial
reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting
and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function
as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement
of overall internal control; and (iv) appointing independent directors, establishing an audit committee, and strengthening corporate governance.
We
plan to take measures to remedy these material weaknesses. The implementation of these measures may not fully address the material weaknesses
in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct theses
material weaknesses or our failure to discover and address any other material weaknesses could result in inaccuracies in our financial
statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings
on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of
our Ordinary shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly
hinders our ability to prevent fraud. We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section
404 of the Sarbanes-Oxley Act of 2002, or Section 404 requires that we include a report from management on our internal control over financial
reporting in our annual report on Form 20-F beginning with this annual report. In addition, once we cease to be an “emerging growth
company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on
the effectiveness of our internal control over financial reporting. Our management may conclude in future reports on the effectiveness
of our internal control over financial reporting, as it has in the report for the year ending December 31, 2022, that our internal control
over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting
is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that
is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or
reviewed, or if it interprets the relevant requirements differently from us. In addition, after we cease to be an “emerging growth
company”, our additional reporting obligations may place an added strain on our management, operational and financial resources
and systems. We may be unable to timely complete our evaluation testing and any required remediation.
22
ITEM
4. INFORMATION ON THE
COMPANY
| A. |
HISTORY AND DEVELOPMENT
OF THE COMPANY |
We
were originally incorporated under the name of P.M.E SAL Technologies Ltd. under the laws of the State of Israel on January 29, 2007.
In September 2008, we changed our name to Hold Me Ltd. by filing a Certificate of Amendment with the Registrar of Companies in Israel
to effect a name change. Initially we were engaged in providing website design and development services. We ceased conducting such business
activity in 2011 and had no significant business activity until 2018.
At
the beginning of 2018, we started to develop a mobile-wallet-as-a-service platform for organizations interested in launching mobile wallet
applications for their brand.
Today,
we are a software company offering a well-rounded platform that supports a wide range of digital payment services integrating into mobile
apps , which we refer to as our “Platform”. Our Platform enables the creation of applications and digital wallets for our
customers, including but not limited to financial institutions, brands, retailers, credit card companies, insurance companies and other
organizations, in a quick and cost-saving manner.
Innovation
has always been at the core of our fundamental philosophy, as it continuously pursues various new initiatives, including the commercial
applications of our Platform.
We
are committed to democratizing financial services to improve the financial health of individuals and to increase economic opportunity
for entrepreneurs and businesses of all sizes around the world. Our goal is to enable our customers and their clients to manage and move
their money anywhere in the world, anytime, on any platform, and using any device when sending payments or getting paid. By achieving
our goal, we will continue to expand our product offerings by adding additional services, functions and capabilities with our innovative
and evolving technologies, combined with our marketing efforts.
The SEC also maintains
an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC. Our filings with the SEC will also be available to the public through the SEC’s website at https://www.sec.gov. The
Crone Law Group, P.C. is our agent in the United States and its address is 420 Lexington Avenue, Suite 2446, New York, NY 10170.
| B. |
BUSINESS OVERVIEW |
Our
Platform
We
started the research and development for the Platform in 2018 and offered its first commercial application in 2019. Our Platform provides
the technical infrastructure through Amazon cloud to our customers, using Application Programming Interface, or API. API is a computing
interface that defines interactions between multiple software intermediaries, which could be utilized and integrated by our customers
into their own mobile apps. It connects brands, merchants, retailers, financial institutions, insurance companies and other organizations
with their clients through our innovative digital payment solutions.
Our
Revenue Model
We
generate revenues primarily through license fees from our customers (currently consisting of one customer, Galileo). In general, the amount
of the license fee is determined by the range and type of API services offered and consumed on our platform and by the usage volume of
our customer on our API software – meaning number of end-users and transactions (API-calls) triggered on our platform.
For
the year ended December 31, 2022 and 2021, our revenues were NIS108,672 and NIS98,434, respectively.
23
Our
products
Our
current product portfolio consists of a digital wallet platform (used for commercial engagement of brands with their end-customers) and
a digital banking service that can be used for innovation and development purposes by financial institutions. For the year ended December
31, 2022 and 2021, the digital payment services generated NIS108,672 and NIS98,434, respectively. We did not generate any digital banking
services revenues.
Digital
Payment Services
Through
our Platform, we provide a digital platform that can support creation and operation of mobile wallets applications that allow our business
customers to stay engaged with their end clients through the application that include payments and loyalty functionalities.
Similar
to peer-to-peer money transfer applications we developed a platform that enables the transfer of payments between end users and between
end users and businesses.
We
will continue to be the active software provider of the digital payment market, while expanding the functionality offered through our
platform to include marketing and marketing automation tasks and capabilities, additional loyalty schemes and more.
Digital
Financial Services
In
today’s hyper-connected world, sustainable digital innovation has become a survival strategy for banks and financial institutions.
As technologies evolve, consumers constantly continue to raise the bar for their expectations of better service, new products, and ongoing
connectivity. Digital creativity and trust must always be reflected to customers as the competitors are using a new wealth of information
to satisfy customers and attempt to attract new ones.
Incumbent
banks' core banking systems are legacy systems built over decades using multiple hardware and software providers. These various parts
have been "patched" one on top of one another raising significant difficulties for connectivity and compatibility, intensifying the already-substantial
security challenges and operational risks. Such patches cannot foster the market-presence of an innovation-minded bank.
Our
Platform may serve as the basis for innovation programs for our potential customers, which simulates a banking core system, so as to create
a digital environment that enables collaboration between their development teams and external software providers, such as start-ups and
development-stage companies, developers, and other financial institutions, without exposing the technological manufacturing environments
of our customers to outsiders.
Since
it saves the effort and time needed to develop an innovation platform, our Platform provides cost-effective and time-saving solutions
to our customers as it enables them to integrate our digital financial services into their mobile apps. This significantly minimizes the
financial and business exposure of our customers to external security threats
Our
Platform serves as a core-banking-as-a-service solution for legacy banks to build their own banking and financial innovation programs,
to connect with developers’ communities, and to meet market and regulatory demands while saving on IT investments across hardware,
software, and support staff.
24
The solution delivers
three key capabilities:
| • |
API gateway for external and internal systems
including a ready-to-use set of PCI-DSS certified banking APIs for user and account management, transactions and payments, credit cards,
loans, and more, through a single integration point |
| • |
Business logic layer for banking products |
| • |
Hosted and managed database |
The
Platform is an exceptionally market-responsive Core-Banking-as-a-Service solution. It’s the bank's innovation mock-up platform that
revs up innovation engines with agile, customer-centric BaaS powers. The bank can have in-house developers, thought leaders, and intrapreneurs
join forces with software providers and fintech firms to innovate easily around a ready-to-use set of banking APIs. Launch POCs with providers
securely, purposefully, and effortlessly with no need to allocate valuable IT resources or risk your existing operational systems. Platform
includes APIs for user and account management, transactions and payments, credit cards, loans, and more – all that is needed is
one integration point to connect the bank with the future.
Use
Cases
The Platform is
a secure, cloud-native, and highly scalable digital innovation platform for innovation-driven legacy banks. Use cases may include:
|
• |
Building
a fully-customizable white-label developer portal to invite, manage, and service developers |
|
• |
Running
fintech programs, competitions, and hackathons |
|
• |
Launching
secure and purposeful POCs with the fintech industry |
|
• |
Possessing
a production environment built for the new serverless era |
|
• |
Shortening
time-to-market: from inception to the launch of new digital products and services |
|
• |
Migrating
existing bank products and services to the Innovatn.io micro-services-based architecture |
The market-responsive
of the Platform is designed to allow banks to foster digital creativity in-house and reflect it to the outside world. The Platform is
integrable and interoperable with existing systems.
Our
customer
We
anticipate that our future customers may include businesses of all sizes and from various industries in Israel, such as financial institutions,
credit card companies, insurance companies, and retailers, etc. We currently do not have international customers and our sole customer
is located in Israel.
For
the years ended December 31, 2022 and December 31, 2021, we served one customer in Israel. For the year ended December 31, 2022, this
customer accounted for 100% of our revenues. For the year ended December 31, 2021, this customer accounted for 96% of our revenues and
approximately 4% of our revenues were derived from other non-substantial sales.
On
December 5, 2019, we entered into an Agreement for Operation and Sale of Digital Wallets, which was amended by an Addendum to Sales Agreement
on December 27, 2020, with Galileo Tech Ltd.
We
granted Galileo an exclusive license to commercialize our technology in Israel. However, we are not bound to make any development, consultation,
management and/or other service of our technology to Galileo or its customers.
25
In
accordance with the terms of our agreement with Galileo, the licensing fee included an one-time establishment fee of approximately NIS800,000
(including the annual licensing fee for the first year of the agreement) and an annual licensing fee of NIS 100,000 for the second and
third years (2021 and 2022), and NIS 150,000 per additional year commencing December 5, 2020. In addition, Hold Me is also entitled to
12% of all income generated by Galileo from using or sub-licensing the Company's products licensed to Galileo.
Galileo
was also given the right to use our technology for clearing payments between various digital wallets and the businesses registers in Israel.
For such right we are to receive 10% of all gross profits generated by Galileo from their customers.
Galileo
is entitled to market and commercialize in Israel the applications developed by Hold Me and to make changes and/or additions as it deems
fit.
Pursuant
to the terms of the agreement, we are obligated to fix or repair the failures and/or inadequacies, but not those developed or changed
by Galileo.
The
agreement does not provide for a term. Each party has the right to terminate the agreement if the other party in breach fails to cure
a breach within 30 days or conducts illegal activities or violates the laws.
During
2022 Galileo did not paid us, although we have an outstanding invoice for NIS 175,500. As of December 31, 2022, the total balance owed
to us from Galileo is NIS 212,151.
Non-Bank
Lending License
On
November, 2021, we were issued a limited license from the Israeli Authority regulating Capital Markets, Insurance and Savings to operate
as a non-banking lender in Israel. This license enables us to lend up to NIS 25,000,000 as a non-bank. To date we have not utilized this
license.
Our
Suppliers
Our
only relationship with vendors are with ongoing service providers for legal, bookkeeping and accounting services and for management services
from our main shareholder.
Intellectual
Property
We
do not have any intellectual property protection on our source code or any other aspect of the Platform.
Marketing
and Competition
The Company does
not currently have the resources to market its Platform, but when and if it does, it will attempt to generate customers by:
| • |
Direct sales to business customers; |
| • |
Establishment of subsidiaries to do sales
and marketing in different geographies; |
| • |
Engaging with distributors and partners
to engage in distributors, reseller or other forms of marketing; and |
| • |
Joint ventures |
In addition we
may launch paid digital campaign(s) on different relevant social media networks (mainly LinkedIn) to approach relevant organizations and
decision makers in those organizations.
26
Leading
Competitors
There
are many companies, both large and small, which are our competitors. Companies to which we hope to offer the Platform can choose to develop
their own mobile wallet. Software development companies can be engaged by our potential customers to develop a mobile wallet. Software
or payment companies such as Stripe, Paypal and GooglePay, which launched its service in Israel on December 7, 2021, can offer services
and solutions which can easily enable customers to have their own mobile wallets.
Competitive
Challenges and Advantages
Given
the extremely fast changes that occur in the overall technology world, including in the payment and software sectors, management does
not believe that the Platform has any competitive advantage.
Development
and Expansion Strategy
The
key components of our development and expansion strategy over the next two-to-five years are as follows:
| • |
ongoing continues development of the company's
products. |
| • |
marketing and sales efforts of the company's
products to potential customers. |
| • |
licensing or buying of additional technology,
software or products that may increase the attractiveness or the price of the company's products. |
| • |
the Company will be looking to form commercial
partnerships with software distributors and integrators – to expand its market reach and sales. |
| • |
once substantial sales are achieved, the
company is looking to expand its product offering by developing, acquiring or licensing additional products relevant for its customer-base. |
Government
legislation and regulation
Actions
of our users
In
many jurisdictions, including the United States and countries in Europe, laws relating to the liability of providers of online services
for activities of their users and other third parties are currently being tested by a number of claims, including actions based on defamation,
breach of data protection and privacy rights and other torts, unfair competition, copyright and trademark infringement and other theories
based on the nature and content of the materials searched, the ads posted, or the content uploaded by users. Any court ruling or other
governmental action that imposes liability on providers of online services for the activities of their users and other third parties could
harm our business. In addition, rising concern about the use of the Internet for illegal conduct, such as the unauthorized dissemination
of national security information, money laundering or supporting terrorist activities may in the future produce legislation or other governmental
action that could require changes to our products or services, restrict or impose additional costs upon the conduct of our business or
cause users to abandon material aspects of our service.
27
Data
protection
We
hold certain personal data of our users, including their username, email address, IP address, device identifiers, address, telephone number,
photo, transactional data, consumption habits (such as purchase history), profession and education, location, social media account log
in details and username and additional information regarding the use of our Marketplace (such as published portfolio, Gig information,
purchases, ratings and additional information the user decides to upload and share with us or other users of our marketplace), and may
hold certain personal data of the visitors to our users' websites. In addition, we hold certain personal data of our employees and contractors.
We operate in accordance with the terms of our privacy policies, which describe our practices concerning the collection, use, transmission
and disclosure of personal data. As a "database owner" pursuant to the Privacy Law, we are subject to certain obligations and restrictions,
such as the obligation to register databases containing personal data, the requirement to properly notify the data subjects regarding
the nature of the collection and use of their personal data prior to their collection, the requirement to obtain valid informed consents
from the data subjects prior to using their personal data, conditions with respect to transfer of personal data outside Israeli borders,
conditions and restrictions regarding the use of any personal data for direct mailing, obligations to meet certain data subject rights
(such as access, rectification and deletion rights) as well as data security obligations. In this respect, the new Israeli Privacy Protection
Regulations (Data Security) 2017 ("Data Security Regulations"), which entered into effect in Israel in May 2018, impose obligations with
respect to the manner personal data is processed, maintained, transferred, disclosed, accessed and secured. The Data Security Regulations
may require us to adjust our data protection and data security practices, information security measures, certain organizational procedures,
applicable positions (such as an information security manager) and other technical and organizational security measures. The Israeli Privacy
Protection Authority may initiate administrative inspection proceedings, from time to time, without any suspicion of any particular breach
of the Privacy Law, as the Authority has done in the past with respect to dozens of Israeli companies in various business sectors. In
addition, to the extent that any administrative supervision procedure is initiated by the Israeli Privacy Protection Authority that reveals
certain irregularities with respect to our compliance with the Privacy Law, in addition to our exposure to administrative fines, civil
claims (including class actions) and in certain cases criminal liability, we may also need to take certain remedial actions to rectify
such irregularities, which may increase our costs.
While
it is generally the laws of the jurisdiction in which a business is located that apply, there is a risk that data protection regulators
of other countries may seek jurisdiction over our activities in locations in which we process data or have users but do not have an operating
entity. Where the local data protection and privacy laws of a jurisdiction apply, we may be required to register our operations in that
jurisdiction or make changes to our business so that user data is only collected and processed in accordance with applicable local law.
In addition, because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with
their privacy and data protection laws, including in jurisdictions where we have no local entity, employees, or infrastructure. In such
cases, we may require additional legal review and resources to ensure compliance with any applicable privacy or data protections laws
and regulations. In addition, in many jurisdictions there is new legislation that may affect our business and require additional legal
review.
United
States
A
number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments concerning
data protection could affect us. For example, in June 2018, California passed the California Consumer Privacy Act ("CCPA"), which entered
into effect on January 1, 2020 and provides new data privacy rights for consumers and new operational requirements for companies. Additionally,
some other states have passed proactive, rather than reactive, information security legislation. These state laws require that certain
minimum protections and security measures be taken to protect personal data. The costs of compliance with these laws may increase in the
future as a result of changes in interpretation.
28
Europe
European
legislators adopted the GDPR, repealing the 1995 European Data Protection Directive (Directive 95/46/EC). We are defined as a "Data Controller"
with respect to the personal data of our users that we collect and are therefore subject to a number of key legal obligations under the
GDPR. In addition to reflecting existing requirements that already existed under the old data protection regime, such as, among other
things, requirements to provide users with a "fair processing notice" if we process their data, ensure that inaccurate data is corrected,
only retain data for so long as is necessary and not transfer data outside the European Economic Area to jurisdictions which do not ensure
an adequate level of protection of personal data without taking certain safeguards, the GDPR also implemented new, more stringent operational
and procedural requirements for our use of personal data. These include expanded prior information requirements in light of the transparency
principle to tell our users how we may use their personal data, increased controls on profiling users, increased rights for users to access,
control and delete their personal data and mandatory data breach notification requirements. In addition, there are significantly increased
administrative fines of the greater of €20 million and 4% of global turnover (as well as the right to compensation for financial
or non-financial damages claimed by any individuals under Article 82 of the GDPR).
The
European ePrivacy Directive (Directive 2002/58/EC as amended by Directive 2009/136/EC) obliges the EU member states to introduce certain
national laws regulating privacy or data protection in the electronic communications sector. Pursuant to the requirements of the ePrivacy
Directive, companies must, among other things, obtain consent to store information or access information already stored, on a user's terminal
equipment (e.g., computer or mobile device). These requirements predominantly regulate the use by companies of cookies and similar technologies.
Prior to providing such consent, users must receive clear and comprehensive information, both in accordance with the more stringent requirements
under the GDPR. Certain exemptions to these requirements on which we rely are available for technical storage or access for the sole purpose
of carrying out the transmission of a communication over an electronic communications network or as strictly necessary to provide a service
explicitly requested by the user.
In
recent years, U.S. and European lawmakers and regulators have expressed concern over the use of third-party cookies and similar technologies
for online behavioral advertising, and laws in this area are also under reform. In the European Union, current national laws that implement
the ePrivacy Directive will soon be replaced by an EU regulation known as the ePrivacy Regulation. In the European Union, informed consent
is required for the placement of a cookie on a user's device and for direct electronic marketing, and the GDPR also imposes additional
conditions in order to satisfy such consent, such as a prohibition on pre-checked consents and on bundled consents thereby requiring users
to affirmatively consent for a given purpose through separate tick boxes. The draft ePrivacy Regulation retains these additional consent
conditions and also imposes the strict opt-in marketing rules on direct marketing that is "presented" on a web page rather than sent by
email, alters rules on third-party cookies and similar technology and significantly increases penalties for breach of the rules. Regulation
of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities and may negatively
impact our efforts to understand users' internet usage, as well as the effectiveness of our marketing and our business generally. Such
regulations may have a negative effect on businesses, including ours, that collect and use online usage information for consumer acquisition
and marketing, it may increase the cost of operating a business that collects or uses such information and undertakes online marketing,
it may also increase regulatory scrutiny and increase potential civil liability under data protection or consumer protection laws. In
response to marketplace concerns about the usage of third-party cookies and web beacons to track user behaviors, providers of major browsers
have included features that allow users to limit the collection of certain data generally or from specified websites, and the ePrivacy
Regulation draft also advocates the development of browsers that block cookies by default. These developments could impair our ability
to collect user information, including personal data and usage information, that helps us provide more targeted advertising to our current
and prospective consumers, which could adversely affect our business, given our use of cookies and similar technologies to target our
marketing and personalize the consumer experience.
As
the text of the ePrivacy Regulation is still under development and currently in draft form, and as further guidance is issued and interpretation
of both the ePrivacy Regulation and the GDPR develop, it is difficult to assess the impact of the ePrivacy Regulation on our business
or operations, but it may require us to modify our data practices and policies and we could incur substantial costs as a result.
29
| C. |
ORGANIZATIONAL
STRUCTURE |
The Company currently
has no subsidiaries and is not part of a group of companies.
| D. |
PROPERTY, PLANT
AND EQUIPMENT |
We
currently have an office in the house of Menachem Shalom, our sole officer and a member of our board of directors. We consider our current
office space sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.
ITEM
4A. UNRESOLVED STAFF COMMENTS
None.
ITEM
5. OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
The
following discussion and analysis should be read in conjunction with our 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 US GAAP and our financial
statements were prepared in accordance with generally accepted accounting principles in the United States.
|
A. |
OPERATING
RESULTS |
Comparison
of Results of Operations for the financial years ended December 31, 2022 and 2021
The
following table shows information taken from our consolidated statements of profit and loss for the years ended December 31, 2022 and
December 31, 2021:
|
|
For
the Year Ended December 31, |
|||||||||||
|
|
2022 |
2021 |
||||||||||
|
|
Notes |
New
Israeli Shekels |
||||||||||
|
Revenue |
108,671 |
98,434 |
||||||||||
|
Cost of projects |
158,895 |
459,670 |
||||||||||
|
Gross deficit |
(50,224 |
) |
(361,236 |
) | ||||||||
|
Selling, administrative
and general expenses |
|
(603,867 |
) |
(637,797 |
) | |||||||
|
Operating deficit |
(654,091 |
) |
(999,033 |
) | ||||||||
|
Financing expenses,
net |
(63,412 |
) |
(55,812 |
) | ||||||||
|
Loss for the year
after financing |
(717,503 |
) |
(1,054,845 |
) | ||||||||
|
Other income (expenses) |
5,613 |
- |
||||||||||
|
Net Loss |
(711,890 |
) |
(1,054,845 |
) | ||||||||
|
Loss from previous
years |
(2,519,583 |
) |
(1,464,738 |
) | ||||||||
|
Deficit balance |
(3,231,473 |
) |
(2,519,583 |
) | ||||||||
|
Basic and diluted
loss per ordinary share |
NIS
(0.31) |
NIS
(0.7) |
||||||||||
|
Weighted-average
number of ordinary shares outstanding:
Basic
and Diluted |
2,282,124 |
1,499,410 |
||||||||||
30
Revenues
Revenues
were NIS 108,671 for the year ended December 31, 2022, an increase of NIS 10,238, or approximately 10.4%, as compared to NIS 98,434
for the year ended December 31, 2021.
The
increase in revenues was attributed primarily to the increase in the annual licensing fee from Galileo. During 2022 we recognize NIS 108,672
as licensing fee revenues. In 2021 we recognized NIS 98,434 as licensing fee.
Cost
of Revenues
Our
cost of revenues for the year ended December 31, 2022 of NIS 158,895 primarily consists of all direct and indirect software development
expenses paid to service providers, contractors and freelancers. Our cost of revenues decreased by NIS300,775 from NIS 459,670 in fiscal
year 2021. The decrease in our cost of revenue was a result of decreased operational costs.
Tabular
Disclosure of Contractual Obligations
As of December
31, 2022, we had the following contractual obligations:
|
|
Payments
Due by Period |
|||||||||||||||||||
|
Contractual
Obligations |
Total |
Less
than 1 year |
1-3
years |
3-5
years |
More
than 5 years |
|||||||||||||||
|
Debt
Obligations(1) |
53,737 |
37,403 |
16,334 |
— |
||||||||||||||||
|
Debt
to Shareholder(2) |
1,779,161 |
1,779,161 |
||||||||||||||||||
|
Debt
to Related Parties(3) |
780,924 |
780,924 |
||||||||||||||||||
|
|
||||||||||||||||||||
|
Total |
2,613,822 |
2,597,488 |
16,334 |
|||||||||||||||||
(1) Amount
specified represents payments due to Bank Mizrachi, which is due and payable in May 2024.
(2)
Amounts specified represent payments due to affiliated parties of Mr. Shalom.
(3)
Amount specified represents payments due to Mr. Shalom, our principal executive officer, pursuant to the management
agreement.
Gross
Deficit
Our
negative gross deficit in fiscal year 2022 of NIS 50,224 decreased by NIS 311,012 from our negative gross deficit in fiscal
year 2021 of NIS 361,236. The
decrease was due to an increase in revenues (which was attributed primarily to the increase in the annual licensing fee from Galileo)
and decreased operational costs .
31
General
and administrative expenses
General
and administrative expenses decreased by NIS 33,930, or approximately 5.32%, from NIS 603,867 in fiscal year end 2022 to NIS 637,797 of
expenses in fiscal year end 2021. The change was primarily due to lower administrative costs.
Research
and development expenses
We
do not have research and developments expenses itemized as specific line items as they are included in the cost of revenues.
Net
income
As
a result of the foregoing, our net income decreased from a loss of NIS 711,890 in fiscal year 2022 to a loss of NIS 1,054,845 in fiscal
year 2021.
|
B. |
LIQUIDITY
AND CAPITAL RESOURCES |
As
reflected in our financial statements, we had a cash balance of NIS 451,784, liabilities of NIS 2,765,025 and a net total stockholders’
equity of NIS (2,058,949) as of December 31, 2022.
As
of December 31, 2022, we borrowed a total of NIS 53,797 from a bank in Israel. The outstanding principal amount, plus accrued and unpaid
interest, is due May 24, 2024. We are currently paying approximately NIS 3,300 a month
to the bank.
Management
estimates that in order to continue operations we will need $90,000 for the next 12 months of operations. Using currently available capital
resources, which consist of, we cannot continue operations, unless we raise money from our existing shareholder or from other resources.
We
currently have no material commitments for capital expenditures. Accordingly, if we are not successful at raising additional funds, there
is no assurance that we will have sufficient cash to remain in business. Even if we are successful at raising additional funds in the
short term, we may be required to raise additional funds, particularly if we are unable to continue generating positive cash flow as a
result of our operations. We estimate that based on current plans and assumptions, that our available cash will not be sufficient to satisfy
our cash requirements under our present operating expectations, without further financing, for up to 12 months. In addition, our company
may, from time to time, receive continued funding and capital resources from related parties. However, as of the date of this annual report,
such related parties do not have any existing obligation to advance funds or working capital to support our business, nor can our company
rely on any advance funds from such related parties. We may not have sufficient working capital to fund the expansion of our operations
and to provide working capital necessary for our ongoing operations and obligations. We may need to raise significant additional capital
to fund our operating expenses, pay our obligations, and grow our company. We do not anticipate we will be profitable in 2023. Therefore,
our future operations may be dependent on our ability to secure additional financing. Financing transactions may include the issuance
of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, we have no current arrangements to
issue any securities. Also, a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the
issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected
costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative
financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain
additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our
operations.
32
We
anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore,
our auditors have raised substantial doubt about our ability to continue as a going concern.
Our
liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated
with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented
by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal
and financial compliance costs and to make some activities more time consuming and costly.
The following table
shows selected information taken from our consolidated cash flow statements for the years ended December 31, 2021 and 2022:
|
|
For
the Year Ended
December
31, |
|||||||
|
|
2022 |
2021 |
||||||
|
|
||||||||
|
Cash
flows from operating activities: |
||||||||
|
|
||||||||
|
Net loss |
(711,890 |
) |
(1,054,845 |
) | ||||
|
Adjustments to
reconcile net loss to net cash used in operating activities: |
||||||||
|
Depreciation |
150,235 |
432,731 |
||||||
|
Decrease (Increase)
in Customers |
(212,151 |
) |
1,832 |
|||||
|
Decrease (Increase)
in other accounts receivable and prepaid expenses |
12,992 |
288,728 |
||||||
|
Increase in Creditors |
(2,862 |
) |
5,043 |
|||||
|
Increase
in accrued expenses and other accounts payable |
412,176 |
185,174 |
||||||
|
Total Adjustments
|
360,390 |
913,508 |
||||||
|
Net
cash provided by (used in) operating activities |
(351,500 |
) |
(141,337 |
) | ||||
|
|
||||||||
|
Cash
flows from investing activities: |
||||||||
|
|
||||||||
|
Sells (Purchase)
of property and equipment |
47,103 |
(52,075 |
) | |||||
|
|
||||||||
|
Net
cash provided by (used in) investing activities |
47,103 |
(52,075 |
) | |||||
|
|
||||||||
|
Cash
flows from financing activities: |
||||||||
|
|
||||||||
|
Cash for issuance
of shares |
- |
872,521 |
||||||
|
Short Term Credit
from Bank, net |
10,071 |
(8,955 |
) | |||||
|
Repayment of Long-Term
Loans and Liabilities |
(37,270 |
) |
(36,565 |
) | ||||
|
|
||||||||
|
Net
cash provided by (used in) financing activities |
(27,199 |
) |
827,001 |
|||||
|
|
||||||||
|
Increase
(Decrease) in cash and cash equivalents |
(331,596 |
) |
633,589 |
|||||
|
Cash
and cash equivalents at the beginning of the period |
783,380 |
149,791 |
||||||
|
|
||||||||
|
Cash
and cash equivalents at the end of the period |
451,784 |
783,380 |
||||||
Cash
flows from operating activities
The
operating activity has provided a negative net cash amount of NIS 351,500.
33
Cash
flows from investing activities
NIS
47,103 was provided from the Company investing activity.
Cash
flows from financing activities
NIS
27,199 was used by the Company financing activity.
| C. |
RESEARCH AND DEVELOPMENT,
PATENTS AND LICENSES, ETC. |
The Company conducted
development efforts to the extent needed to develop its mobile wallet platform and other products developed. The Company owns no patents.
| D. |
TREND INFORMATION |
Other
than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events since
December 31, 2022 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial
conditions.
| E. |
CRITICAL ACCOUNTING
ESTIMATES |
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These
financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported
amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated
financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. The
most significant estimates and assumptions include the valuation of accounts receivable and inventories, useful lives of property, plant
and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue
recognition. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely
on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ
from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe
critical accounting policies as disclosed in this Annual Report reflect the more significant judgments and estimates used in preparation
of our consolidated financial statements.
ITEM
6. DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES
| A. |
DIRECTORS AND
SENIOR MANAGEMENT |
The following table
sets forth information regarding our directors, executive officers and other key employees as of December 31, 2022:
|
Name |
Age |
Position |
|
|
|
|
|
Menachem Shalom |
48 |
Chief Executive
Officer, Chief Financial Officer and Director |
|
Gad Zohar |
57 |
Director |
|
Igal Chemerinsky |
52 |
Director |
34
Set
forth below is a brief description of the background and business experience of our executive officers and directors:
Menachem
Shalom, Chief Executive Officer, Chief Financial Officer and Director
Menachem
Shalom has been our Chief Executive Officer, Chief Financial Officer and member of our Board of Directors since 2008. Mr. Shalom founded
and served as the chief executive officer for Wayerz Solutions Ltd. from January 2015 to August 2017. From August 2013 to April 2014,
Mr. Shalom served as vice president development, sales and marketing, of Dsnr Media Group Ltd. Mr. Shalom obtained a LLM with honors from
Columbia University School of Law in 2000, a MBA from Hebrew University in 2003 and a LLB, magna cum laude, from Hebrew University of
Jerusalem in 1998.
Gad
Zohar, Director
Gad
Zohar has been a director of the Company since July 28, 2021. Mr. Zohar manages Dag Networks Ltd., an Israeli private company that offers
information technology, telecommunications and cloud services and solutions for businesses since 2011, when he founded the company.
Igal Chemerinsky,
Director
Igal
Chemerinsky has been a director of the Company since July 28, 2021. Since 2020, Mr. Chemerinsky has been the chief revenue officer of
Parknav Ltd., a startup developing real-time on-street parking with a highly accurate and scalable solution. From 2019 to 2020, Mr. Chemerinsky
served as the EVP of Global Sales of Enably Ltd.- a SaaS platform that utilizes Artificial Intelligence, Natural Language Processing (NLP)
and advanced algorithms for Online Training, e-Learning, knowledge delivery, compliance, regulations, and content delivery. From 2017
to 2019, he served as the VP of EMEA Sales of Votiro Cybersec Ltd., a global leader in Email & File secure gateways & end-point
solutions protecting organizations against zero-day exploits and other ongoing cyber threats.
Family
Relationships
There are no family
relationships between any of our executive officers and our directors.
| B. |
COMPENSATION |
Set forth below
is the compensation paid during the fiscal year ended December 31, 2022 for our sole executive officer.
|
Name |
2022
Compensation |
|
|
|
|
Menachem Shalom |
NIS 420,000 |
The
amount invoiced by Mr. Shalom was pursuant to the terms of the Management Services Agreement, described below.
35
Management
Services Agreement
We
entered into a written management services agreement with our sole executive officer and director as of December 30, 2017 to provide us
services full time. Mr. Shalom shall be entitled to receive a monthly management fee of NIS35,000 (USD10,606) plus VAT, which shall increase
to NIS45,000 (USD13,636) plus VAT upon completion of the development of the system and the commencement of the sales stage. Upon completion
of fundraising in the sum of NIS5,000,000 (USD1,515,152) or more, Mr. Shalom shall be entitled to payment of monthly fee of NIS60,000
(USD18,181) plus VAT. Mr. Shalom is also entitled to reimbursement for travel expenses as well as all his expenses related to the execution
of the agreement. We have the right to terminate the agreement with Mr. Shalom upon 6-months’ notice.
|
C. |
BOARD
PRACTICES |
Pursuant
to the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers
and may take all actions that are not specifically granted to our shareholders. Our board of directors shall from time to time appoint
one or more general managers, who are responsible for our day-to-day management and have individual responsibilities established by our
board of directors. General managers are appointed by and serve at the discretion of our board of directors, subject to any applicable
employment agreements we have entered into with the general managers. At present, our sole executive officer is Mr. Menachem Shalom.
Under
the Companies Law, we are not required to have a majority of independent directors. We are required to appoint at least two external directors.
According to our articles of association, our board of directors shall consist of up to 11 directors. Currently, our board of directors
consists of three directors, and we have not appointed external directors as of the date of this Annual Report. Pursuant to our articles
of association, other than the external directors, for whom special election requirements apply under the Companies Law, our directors
are elected at an annual general meeting of our shareholders and serve on our board of directors until the next annual general meeting
at which one or more directors are elected or until they are removed by the majority of our shareholders at an annual or special general
meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles of association.
In addition, our articles of association allow our board of directors to appoint directors, other than external directors, to fill vacancies
in the board of directors temporarily (provided, however, that if they number less than three directors, they may act only in an emergency
or to fill the office of director that has become vacant up to the minimum number or in order to call a general meeting of the Company
for the purpose of electing directors to fill any or all vacancies, so that there are at least three directors).
Our directors do
not have written service contracts and are not required to have them under the Israel Companies Law.
Under
the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting
expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her
education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and
financial statements. He or she must be able to thoroughly comprehend the financial statements of the listed company and initiate debate
regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise,
a company’s 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 Mr. Shalom has such requisite financial and accounting expertise.
External
Directors
Under the Companies
Law, a public company is required to appoint at least two external directors to serve on its board of directors. External directors must
meet stringent standards of independence and must be appointed by the non-controlling shareholders of the Company. We have not appointed
external directors as of the date of this Annual Report.
36
The
provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must
be elected by a majority vote of the shares present and voting on the matter at a shareholders meeting, provided that either:
●
such majority includes at least a majority of the shares held by all shareholders who are non-controlling shareholders
and shareholders who do not have a personal interest in the election of the external director (other than a personal interest not deriving
from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, which we refer to as a disinterested
majority; or
●
the total number of shares held by shareholders who are non-controlling shareholders and shareholders who do
not have a personal interest in the election of the external director (other than a personal interest not derived from a relationship
with a controlling shareholder) voted against the election of the external director does not exceed 2% of the aggregate voting rights
in the company.
Under
the Companies Law, the term “controlling shareholder” means a shareholder with the ability to direct the activities of the
company, other than by virtue of serving as 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 more than half of the directors of the company or its
general manager. For the purpose of approving transactions with controlling shareholders, a controlling shareholder is deemed to include
any shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting
rights in the company. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest
in a transaction that is brought for the company’s approval are deemed as joint holders.
The
term “personal interest” is defined in the Companies Law as a person’s or entity’s personal interest in an act
or a transaction of a company, (i) including the personal interest of (a) any spouse, sibling, parent, grandparent or descendant of the
persons, any descendant, sibling or parent of a spouse of the person and the spouse of any of the foregoing; and (b) an entity in which
the person or entity or any of the foregoing relatives of the person serves as a director or the chief executive officer, owns at least
5% of its issued share capital or voting rights or has the right to appoint one or more directors or the chief executive officer, but
(ii) excluding a personal interest arising solely from the ownership of shares. In the case of a person voting by proxy, “personal
interest” includes the personal interest of the proxy holder or the shareholder granting the proxy (even if the proxy holder has
no personal interest in the matter), whether or not the proxy holder has discretion how to vote.
The
initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that
capacity for up to two additional three-year terms, provided that either:
●
his or her service for each such additional term is recommended by one or more shareholders holding at least
1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number
of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in
the company, and provided further that the external director is not an affiliated or competing shareholder, as defined in the Companies
Law, or a relative of such a shareholder at the time of the appointment, and is not affiliated with such a shareholder at the time of
appointment or within the two years preceding the date of appointment; or
●
his or her service for each such additional term is recommended by the board of directors and is approved at
a shareholders meeting by the same majority required for the initial election of an external director (as described above).
37
External
directors may be removed only by a special general meeting of shareholders called by the board of directors after the board has determined
that circumstances allow such dismissal, at the same special majority of shareholders required for their election or by a court, and in
both cases only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty
of loyalty to our company. In the event of a vacancy created by an external director which causes the company to have fewer than two external
directors, the board of directors is required under the Companies Law to call a shareholders meeting as soon as possible to appoint such
number of new external directors in order that the company thereafter has two external directors.
Each
committee of the board of directors that exercises the powers of the board of directors must include at least one external director, except
that the audit committee and the compensation committee must include all external directors then serving on the board of directors. Under
the Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation for their services
as external directors other than pursuant to the Companies Law and the regulations promulgated thereunder. Compensation of an external
director is determined prior to his or her appointment and may not be changed during any three-year term subject to certain exceptions.
The
Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling
shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly
or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding the date of appointment
as an external director: (a) any affiliation with the company, with any person or entity controlling the company or a relative of such
person at the time of appointment, or with any entity controlled by or under common control with the company at the time of appointment
or during the two years preceding the appointment; or (b) in the case of a company with no controlling shareholder or a shareholder holding
25% or more of its voting rights, had at the date of appointment as an external director, any affiliation with a person then serving as
chairman of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or
the most senior financial officer.
The
term “relative” is defined as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant;
and the spouse of each of the foregoing persons.
The
term “affiliation” includes (subject to certain exceptions): an employment relationship; a business or professional relationship
even if not maintained on a regular basis (excluding insignificant relationships); control; and service as an office holder, excluding
service as a director in a private company prior to the initial public offering of its shares if such director was appointed as a director
of the private company in order to serve as an external director following the initial public offering.
In
addition, no person may serve as an external director if that person’s positions or professional or other activities create, or
may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s
ability to serve as a director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. A person
may furthermore not continue to serve as an external director if he or she received direct or indirect compensation other than as permitted
by the Companies Law and the regulations promulgated thereunder.
Following
the termination of an external director’s service on a board of directors, such former external director and his or her spouse and
children and other relatives may not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity
under its controlling shareholder’s control. This includes engagement as an officer or director of the company or a company controlled
by its controlling shareholder or employment by, or provision of services to, any such company for consideration, either directly or indirectly,
including through a corporation controlled by such person. This restriction extends for a period of two years with regard to the former
external director and his or her spouse or child and for one year with respect to other relatives of the former external director.
38
If
at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives
of controlling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender.
A director of one company may not be appointed as an external director of another company if a director of the other company is acting
as an external director of the first company at such time.
According
to the Companies Law and regulations promulgated under the Companies Law, a person may be appointed as an external director only if he
or she has professional qualifications or if he or she has accounting and financial expertise (each, as defined below). At least one of
the external directors must be determined by our board of directors to have accounting and financial expertise.
A
director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise
in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able to understand the
financial statements of the company and initiate a discussion about the presentation of financial data. A director is deemed to have professional
qualifications if he or she has any of (i) an academic degree in economics, business management, accounting, law or public administration,
(ii) an academic degree or has completed another form of higher education in the primary field of business of the company or in a field
which is relevant to his/her position in the company, or (iii) at least five years of experience serving in one of the following capacities,
or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position
in a company with a significant volume of business; (b) a senior position in the company’s primary field of business; or (c) a senior
position in public administration or service. The board of directors is charged with determining whether a director possesses financial
and accounting expertise or professional qualifications.
Audit
Committee
Israeli
Companies Law Requirements
Under
the Companies Law, a public company is required to appoint an audit committee. The audit committee must be comprised of at least three
directors, including all of the external directors, one of whom must serve as chairman of the committee. 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, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors,
within the meaning of the Companies Law. In general, an “unaffiliated director” under the Companies Law is defined as either
an external director or a director who meets the following criteria:
●
the audit committee has determined that he or she meets the qualifications for being appointed 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; and
●
he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose,
a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
39
Audit
Committee Role
Under
the Companies Law, a company’s audit committee is responsible for:
●
determining whether
there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the
independent auditor, and making recommendations to the board of directors to improve such practices;
●
determining whether a competitive process must be implemented for the approval of certain transactions with controlling
shareholders or its relative or in which a controlling shareholder has a personal interest (whether or not the transaction is an extraordinary
transaction), under the supervision of the audit committee or other party determined by the audit committee and in accordance with standards
determined by the audit committee, or whether a different process determined by the audit committee should be implemented for the approval
of such transactions;
●
determining the process for the approval of certain transactions with controlling shareholders or in
which a controlling shareholder has a personal interest that the audit committee has determined are not extraordinary transactions but
are not immaterial transactions;
●
where the board approves the working plan of the internal auditor, to examine such working plan before
its submission to the board and proposing amendments thereto;
● examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities;
● 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 compensation of our auditor; and
● establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
We have not yet established an audit committee. In lieu of an audit committee, our board of directors is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company’s financial statements and other services provided by the Company’s independent public accountants. The board of directors reviews the Company’s internal accounting controls, practices and policies.
Financial
Statement Examination Committee
Under
the Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists
of members with accounting and financial expertise or the ability to read and understand financial statements. Our audit committee holds
the responsibilities and duties of a financial statement examination committee, as permitted under the relevant regulations promulgated
under the Companies Law. From time to time, as necessary and required in order to approve our financial statements, the audit committee
will hold separate meetings prior to the scheduled meetings of the board in respect of the financial statements. The function of a financial
statement examination committee is to discuss and provide recommendations to the board of directors (including reporting any deficiencies
found) with respect to the following issues: (a) estimations and assessments made in connection with the preparation of financial statements;
(b) internal controls related to the financial statements; (c) completeness and appropriateness of the disclosure in the financial statements;
(d) the accounting policies adopted and the accounting treatment implemented in material matters of the Company; and (e) value evaluation,
including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements.
40
Compensation
Committee and Compensation Policy
A
public company in Israel is required to have a compensation committee as required by the Companies Law. The compensation committee must
be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of the
compensation committee. Each compensation committee member that is not an external director must be a director whose compensation does
not exceed an amount that may be paid to an external director under regulations promulgated under the Companies Law. The compensation
committee is subject to the same Companies Law restrictions as the audit committee as to who may not be a member of the committee. See
“- Audit Committee - Israeli Companies Law Requirements.”
Compensation
Committee Role
Our
board of directors has not yet adopted a compensation committee charter. One adopted, the audit committee charter will set forth the responsibilities
of the audit committee consistent with the regulations of the SEC, as well as the requirements for compensation committees under the Companies
Law, including the following:
●
recommending to the board of directors for its approval (i) a compensation policy; (ii) 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); and (iii) periodic updates to
the compensation policy. See “- Compensation Policy.” In addition, the compensation committee is required to periodically
examine the implementation of the compensation policy;
● the approval of the terms of employment and service of office holders (including determining whether the compensation terms of a candidate for chief executive officer of the company need not be brought to approval of the shareholders); and
●
reviewing and approving grants of options and other incentive awards to persons other than office holders to
the extent such authority is delegated by our Board of Directors, subject to the limitations on such delegation as provided in the Companies
Law.
We
have not yet established a compensation committee.
Compensation
Policy
Under
the Companies Law, 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, as such term is defined in the Companies Law, to which we refer to as a compensation
policy, and any extensions and updates thereto. The compensation policy must be adopted by the company’s board of directors, after
considering the recommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders,
which approval requires a Special Approval for Compensation (as defined below under “- Approval of Related Party Transactions under
Israeli Law - Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions”).
41
The
compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders,
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
plan and its long-term strategy, and creation of appropriate incentives for office holders, and must consider (among other things) the
company’s risk management, size and the nature of its operations. The compensation policy must also consider the following additional
factors:
●
the knowledge, skills, expertise and accomplishments of the relevant office holder;
●
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
●
the relationship between the terms offered and the average compensation of the other employees of the company (including
any employees employed through manpower companies);
●
the impact of disparities in salary upon work relationships in the company;
●
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 equity-based compensation; and
●
as to severance compensation, the period of employment or service of the office holder, the terms of his or her compensation
during such period, the company’s performance during such period, 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;
●
the conditions under which an office holder would be required to repay compensation paid to him or her if it was later
shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial
statements;
●
the minimum holding or vesting period for variable, equity-based compensation; and
●
maximum limits for severance compensation.
Internal
Auditor
Under
the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee.
An internal auditor may not be:
●
a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
●
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
42
●
an office holder, within the meaning of the Companies Law (including a director and the general manager) of the company
(or a relative thereof); or
●
a member of the company’s independent accounting firm, or anyone on his or her behalf.
The
role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The
audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal
auditor’s work plan.
As
of the date hereof, we have no internal auditor.
Approval
of related party transactions under Israeli law
Fiduciary
duties of directors and officers
The
Companies Law codifies the fiduciary duties that office holders owe to a company. An office holder is defined in the Companies Law as
a general manager, chief business manager, deputy general manager, vice general manager, executive Vice President, vice President, any
other person assuming the responsibilities of any of these positions regardless of such person's title, a director and any other manager
directly subordinate to the general manager. Each person listed in the table under "Management—Executive officers and directors"
is an office holder under the Companies Law.
An
office holder's fiduciary duties consist of a duty of care and a duty of loyalty. 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
loyalty requires that an office holder act in good faith and in the best interests of the company.
Disclosure
of personal interests of an office holder and approval of certain transactions
The
Companies Law requires that an office holder promptly disclose no later than the first Board Meeting in which such transaction is discussed,
to the board of directors any personal interest that he or she may have and all related material information known to him or her concerning
any existing or proposed transaction with the company. A personal interest includes an interest of any person in an act or transaction
of a company, including a personal interest of one's relative or of a corporate body in which such person or a relative of such person
is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the
general manager, but excluding a personal interest stemming solely from one's ownership of shares in the company. A personal interest
includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder
with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest
in the matter.
If
it is determined that an office holder has a personal interest in a non-extraordinary transaction, meaning any transaction that is in
the ordinary course of business, on market terms or that is not likely to have a material impact on the company's profitability, assets
or liabilities, approval by the board of directors is required for the transaction, unless the company's articles of association provide
for a different method of approval. Any such transaction that is not for the benefit of the company may not be approved by the board of
directors.
In
addition to any approval required by the articles of association, approval first by the company's audit committee and subsequently by
the board of directors, and, under specified circumstances, by a meeting of the shareholders, as well, is required for an extraordinary
transaction (meaning, any transaction that is not in the ordinary course of business, not on market terms or that is likely to have a
material impact on the company's profitability, assets or liabilities) in which an office holder has a personal interest.
43
A
director and any other office holder who has a personal interest in a transaction which is considered at a meeting of the board of directors
or the audit committee may generally (unless it is with respect to a transaction which is not an extraordinary transaction) not be present
at such a meeting or vote on that matter however, with respect to an office holder, he/she may be present at the meeting discussions if
the chairman determines that the presence of the office holder is necessary in order to present the matter. However, if a majority of
the members of the audit committee or the board of directors has a personal interest in the approval of such a transaction then all of
the directors may participate in the meeting with respect to such transaction and vote on the approval thereof and, in such case, shareholder
approval is also required.
Certain
disclosure and approval requirements apply under Israeli law to certain transactions with controlling shareholders, certain transactions
in which a controlling shareholder has a personal interest and certain arrangements regarding the terms of service or employment of a
controlling shareholder.
For
a description of the approvals required under Israeli law for compensation arrangements of officers and directors, see above under "—Compensation
of directors and executive officers."
Shareholder
duties
Pursuant
to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders
and to refrain from abusing his or her power with respect to the company, including, among other things, in voting at a general meeting
and at shareholder class meetings with respect to the following matters:
| • |
an amendment to the company's articles of
association; |
| • |
an increase of the company's authorized
share capital; |
| • |
a merger; or |
| • |
interested party transactions that require
shareholder approval. |
In
addition, a shareholder has a general duty to refrain from discriminating against other shareholders.
Certain
shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder
who knows that it has the power pursuant to the provisions of a company's articles of association, to determine the outcome of a shareholder
vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company. The Companies
Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract
adjusted according to the circumstances, and taking into account the status within the company of such shareholder, will also apply in
the event of a breach of the duty of fairness.
Exculpation,
insurance and indemnification of office holders
We
entered into an indemnification agreement with Menachem Shalom as of April 22, 2021 to indemnify Mr. Shalom to the fullest extent permitted
under Israeli law. We are not contractually obligated to indemnify Mr. Shalom for, among others, (i) a breach of duty of loyalty, unless
such breach was done in good faith and having reasonable cause to assume that such act would not prejudice the interests of the Company
and (ii) a willful or reckless breach of his duty of care, unless such breach was done solely in negligence.
Under
the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company
may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result
of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles
of association include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend
or distribution to shareholders.
44
An
Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an
office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained
in its articles of association:
| • |
financial
liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator's award approved by a court.
However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking
must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company's activities when the
undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under
the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria; |
| • |
reasonable litigation expenses, including
attorneys' fees, incurred by the office holder (1) 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 (i) no indictment was filed against such office holder as a result
of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute
for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed
with respect to an offense that does not require proof of criminal intent and (2) in connection with a monetary sanction; |
| • |
reasonable litigation expenses, including
attorneys' fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its
behalf or by a third-party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction
for an offense that does not require proof of criminal intent; and |
| • |
expenses, including reasonable litigation
expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder,
or certain compensation payments made to an injured party imposed on an office holder by an administrative proceeding, pursuant to certain
provisions of the Israeli Securities Law, 1968 (the "Israeli Securities Law"). |
An
Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to
the extent provided in the company's articles of association:
| • |
a breach of the duty of loyalty to the company,
to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
| • |
a breach of the duty of care to the company
or to a third-party, including a breach arising out of the negligent conduct of the office holder; |
| • |
a financial liability imposed on the office
holder in favor of a third-party; |
| • |
a financial liability imposed on the office
holder in favor of a third-party harmed by a breach in an administrative proceeding; and |
| • |
expenses, including reasonable litigation
expenses and legal fees, incurred by the office holder as a result of an administrative proceeding instituted against him or her pursuant
to certain provisions of the Israeli Securities Law. |
45
An
Israeli company may not indemnify or insure an office holder against any of the following:
| • |
a breach of the duty of loyalty, except
to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
| • |
a breach of the duty of care committed intentionally
or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
| • |
an act or omission committed with intent
to derive illegal personal benefit; or |
| • |
a fine, monetary sanction or forfeit levied
against the office holder. |
Under
the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the
board of directors (and, with respect to directors and the Chief Executive Officer, by shareholders).
Our
articles of association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act
(including any omission) which was performed by virtue of being an office holder.
In
the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is
against public policy and therefore unenforceable.
Remuneration
of Directors
Under
the Companies Law, remuneration of directors is subject to the approval of the compensation committee (until recently of the audit committee),
thereafter by the board of directors and thereafter by the general meeting of the shareholders. In case the remuneration of the directors
is in accordance with regulation applicable to remuneration of the external directors then such remuneration shall be exempt from the
approval of the general meeting.
|
D. |
EMPLOYEES |
Other than Mr.
Shalom, our sole officer and a member of our board of directors, we have no employees.
|
E. |
SHARE
OWNERSHIP |
The
following table sets forth, as of the date of this annual report, the beneficial ownership of our ordinary shares by each executive officer
and director, by each person known by us to beneficially own more than 5% of our ordinary shares and by the executive officers and directors
as a group. As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting
of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition
of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership”
of any security that such person has the right to acquire within 60 days after such date.
The
persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or
group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the
power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of
any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our ordinary shares.
46
The percentage
of shares beneficially owned has been computed on the basis of 2,282,124 ordinary shares outstanding as of April 24, 2023.
All of our shareholders,
including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “Description of share
capital and articles of association”. None of our principal shareholders or our directors and executive officers have different
or special voting rights with respect to their ordinary shares. Unless otherwise noted below, each shareholder’s address is 30 Golomb
Street, Nes Ziyona, Israel.
|
Title
of class |
Name
of beneficial owner |
Amount
of
beneficial
ownership |
Percent
of
class(2) |
|||||||
|
Ordinary Shares |
Menachem Shalom |
2,000,000(1)(2 |
) |
87.64 |
% | |||||
|
|
Gad Zohar* |
- |
- |
% | ||||||
|
|
Igal Chemerinsky* |
- |
- |
% | ||||||
|
Total of All Current
Officers
and Directors
(3 persons): |
2,000,000(1 |
) |
87.64 |
% | ||||||
|
(1) |
Includes
2,000,000 ordinary shares and 10,000,000 preferred shares owned by Mr. Shalom. The amount reflected does not include the 10,000,000 preferred
shares which are also owned by Mr. Shalom. Each preferred share is convertible at any time by the holder thereof to 100 ordinary shares. |
||
|
(2) |
The
percentage indicated below refers only to the ordinary shares and does not include the percentage of class of the preferred shares, which
are 100% owned by Mr. Shalom. | ||
* Beneficially
owns less than one percent of the class
Share
Incentive Plan
We
currently do not have any stock incentive plans.
ITEM
7. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
| A. |
MAJOR SHAREHOLDERS |
The
following table sets forth, as of the date of this annual report, the beneficial ownership of our ordinary shares by all persons known
by us to beneficially own more than 5% of our ordinary shares and by the executive officers and directors as a group. As used in this
table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole
or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In
addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that
such person has the right to acquire within 60 days after such date.
47
The persons named
above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group of persons)
is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or
to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than
one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security,
which that person has the right to acquire within 60 days, such as options or warrants to purchase our ordinary shares.
The percentage
of shares beneficially owned has been computed on the basis of 2,282,424 ordinary shares outstanding as of April 24, 2023.
All of our shareholders,
including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “Description of share
capital and articles of association”. None of our principal shareholders or our directors and executive officers have different
or special voting rights with respect to their ordinary shares. Unless otherwise noted below, each shareholder’s address is 30 Golomb
Street, Nes Ziyona, Israel.
|
Title
of class |
Name
of beneficial owner |
Amount
of
beneficial
ownership |
Percent
of
class(2) |
|||||||
|
Ordinary Shares |
Menachem Shalom |
2,000,000(1 |
) |
87.64 |
% | |||||
|
(1) |
Includes
2,000,000 ordinary shares. Does not include the 10,000,000 preferred shares owned by Mr. Shalom. Each preferred share is convertible at
any time by the holder thereof to 100 ordinary shares. |
||
|
(2) |
The
percentage indicated below refers only to the ordinary shares and does not include the percentage of class of the preferred shares, which
are 100% owned by Mr. Shalom. | ||
| B. |
RELATED PARTY
TRANSACTIONS |
Agreements
among our Shareholders
See
“Management Services Agreement” under “Compensation” for the terms of Mr. Shalom’s management services agreement
with the Company.
The
Company has purchased computer equipment and sold it to Billio Ltd (a sister company) for the cost paid.
| C. |
INTERESTS OF EXPERTS
AND COUNSEL |
Not
applicable.
ITEM
8. FINANCIAL INFORMATION
| A. |
CONSOLIDATED STATEMENTS
AND OTHER FINANCIAL INFORMATION |
48
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Hold Me Ltd.
Opinion
on the Financial Statements
We
have audited the accompanying the balance sheets of Hold Me Ltd. (“the Company”) as of December 31, 2022 and the related statements
of operations, changes in stockholders’ deficit and cash flows, for the year then ended, and the related notes and schedules (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31,
2022, in conformity with generally accepted accounting principles in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, as of December 31, 2022, the Company suffered losses from operations in all years since inception, except
for the year ended December 31, 2022. These and other factors raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plan regarding these matters is also described in Note 2 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty. This matter is also described in the
“Critical Audit Matters” section of our report.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going
Concern- Refer to Note 2 to the financial statements
Critical Audit Matter
Description
The
Company raised substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. The
financial statements for the years under audit have been prepared to assume that the Company will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. We have identified the Going Concern as a
critical audit matter because of the significant estimates and assumptions made by management. This required a high degree of auditor
judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s assessment
of Going Concern. See the explanatory paragraph of the opinion paragraph.
How
the Critical Audit Matter Was Addressed in the Audit
(i)
We evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period
of time. (ii) We obtained information about management’s plans that are intended to mitigate the effect of such conditions or events,
and assess the likelihood that such plans can be effectively implemented. (iii) We added an explanatory paragraph to the audit report.
/s/
Elkana Amitai CPA
We
have served as the Company's auditor since 2023.
Mitzpe Netofa, Israel
May 1, 2023
49
Report
of Independent Registered Public Accounting Firm
To
the shareholders and the board of directors of Hold Me Ltd.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Hold Me Ltd. as of December 31, 2021, the related statements of operations, stockholders'
equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
F to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In
addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these matters are also described in Note F. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Critical
Audit Matter
Critical
audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments.
We
determined that there are no critical audit matters.
/S/
BF Borgers CPA PC
(PCAOB ID 5041 )
We
served as the Company's auditor from 2021 to 2022
April
27, 2022
49a
Hold Me Ltd
Balance Sheet
|
|
As
at December 31 |
|||||||||||
|
|
2022
|
2021
|
||||||||||
|
|
Notes
|
New
Israeli Shekels |
||||||||||
|
Current
Assets |
||||||||||||
|
Cash and Cash Equivalents
|
3
|
|
|
|||||||||
|
Short term Investments
|
|
|
||||||||||
|
Customers
|
|
|
||||||||||
|
Receivables and Debit
Balances |
4
|
|
|
|||||||||
|
Total Current Assets
|
|
|
||||||||||
|
Fixed
Assets |
5
|
|
|
|||||||||
|
Intangible
Assets |
|
|
||||||||||
|
Total Assets
|
|
|
||||||||||
|
Current
Liabilities |
||||||||||||
|
Credit from Banking Corporations
|
6
|
|
|
|||||||||
|
Suppliers and Service
Providers |
|
|
||||||||||
|
Payables and Credit Balances
|
7
|
|
|
|||||||||
|
Total Current Liabilities
|
|
|
||||||||||
|
Long-Term
Liabilities |
||||||||||||
|
Loans from Banking Corporations
and other Credit Providers |
8
|
|
|
|||||||||
|
Shareholders'
Equity |
||||||||||||
|
Preferred
stock, NIS |
||||||||||||
|
|
9
|
|
|
|||||||||
| Common
stock, NIS |
||||||||||||
|
|
9
|
|
|
|||||||||
|
Additional paid-in capital
|
|
|
||||||||||
|
Deficit Balance
|
(
|
)
|
(
|
)
| ||||||||
|
Total Shareholders'
Equity (Deficit) |
(
|
)
|
(
|
)
| ||||||||
|
Total Liabilities
and shareholders' equity (Deficit) |
|
|
||||||||||
See Accompanying Notes
to Financial Statements.
50
Hold
Me Ltd
Statements
of Profit and Loss
|
|
For
the Year Ended December 31, |
|||||||||||
|
|
2022
|
2021
|
||||||||||
|
|
Notes
|
New
Israeli Shekels |
||||||||||
|
Revenue
|
|
|
||||||||||
|
Cost of projects
|
|
|
||||||||||
|
Gross deficit
|
(
|
)
|
(
|
)
| ||||||||
|
Selling,
administrative and general expenses |
10
|
(
|
)
|
(
|
)
| |||||||
|
Operating
deficit |
(
|
)
|
(
|
)
| ||||||||
|
Financing
expenses, net |
(
|
)
|
(
|
)
| ||||||||
|
Loss for
the year after financing |
(
|
)
|
(
|
)
| ||||||||
|
Other income
(expenses) |
|
|
||||||||||
|
Net Loss
|
(
|
)
|
(
|
)
| ||||||||
|
Basic and
diluted loss per ordinary share |
NIS
(
|
NIS
(
|
||||||||||
|
Weighted-average
number of ordinary shares outstanding:
Basic and Diluted |
|
|
||||||||||
See
Accompanying Notes to Financial Statements.
51
Hold
Me Ltd
Statements
of Changes in Shareholders' Equity
|
|
Number
of Issued shared |
Ordinary
shares |
Additional
Paid-in Capital |
Accumulated
Deficit |
Total
Shareholders' Equity |
|||||||||||||||
|
|
||||||||||||||||||||
|
Balance at
January 1, 2021 |
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
|
Issuance
of Shares and Premium |
|
|
|
*
|
|
|
||||||||||||||
|
Total
comprehensive loss |
-
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
|
Balance at
December 31, 2021 |
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
|
Balance at
January 1, 2022 |
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
|
Total
comprehensive loss |
-
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
|
Balance at
December 31, 2022 |
|
|
|
(
|
)
|
(
|
)
| |||||||||||||
*
Amount is net of issuance costs of NIS 105,421
See Accompanying
Notes to Financial Statements.
52
Hold
Me Ltd
Statements
of Cash Flows
|
|
For
the Year Ended
December
31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
||||||||
|
Cash
flows from operating activities: |
||||||||
|
|
||||||||
|
Net loss
|
(
|
)
|
(
|
)
| ||||
|
Adjustments
to reconcile net loss to net cash used in operating activities: |
||||||||
|
Depreciation
|
|
|
||||||
|
Decrease
(Increase) in Customers |
(
|
)
|
|
|||||
|
Decrease
(Increase) in other accounts receivable and prepaid expenses |
|
|
||||||
|
Increase
in Creditors |
(
|
)
|
|
|||||
|
Increase
in accrued expenses and other accounts payable |
|
|
||||||
|
Total Adjustments
|
|
|
||||||
|
Net
cash provided by (used in) operating activities |
(
|
)
|
(
|
)
| ||||
|
|
||||||||
|
Cash
flows from investing activities: |
||||||||
|
|
||||||||
|
Sells (Purchase)
of property and equipment |
|
(
|
)
| |||||
|
|
||||||||
|
Net
cash provided by (used in) investing activities |
|
(
|
)
| |||||
|
|
||||||||
|
Cash
flows from financing activities: |
||||||||
|
|
||||||||
|
Cash for
issuance of shares |
|
|
||||||
|
Short Term
Credit from Bank, net |
|
(
|
)
| |||||
|
Repayment
of Long-Term Loans and Liabilities |
(
|
)
|
(
|
)
| ||||
|
|
||||||||
|
Net
cash provided by (used in) financing activities |
(
|
)
|
|
|||||
|
|
||||||||
|
Increase
(Decrease) in cash and cash equivalents |
(
|
)
|
|
|||||
|
Cash
and cash equivalents at the beginning of the period |
|
|
||||||
|
|
||||||||
|
Cash
and cash equivalents at the end of the period |
|
|
||||||
See Accompanying Notes
to Financial Statements.
53
Hold
Me Ltd
Notes
to Financial Statements
Note
1 - General
| A. |
The Company was incorporated under the laws of
the state of Israel and commenced operations as a private company in January 2007, under Companies Registrar number 513933218.
|
| B. |
The Company develops a software-based platform
that enables its customers to enhance their brand and loyalty plans with digital payments and reward programs through the creation and
offering of branded mobile applications. |
| C. |
Since inception, the Company incurred an accumulated
deficit of NIS
|
Note
2 - Summary of Significant Accounting Policies
The
principal accounting policies, consistently applied in the preparation of the financial statements, are as follows:
| A. |
Financial
Statements Reporting Basis |
The
financial statements are drawn up on the basis of generally accepted accounting principles ("GAAP"), and are expressed in New Israeli
Shekel ("NIS") based on historical values, and provide no information on changes in the general purchasing power of the Israeli currency
on the business results.
Those
reports are filed as part of form F-1 (Registration Statement Under the Securities Act of 1933). Since the Company was incorporated in
Israel and is considered a Foreign Issuer and as such is allowed to file the statement and the financial reports in its home country currency,
New Israeli Shekel (NIS).
| B. |
Cash
and Cash Equivalents |
The
Company considers high-liquidity investments, including short-term cash deposits in banks (up to three months), as cash equivalents.
| C. |
Fixed
Assets |
Property
and equipment are stated at cost. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful life. At the time of retirement or other disposition
of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected
in the statements of operations as other gain or loss, net.
Annual
depreciation rates are as follows:
|
|
% |
|
Office furniture and equipment |
|
|
Vehicles |
|
|
Computers |
|
54
| D. |
Use
of Estimates in Preparing the Financial Statements |
The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair
value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the
case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants
would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for
measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical
level.
The
following are the hierarchical levels of inputs to measure fair value:
|
-
Level 1: |
Quoted
prices in active markets for identical instruments; |
|
-
Level 2: |
Other
significant observable inputs (including quoted prices in active markets for similar instruments); |
|
-
Level 3: |
Significant
unobservable inputs (including assumptions in determining the fair value of certain investments). |
The
carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, and
deferred revenue approximate their fair value due to their short maturities.
| E. |
Income
Tax |
The
Company accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740"). ASC 740 prescribes the use of the liability
method whereby deferred tax assets and liability account balances are determined based on differences between the financial reporting
and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable
value, and if it is more likely than not that a portion or all of the deferred tax assets will not be realized.
| F. |
Revenue
Recognition |
Significant
management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period. Material
differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management’s
estimates change on the basis of development of business or market conditions.
We
have decided to follow the provisions of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with
Customers (“ASC 606”). The guidance provides a unified model to determine how revenue is recognized.
Revenues
are recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services.
We
determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the
performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance
obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.
We
enter into contracts that can include various combinations of products and services, as detailed below, which are generally capable of
being distinct and accounted for as separate performance obligations.
We
generate our revenues from (1) licensing intellectual properties, which in certain circumstances are modified for customer-specific requirements,
(2) royalty revenues and (3) other revenues, which include revenues from support, training and sale of development systems and chips.
We license our assets IP to other companies who can then resell, develop or market otherwise in variety of business models.
We
account for license revenues and related services, which provide our customers with rights to use our platform, in accordance with ASC
606. A license may be perpetual or time limited in its application. In accordance with ASC 606, we recognize revenue from platform license
at the time of delivery when the customer accepts control of the platform, as the platform is functional without professional services,
updates and technical support. We have concluded that our platform license is distinct as the customer can benefit from the software on
its own.
55
Revenues
that are derived from the sale of a licensee’s products that incorporate our platform are classified as royalty revenues. Royalty
revenues are recognized during the quarter in which the sale of the product incorporating our platform occurs. Royalties are calculated
either as a percentage of the revenues received by our licensees on sales of products incorporating our platform or on a per unit basis,
as specified in the agreements with the licensees. We receive the actual sales data from our customers after the quarter ends and accounts
for it as unbilled receivables. When we do not receive actual sales data from the customer prior to the finalization of its financial
statements, royalty revenues are recognized based on our estimation of the customer’s sales during the quarter. We may engage a
third party to perform royalty audits of our licensees, and if these audits indicate any over- or under-reported royalties, we account
for the results when the audits are resolved.
As
of end of 2022, Galileo owed us an amount of NIS 212,151
as pro-rated licensing fee, which were recorded as an account receivable.
| G. |
Going
Concern |
The
accompanying financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going
concern.
The
Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going
concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in
the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note
3 - Cash and Cash Equivalents
|
|
As
at December 31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
Israel
Shekels |
|||||||
|
Bank Mizrahi Current
Account No. 684795 |
|
|||||||
|
Bank Mizrahi Current
Account No. 073959 |
|
|
||||||
|
Bank Mizrahi Current
Account No. 073959 FX |
|
|
||||||
|
SVB
Bank |
|
|
||||||
|
|
|
|
||||||
56
Note
4 - Receivables and Debit Balances
|
|
As
at December 31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
Israel
Shekels |
|||||||
|
Prepaid expenses
|
|
|
||||||
|
Institutions
|
|
|
||||||
|
Related parties
|
|
|||||||
|
Accounts receivables
|
|
|
||||||
|
|
|
|
||||||
Note
5 - Fixed Assets
|
|
As
at December 31, |
|||||||||||||||
|
|
2022
|
2021
|
||||||||||||||
|
|
Cost
|
Accumulated
Depreciation |
Depreciated
Cost |
Depreciated
Cost |
||||||||||||
|
|
Israel
Shekels |
|||||||||||||||
|
R&D expenses
|
|
|
|
|
||||||||||||
|
Computers
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
||||||||||||
Note
6 - Banking Institutions (short term liabilities)
|
|
|
As
at December 31, |
| |||||
|
|
|
2022
|
|
|
2021
|
| ||
|
|
|
Israel
Shekels |
| |||||
|
Bank Mizrahi Current
Account 684728 |
|
|
|
|
|
|
|
|
|
Current maturities of
long-term loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
7 - Payables and Credit Balances
|
|
As
at December 31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
Israel
Shekels |
|||||||
|
Payable Expenses
|
|
|
||||||
|
Down payments from clients
|
|
|
||||||
|
Prepaid Revenue
|
|
|
||||||
|
Related parties
|
|
|
||||||
|
Shareholders (1)
|
|
|
||||||
|
|
|
|
||||||
57
Note
8 - Loans from Banking Corporations and other Credit Providers
|
|
As
at December 31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
Israel
Shekels |
|||||||
|
Loan from Mizrahi Bank
A/c 73959 |
|
|
||||||
|
Less - current maturities
|
(
|
)
|
(
|
)
| ||||
|
|
|
|
||||||
Note
9 - Share Capital
|
|
December
31,
2021
& 2022 |
|||||||
|
|
Registered
|
Issued
and Paid Up |
||||||
|
|
Number
of Shares |
|||||||
|
|
||||||||
|
Ordinary
shares of ILS 0.01 each p.v. |
|
|
||||||
|
Preferred
shares of ILS 0.01 each p.v. |
|
|
||||||
On
April 12, 2021, the Company issued 1,999,700
Ordinary shares and 10,000,000
Preferred shares for an aggregate purchase price of NIS 119,997 to
Menachem Shalom. The purchase amount was not paid in cash but by deducting the amount from the Company's debt owed to Menachem Shalom.
During
2021 the Company raised NIS 857,945
(USD 268,018 )
from investors through a registration statement filed with the SEC.
Each
Preferred Share shall be convertible into one hundred (100 )
Ordinary Shares (the “Conversion Ratio”) upon the election of the holder of such Preferred Shares.
The
Preferred Shares shall not confer upon the holders thereof any voting rights or any right to appoint directors or any other right with
respect to general meetings, including without limitation, attending, voting at or requesting to convene, such general meetings or proposing
matters for the agenda of such general meetings.
Each
Preferred Share in the Company’s capital shall be entitled to receive upon distribution, and in preference to the Ordinary Shares
of the Company, (i) dividends in excess of the general dividends issued to all shareholders including holders of Ordinary Shares, and/or
(ii) amounts paid in a distribution of the Company’s surplus assets on winding up, in an amount equal to the original issue price
for such Preferred Shares as set forth in the Company’s share registrar (adjusted for share combinations or subdivisions or other
recapitalizations of the Company’s shares), and less the amount of any dividend previously paid in preference, all pro rata to the
number of the Company’s Preferred Shares of each specific class of Preferred Shares issued and outstanding at such time, without
having regard to any premium paid or discount thereon, and all subject to the provisions hereof.
Furthermore,
and after payment of the Preferred Shares’ dividend preferences or liquidation preferences as aforesaid, each Preferred Share in
the Company’s capital shall be entitled to receive upon distribution, (i) a general dividend issued to all Shareholders, (ii) bonus
shares, and (iii) amounts paid in a distribution of the Company’s surplus assets on winding up, all pro rata to the number of the
Company’s Shares (Ordinary Shares and Preferred Shares) issued and outstanding at such time, without having regard to any premium
paid thereon or discount, and all subject to the provisions hereof.
58
Note
10 - Selling, Administrative and General Expenses
|
|
For
the Year Ended on December 31, |
|||||||
|
|
2022
|
2021
|
||||||
|
|
Israel
Shekels |
|||||||
|
Salary
|
|
|
||||||
|
Advertising
|
|
|
||||||
|
Rent
|
|
|
||||||
|
Management fees (*)
|
|
|
||||||
|
Communication
|
|
|
||||||
|
Professional services
|
|
|
||||||
|
Travel abroad
|
|
|
||||||
|
Maintenance and Electricity
|
|
|
||||||
|
Office expenses
|
|
|
||||||
|
Refreshments
|
|
|
||||||
|
Taxes and fees
|
|
|
||||||
|
Travel and parking
|
|
|
||||||
|
Depreciation expenses
|
|
|
||||||
|
|
|
|
||||||
Note
11 - Related Parties transactions
The following related
partied transactions has occurred:
| • |
Payment of management fees to Menachem Shalom
– a controlling shareholder and director of the company. Menachem is entitled to receive NIS |
| • |
Amounts received and paid to Tamarindi Ltd and
Billio Ltd – to offset previous year balances. |
| • |
The sale of computer equipment to Billio Ltd –
for cost – in the amount of NIS |
| • |
As of December 31st
2022 |
| o |
The Company owes Menachem Shalom NIS
|
| o |
The Company owes Billio Ltd NIS
|
| o |
The Company owes Tamarindi Ltd NIS
|
Note
12 - Income Taxes
The
provision/benefit for income taxes for the year ended December 31, 2022 differs from the amount which would be expected as a result of
applying the statutory tax rates to the losses before income taxes due primarily to changes in the valuation allowance to fully reserve
net deferred tax assets.
Realization
of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and
carry-forwards are expected to be available to reduce taxable income.
|
|
December 31,
|
December 31,
|
||||||
|
|
2022
|
2021
|
||||||
|
|
NIS
|
NIS
|
||||||
|
Deferred tax assets:
|
||||||||
|
Pre-tax profit/(loss)
as reported |
(
|
)
|
(
|
)
| ||||
|
Israeli statutory tax
rate |
|
%
|
|
%
| ||||
|
Expected tax expense
(benefit) |
|
|
||||||
|
Total
deferred tax assets |
|
|
||||||
|
Less: Valuation allowance
|
(
|
)
|
(
|
)
| ||||
|
Net
deferred tax assets |
|
|
||||||
The
Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about
its realization. As of December 31, 2022, the Company had approximately NIS 3,231,473
in tax loss carryforwards that can be utilized in future periods to reduce taxable income.
Note
13 - Subsequent Events
In
accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there
are no additional material subsequent events to report.
59
| B. |
SIGNIFICANT CHANGES |
No significant
change has occurred since December 31, 2022, except as otherwise disclosed in this annual report.
ITEM
9. THE OFFER AND LISTING
| A. |
OFFER AND LISTING DETAILS |
See
“C – Markets” below.
| B. |
PLAN OF DISTRIBUTION |
Not
applicable.
| C. |
MARKETS |
Our
ordinary shares trade on the Pink Markets under the symbol “HMELF”.
| D. |
SELLING SHAREHOLDERS |
Not
applicable.
| E. |
DILUTION |
Not
applicable.
| F. |
EXPENSES OF THE ISSUE |
Not
applicable.
ITEM
10. ADDITIONAL INFORMATION
| A. |
SHARE CAPITAL |
As
of April 24, 2023, our authorized share capital consists of 990,000,000 ordinary shares, par value NIS 0.01 per share, and 10,000,000
shares of Preferred Shares, par value NIS 0.01 per share. Currently there are 2,282,424 ordinary shares and 10,000,000 shares of Preferred
Shares, par value NIS 0.01 per share, issued and outstanding, all of which Preferred Shares are owned by Menachem Shalom.
All
of our outstanding ordinary shares are validly issued, fully paid and non-assessable. Our ordinary shares are not redeemable and do not
have any preemptive rights.
Our
board of directors may determine the issue prices and terms for such shares or other securities and may further determine any other provision
relating to such issue of shares or securities. We may also issue and redeem redeemable securities on such terms and in such manner as
our board of directors shall determine.
60
| B. |
MEMORANDUM AND ARTICLES
OF ASSOCIATION |
The following is a description
of the material terms of our articles of association. The following description may not contain all of the information that is important
to you, and we therefore refer you to our articles of association, a copy of which is filed with the SEC as Exhibit 3.1 to Amendment No.
3 to our Registration Statement on Form F-1 filed with the SEC on June 29, 2021 and is incorporated herein by reference.
Registration
number and purposes of the company
We
are registered with the Israeli Registrar of Companies. Our registration number is 51-3933218. Our purpose as set forth in our articles
of association is to engage in any lawful act or activity.
The
Powers of the Directors
Pursuant
to our articles of association and subject to the Companies Law, the determination of the policy of the business of the Company and the
supervision on the performance of the General Manager of the Company (who may be a director or non-director and who shall have the authority
with respect to the day to day management of the Company in the ordinary course of business, in the framework of, and subject to, the
policy, guidelines and instructions of the board of directors from time to time) shall be vested in the board of directors (the “Board”).
The Board may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do and which are not
required by law or our articles of association to be done by the Company by action of our shareholders at a General Meeting.
Borrowing
Powers
Pursuant
to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that are not
required under law or under our articles of association to be exercised or taken by our shareholders, including the power to borrow money
for company purposes.
Rights
Attached to Shares
Our
Ordinary Shares shall confer upon the holders thereof:
●
equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary
Share entitling the holder thereof, which attend the meeting and participate at the voting, either in person or by a proxy or by a written
ballot, to one vote;
●
equal right to participate in distribution of dividends, if any, whether payable in cash or in bonus shares,
in distribution of assets or in any other distribution, on a per share pro rata basis; and
●
equal right to participate, upon our dissolution, in the distribution of our assets legally available for
distribution, on a per share pro rata basis.
Election
of Directors
Under
our articles of association, our board of directors shall have up to 11 directors. Pursuant to our articles of association, each of our
directors will be appointed by a simple majority vote of holders of our ordinary shares, participating and voting at an annual general
meeting of our shareholders, In addition, other than in certain circumstances our articles of association allow our board of directors
only to appoint new directors to fill vacancies on the board of directors temporarily up to the maximum number of directors permitted
under articles of association. Any director so appointed serves for a term of office equal to the remaining period of the term of office
of the director whose office has been vacated (or in the case of any new director, for a term of office according to the class to which
such director was assigned upon appointment).
61
Annual
and Special Meetings
Under
Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held no later
than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders
are referred to in our articles of association as special general meetings. Our board of directors may call special general meetings whenever
it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law provides that our
board of directors is required to convene a special general meeting upon the written request of (i) any two or more of our directors or
one-quarter or more of the serving members of our board of directors or (ii) one or more shareholders holding, in the aggregate, either
(a) 5% or more of our outstanding issued shares and 1% or more of our outstanding voting power or (b) 5% or more of our outstanding voting
power.
Subject
to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general
meetings are the shareholders of record on a date to be decided by the board of directors, which, as a company listed on an exchange outside
Israel, may be between four and 40 days prior to the date of the meeting. Furthermore, the Companies Law requires that resolutions regarding
the following matters must be passed at a general meeting of our shareholders:
•
amendments to our articles of association;
•
appointment, termination or the terms of service of our auditors;
•
appointment of external directors (if applicable);
•
approval of certain related party transactions;
•
increases or reductions of our authorized share capital;
•
a merger; and
• the
exercise of our board of director's powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise
of any of its powers is required for our proper management.
Notices
The
Companies Law requires that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21
days prior to the meeting and if the agenda of the meeting includes, among other things, the appointment or removal of directors, the
approval of transactions with office holders or interested or related parties or the approval of a merger, notice must be provided at
least 35 days prior to the meeting.
Quorum
Pursuant
to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to
a vote before the shareholders at a general meeting. The quorum required for our general meetings of shareholders consists of at least
two shareholders present in person, by proxy or written ballot who hold or represent between them at least 33.3% of the total outstanding
voting rights, within half an hour of the time fixed for the commencement of the meeting. A meeting adjourned for lack of a quorum shall
be adjourned to the same day in the next week, at the same time and place, to such day and at such time and place as indicated in the
notice to such meeting, or to such day and at such time and place as the Board may determine in a notice to the Shareholders. If within
half an hour from the time scheduled for the adjourned meeting a legal quorum is not present, then any two Shareholders entitled to vote,
present in person or by proxy, shall constitute a legal quorum for such adjourned meeting and shall be entitled to resolve any matters
on the agenda of the meeting. unless a meeting was called pursuant to a request by our shareholders, in which case the quorum required
is one or more shareholders present in person or by proxy and holding the number of shares required to call the meeting as described above
under "Annual and Special Meetings.”
62
Adoption
of Resolutions
Our
articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by
the Companies Law or by our articles of association. Under the Companies Law, certain actions require a special majority, including: (i)
the approval of an extraordinary transaction with a controlling shareholder or in which the controlling shareholder has a personal interest,
(ii) the terms of employment or other engagement of a controlling shareholder of the company or a controlling shareholder's relative (even
if such terms are not extraordinary) and (iii) approval of certain compensation-related matters require the approval described above under
"—Board of directors and officers—Compensation committee." Under our articles of association, the alteration of the rights,
privileges, preferences or obligations of any class of our shares (to the extent there are classes other than ordinary shares) may require
a simple majority of the class so affected (or such other percentage of the relevant class that may be set forth in the governing documents
relevant to such class), in addition to the ordinary majority vote of all classes of shares voting together as a single class at a shareholder
meeting.
Changing
Rights Attached to Shares
Our
articles of association provide that the Company shall not amend the articles of association in a manner that adversely affects the rights
of a shareholder without obtaining the consent of the majority of the shareholders that are adversely affected by such modification. An
amendment that affects all the Shareholders in the same manner is not be deemed to constitute a modification of rights associated with
specific shares. Any amendment affecting the rights of the holders of our preferred shares requires the approval of at least a majority
of the preferred shares present and entitled to vote at a meeting called to discuss such amendment.
Limitations
on the Right to Own Securities in Our Company
There are no limitations
on the right to own our securities.
Provisions
Restricting Change in Control of Our Company
There
are no specific provisions of our Articles that would have an effect of delaying, deferring or preventing a change in control of the Company
or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However,
as described below, certain provisions of the Companies Law may have such effect. The Companies Law includes provisions that allow a merger
transaction and requires that each company that is a party to the merger have the transaction approved by its board of directors and a
vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, the merger will
not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held
by the other party to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the
directors of the other party) vote against the merger. Upon the request of a creditor of either party to the proposed merger, the court
may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company
will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least
(1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the Israeli Registrar of
Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.
63
The
Companies Law also provides that an acquisition of shares in a public company must be made by means of a “special” tender
offer if as a result of the acquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already
another 25% or greater shareholder of the company or (2) the purchaser would become a 45% or greater shareholder of the company, unless
there is already a 45% or greater shareholder of the company. These requirements do not apply if, in general, the acquisition (1) was
made in a private placement that received shareholder approval, (2) was from a 25% or greater shareholder of the company which resulted
in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder of the company which
resulted in the acquirer becoming a 45% or greater shareholder of the company. A “special” tender offer must be extended to
all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how
many shares are tendered by shareholders. In general, the tender offer may be consummated only if (1) at least 5% of the company’s
outstanding shares will be acquired by the offeror and (2) the number of shares tendered in the offer exceeds the number of shares whose
holders objected to the offer.
If,
as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition
must be made by means of a tender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not
tendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, all
the shares that the acquirer offered to purchase will be transferred to it. Shareholders may request appraisal rights in connection with
a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer is entitled to stipulate
that tendering shareholders will forfeit such appraisal rights.
Lastly,
Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably
than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares
for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
Changes
in Our Capital
Our
articles of association enable us to increase or reduce our share capital. Any such changes are subject to Israeli law and must be approved
by a resolution duly passed by our shareholders at a general meeting by voting on such change in the capital. In addition, transactions
that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings
or profits, require the approval of both our board of directors and an Israeli court.
Access
to Corporate Records
Under
the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its
shareholders register and principal shareholders register, articles of association, financial statements and any document it is required
by law to file publicly with the Israeli Registrar of Companies and the Israeli Securities Authority. Furthermore, any of our shareholders
may request access to review any document in our possession that relates to any action or transaction with a related party, interested
party or office holder that requires shareholder approval under the Companies Law. However, we may deny such a request to review a document
if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s
disclosure may otherwise prejudice our interests.
64
|
C. |
MATERIAL
CONTRACTS. |
For a description of
the Company’s material contracts not entered into in the ordinary course of business, please refer to “Item 7.B. Related Party
Transactions.”
|
D. |
EXCHANGE
CONTROLS. |
There
are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the
ordinary shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are,
or have been, in a state of war with Israel.
|
E. |
TAXATION |
The
following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership
and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation,
as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli
tax considerations and government programs
The
following is a brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs that benefit us.
This section also contains a discussion of material Israeli tax consequences concerning the ownership and disposition of our ordinary
shares purchased by investors in this offering. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment
under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes
not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial
or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed
in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable
judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
General
corporate tax structure in Israel
Israeli
companies are generally subject to corporate tax. The corporate tax rate for 2017 was 24%, and in 2018 and thereafter the corporate tax
rate is 23% of their taxable income. However, the effective tax rate payable by a company that derives income from an Approved Enterprise,
a Preferred Enterprise, a Benefited Enterprise or a Technology Enterprise (as discussed below) may be considerably less. Capital gains
derived by an Israeli company are generally subject to the prevailing corporate tax rate.
Law
for the Encouragement of Industry (Taxes), 5729-1969
The
Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax
benefits for "Industrial Companies." We believe that we currently qualify as an Industrial Company within the meaning of the Industry
Encouragement Law.
The
Industry Encouragement Law defines an "Industrial Company" as an Israeli resident-company, of which 90% or more of its income in any tax
year, other than income from certain government loans, is derived from an "Industrial Enterprise" owned by it and located in Israel or
in the "Area", in accordance with the definition under section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance.
An "Industrial Enterprise" is defined as an enterprise whose principal activity in a given tax year is industrial production.
65
The
following corporate tax benefits, among others, are available to Industrial Companies:
•
amortization of the cost of purchased patent, rights to use a patent, and know-how, which are used for the development or advancement
of the Industrial Enterprise, over an eight-year period, commencing on the year in which such rights were first exercised;
•
under limited conditions, an election to file consolidated tax returns with controlled Israeli Industrial Companies; and
•
expenses related to a public offering are deductible in equal amounts over three years commencing on the year of the offering.
Eligibility
for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
Tax
benefits and grants for research and development
Israeli
tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they
are incurred. Expenditures are deemed related to scientific research and development projects, if:
•
The expenditures are approved by the relevant Israeli government ministry, determined by the field of research;
•
The research and development must be for the promotion of the company; and
•
The research and development is carried out by or on behalf of the company seeking such tax deduction.
The
amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific
research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related
to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures that are unqualified
under the conditions above are deductible in equal amounts over three years.
From
time to time we may apply to the Israel Innovation Authority for approval to allow a tax deduction for all or most of research and development
expenses during the year incurred. There can be no assurance that such application will be accepted.
Law
for the Encouragement of Capital Investments, 5719-1959
The
Law for the Encouragement of Capital Investments, 5719 1959, generally referred to as the Investment Law, provides certain incentives
for capital investments in production facilities (or other eligible assets).
The
Investment Law was significantly amended effective as of April 1, 2005 (the "2005 Amendment"), as of January 1, 2011 (the "2011 Amendment")
and as of January 1, 2017 (the "2017 Amendment"). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions
of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to
the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance
with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment
Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions
are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment
introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
66
Tax
benefits subsequent to the 2005 amendment
The
2005 Amendment applies to new investment programs and investment programs commencing after 2004, but does not apply to investment programs
approved prior to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was
granted before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect
on the date of such approval. Pursuant to the 2005 Amendment, the Investment Center will continue to grant Approved Enterprise status
to qualifying investments. The 2005 Amendment, however, limits the scope of enterprises that may be approved by the Investment Center
by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25%
of the Approved Enterprise's income be derived from exports.
In
order to receive the tax benefits, a company must make an investment which meets all of the conditions, including exceeding a minimum
entitling investment amount, set forth in the Investment Law. Such investment allows a company to receive "Benefited Enterprise" status,
and may be made over a period of no more than three years ending at the end of the year in which the company chose to have the tax benefits
apply to its Benefited Enterprise, referred to as the "Year of Election."
The
extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depend on, among other things,
the geographic location in Israel of the Benefited Enterprise. The location will also determine the period for which tax benefits are
available. In the event that the Company is profitable for tax purposes, such tax benefits include an exemption from corporate tax on
undistributed income for a period of between two to ten years, depending on the geographic location of the Benefited Enterprise in Israel,
and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment
in the company in each year. A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived
by its Benefited Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount of the dividend
(to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) which would have otherwise been applicable,
or a lower rate in the case of a qualified foreign investment company which is at least 49% owned by non-Israeli residents. In addition
dividends paid out of income attributed to a Benefited Enterprise are generally subject to withholding tax at source at the rate of 15%
or such lower rate as may be provided under any applicable tax treaty (subject to the receipt in advance of a valid certificate from the
Israel Tax Authority allowing for a reduced tax rate).
The
benefits available to a Benefited Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations.
If a company does not meet these conditions, it may be required to refund the amount of tax benefits, as adjusted by the Israeli consumer
price index, and interest, or other monetary penalties.
The
Company has not applied for "Benefited Enterprise" status.
67
Tax
benefits under the 2011 amendment
The
2011 Amendment canceled the availability of the benefits granted to Industrial Companies under the Investment Law prior to 2011 and, instead,
introduced new benefits for income generated by a "Preferred Company" through its "Preferred Enterprise" (as such terms are defined in
the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not
fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from
Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income
derived by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which
case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate was reduced from 15% and 10%, respectively, to 12.5% and
7%, respectively, in 2013, 16% and 9% respectively, in 2014, 2015 and 2016, and 16% and 7.5%, respectively, in 2017 and thereafter. Income
derived by a Preferred Company from a "Special Preferred Enterprise" (as such term is defined in the Investment Law) would be entitled,
during a benefits period of 10 years, to further reduced tax rates of 8%, or 5% if the Special Preferred Enterprise is located in a certain
development zone.
Dividends
distributed from income which is attributed to a "Preferred Enterprise" will be subject to withholding tax at source at the following
rates: (i) Israeli resident corporations–0%, (although, if such dividends are subsequently distributed to individuals or a non-Israeli
company the below rates detailed in sub sections (ii) and (iii) shall apply) (ii) Israeli resident individuals–20% (iii) non-Israeli
residents (individuals and corporations)–20%, subject to a reduced tax rate under the provisions of any applicable double tax treaty
(subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate).
The
2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment
Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of
the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011, a Benefited Enterprise can elect to
continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are
met.
We
currently do not intend to implement the 2011 Amendment.
New
tax benefits under the 2017 amendment that became effective on January 1, 2017
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 "Technology 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 technology company satisfying certain conditions will qualify as a "Preferred Technology Enterprise" and
will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as "Preferred Technology Income", as defined in the Investment
Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zone "A". In addition, a Preferred
Technology 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 National Authority for
Technological Innovation ("NATI").
68
The
2017 Amendment further provides that a technology company satisfying certain conditions (group turnover of at least NIS 10 billion) will
qualify as a "Special Preferred Technology Enterprise" and will thereby enjoy a reduced corporate tax rate of 6% on "Preferred Technology
Income" regardless of the company's geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy
a reduced corporate tax rate of 6% on capital gain derived from the sale of certain "Benefitted Intangible Assets" to a related foreign
company if the Benefitted Intangible Assets were either developed by the Special Preferred Enterprise or acquired from a foreign company
on or after January 1, 2017, and the sale received prior approval from NATI. A Special Preferred Technology Enterprise that acquires Benefitted
Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject
to certain approvals as specified in the Investment Law.
Dividends
distributed by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income,
are generally subject to withholding tax at source 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 Israel Tax Authority allowing for a reduced tax rate). However, if
such dividends are paid to an Israeli company, no tax is required to be withheld. 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, the withholding
tax rate will be 4%.
We
are examining the impact of the 2017 Amendment and the degree to which we will qualify as a Preferred Technology Enterprise, the amount
of Preferred Technology Income that we may have and other benefits that we may receive from the 2017 Amendment.
Taxation
of our shareholders
Capital
gains taxes applicable to non-Israeli resident shareholders. A non-Israeli resident who derives capital gains from the sale of shares
in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel, will
be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel.
However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest
more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits
of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption is not applicable to a person whose gains
from selling or otherwise disposing of the shares are deemed to be business income.
Additionally,
a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax
treaty. For example, under Convention Between the Government of the United States of America and the Government of the State of Israel
with respect to Taxes on Income, as amended (the "United States Israel Tax Treaty"), the sale, exchange or other disposition of shares
by a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset and is entitled to
claim the benefits afforded to such a resident by the U.S. Israel Tax Treaty (a "Treaty U.S. Resident") is generally exempt from Israeli
capital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in
Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising
from the such sale, exchange or disposition is attributed to a permanent establishment in Israel, under certain terms; (iv) such Treaty
U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12 month period
preceding the disposition, subject to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israel
for 183 days or more during the relevant taxable year.
In
some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration
may be subject to the withholding of Israeli tax at source. 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 (i.e., resident certificate or other documentation).
69
Taxation
of non-Israeli shareholders on receipt of dividends. Non-Israeli residents (either 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%, which tax will be withheld at source,
unless relief is provided in a treaty between Israel and the shareholder's country of residence. With respect to a person who is a "substantial
shareholder" at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%.
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. Such dividends
are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether
the recipient is a substantial shareholder or not) and 20% if the dividend is distributed from income attributed to an Approved Enterprise,
a Benefited Enterprise or a Preferred Enterprise , unless a reduced rate is provided under an applicable tax treaty (subject to the receipt
in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). For example, under the United States-Israel
Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a Treaty
U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by a Preferred Enterprise or
Benefited Enterprise, that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughout the
tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the
gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed
from income attributed to an Approved Enterprise, Benefited Enterprise or Preferred Enterprise are not entitled to such reduction under
the tax treaty but are subject to a withholding tax rate of 15% for a shareholder that is a U.S. corporation, provided that the conditions
related to holding 10% or more from the outstanding voting capital and our gross income for the previous year (as set forth in the previous
sentence) are met. If the dividend is attributable partly to income derived from an Approved Enterprise, Benefited Enterprise or Preferred
Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the
two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders'
tax liability.
Surtax.
Subject to the provisions of an applicable tax treaty, individuals who are subject to tax in Israel are also subject to an additional
tax at a rate of 3% on annual income (including, but not limited to, dividends, interest and capital gain) exceeding NIS 647,640 for 2021,
which amount is linked to the annual change in the Israeli consumer price index.
Estate
and Gift Tax. Israeli law presently does not impose estate or gift taxes.
United
States federal income taxation
United
States federal income taxation
The
following is a description of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary
shares. This description addresses only the U.S. federal income tax consequences to U.S. Holders (as defined below) that are initial purchasers
of our ordinary shares pursuant to the offering and that will hold such ordinary shares as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and that have the U.S. dollar as their functional currency. This discussion
is based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions, in each case as in
effect on the date hereof, all of which are subject to change (possibly with retroactive effect). No ruling will be requested from the
Internal Revenue Service (the "IRS") regarding the tax consequences of the acquisition, ownership or disposition of the ordinary shares,
and there can be no assurance that the IRS will agree with the discussion set out below. This summary does not address any U.S. tax consequences
other than U.S. federal income tax consequences (e.g., the estate and gift tax or the Medicare tax on net investment income) and does
not address any state, local or non-U.S. tax consequences.
70
This
description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
•
banks, financial institutions or insurance companies;
•
real estate investment trusts or regulated investment companies;
•
dealers or brokers;
•
traders that elect to mark-to-market;
•
tax exempt entities or organizations;
•
"individual retirement accounts" and other tax deferred accounts;
•
certain former citizens or long-term residents of the United States;
•
persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States;
•
persons that acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation for
the performance of services;
•
persons holding our ordinary shares as part of a "hedging," "integrated" or "conversion" transaction or as a position in a "straddle"
for U.S. federal income tax purposes;
•
persons subject to special tax accounting as a result of any item of gross income with respect to the ordinary shares being taken
into account in an applicable financial statement;
•
partnerships or other pass through entities and persons holding the ordinary shares through partnerships or other pass through entities;
or
•
holders that own directly, indirectly or through attribution 10% or more of the total voting power or value of all of our outstanding
shares.
For
purposes of this description, a "U.S. Holder" is a beneficial owner of our ordinary shares that, for U.S. federal income tax purposes,
is:
•
an individual who is a citizen or resident of the United States;
•
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the
laws of the United States or any state thereof, including the District of Columbia;
•
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•
a trust if such trust has validly elected to be treated as a United States person for U.S. federal income tax purposes or if (1)
a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons
have the authority to control all of the substantial decisions of such trust.
71
If
a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares,
the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership.
Such a partner or partnership should consult its tax advisor as to the particular U.S. federal income tax consequences of acquiring, owning
and disposing of our ordinary shares in its particular circumstance.
You
should consult your tax advisor with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing
of our ordinary shares.
Distributions
Subject
to the discussion under "—Passive Foreign Investment Company considerations" below, the gross amount of any distribution made to
you with respect to our ordinary shares, before reduction for any Israeli taxes withheld therefrom, generally will be includible in your
income as dividend income on the date on which the dividends are actually or constructively received, to the extent such distribution
is paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. To the extent that
the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income
tax principles, it will be treated first as a tax-free return of your adjusted tax basis in our ordinary shares and thereafter as capital
gain. However, we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore,
you should expect that the entire amount of any distribution generally will be reported as dividend income to you. If you are a non-corporate
U.S. Holder you may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital
gains (i.e., gains from the sale of capital assets held for more than one year), provided that we are not a PFIC (as discussed below under
"—Passive Foreign Investment Company considerations") with respect to you in our taxable year in which the dividend was paid or
in the prior taxable year and certain other conditions are met, including certain holding period requirements and the absence of certain
risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate
U.S. Holders.
Dividends
paid to you with respect to our ordinary shares generally will be treated as foreign source income, which may be relevant in calculating
your foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be credited against
your U.S. federal income tax liability or, at your election, be deducted from your U.S. federal taxable income. Dividends that we distribute
generally should constitute "passive category income" for purposes of the foreign tax credit. A foreign tax credit for foreign taxes imposed
on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to the determination
of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled
to this credit.
Sale,
exchange or other disposition of ordinary shares
Subject
to the discussion under "Passive Foreign Investment Company considerations" below, you generally will recognize gain or loss on the sale,
exchange or other disposition of our ordinary shares equal to the difference between the amount realized on such sale, exchange or other
disposition and your adjusted tax basis in our ordinary shares, and such gain or loss will be capital gain or loss. If you are a non-corporate
U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary shares is generally eligible for a preferential rate
of taxation applicable to capital gains, if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term
capital gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Any
such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation
purposes.
72
Passive
foreign investment company considerations
If
a non-U.S. company is classified as a PFIC in any taxable year, a U.S. Holder of such passive foreign investment company ("PFIC")'s shares
will be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that
such U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.
In
general, a non-U.S. corporation will be classified as a PFIC for any taxable year if at least (i) 75% of its gross income is classified
as "passive income" or (ii) 50% of its gross assets (generally determined on the basis of a quarterly average) produce or are held for
the production of passive income (the "asset test"). Passive income for this purpose generally includes dividends, interest, royalties,
rents, gains from commodities and securities transactions and the excess of gains over losses from the disposition of assets which produce
passive income. For these purposes, cash and other assets readily convertible into cash are considered passive assets, and goodwill and
other unbooked intangibles are generally taken into account. In making this determination, the non-U.S. corporation is treated as earning
its proportionate share of any income and owning its proportionate share of any assets of any corporation in which it directly or indirectly
holds 25% or more (by value) of the stock.
We
will not be classified as a controlled foreign corporation (“CFC”) for our 2022 taxable year. In general, we will be classified
as a CFC for a taxable year if more than 50% of the total combined voting power or the total value of our ordinary shares is owned by
"United States shareholders" (generally, United States persons who are treated as owning (directly, indirectly, or constructively, using
certain attribution rules) at least 10% of the total combined voting power or the total value of our ordinary shares). The PFIC asset
test for a CFC is applied based on the adjusted tax bases of its assets as determined for the purposes of computing earnings and profits
under U.S. federal income tax principles, unless it is a "publicly traded corporation" for the taxable year, in which case the PFIC asset
test is based on the fair market value of its assets. The determination is generally made on the basis of a quarterly average. Recently
proposed U.S. Treasury regulations provide relief from the application of the aforementioned attribution rules enacted in December 2017
for the purpose of determining a foreign corporation's PFIC status, and clarify the application of the asset test to CFCs in the year
in which such CFC becomes publicly traded. Under the rules set forth in these proposed Treasury regulations, we believe that we would
not be classified as a PFIC in respect of our 2020 taxable year. However, it is not clear to what extent we or our shareholders can rely
on these proposed Treasury regulations. U.S. Holders should consult their own tax advisors regarding the application of these rules and
the potential applicability of these proposed Treasury regulations.
Based
on the current and anticipated composition of our income and assets, operations and the value of our assets (including the value of our
goodwill, going-concern value or any other unbooked intangibles which may be determined based on the price of the ordinary shares), we
do not expect to be treated as a PFIC for the current taxable year or in the foreseeable future. Because PFIC status is based on our income,
assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our
current taxable year or future taxable years until after the close of the applicable taxable year. Moreover, we must determine our PFIC
status annually based on tests that are factual in nature, and our status in the current year and future years will depend on our income,
assets and activities in each of those years and, as a result, cannot be predicted with certainty as of the date hereof. Furthermore,
fluctuations in the market price of our ordinary shares may cause our classification as a PFIC for the current or future taxable years
to change because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles,
generally will be determined by reference to the market price of our shares from time to time (which may be volatile). Accordingly, if
our market capitalization declines significantly, it may make our classification as a PFIC more likely for the current or future taxable
years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised
in any equity offering. The IRS or a court may disagree with our determinations, including the manner in which we determine the value
of our assets and the percentage of our assets that are passive assets under the PFIC rules. Therefore there can be no assurance that
we will not be a PFIC for the current taxable year or for any future taxable year.
73
Under
the PFIC rules, if we were considered a PFIC at any time that you hold our ordinary shares, we would continue to be treated as a PFIC
with respect to your investment in all succeeding years during which you own our ordinary shares (regardless of whether we continue to
meet the tests described above) unless (i) we have ceased to be a PFIC and (ii) you have made a "deemed sale" election under the PFIC
rules. If such election is made, you will be deemed to have sold your ordinary shares at their fair market value on the last day of the
last taxable year in which we were a PFIC, and any gain from the deemed sale would be subject to the rules described in the following
paragraph. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the ordinary shares with respect
to which such election was made will not be treated as shares in a PFIC. You should consult your own tax advisor as to the possibility
and consequences of making a deemed sale election.
If
we are considered a PFIC at any time that you hold ordinary shares, unless (i) we have ceased to be a PFIC and you have previously made
the deemed sale election described above or (ii) you make one of the elections described below, any gain recognized by you on a sale or
other disposition of the ordinary shares, as well as the amount of any "excess distribution" (defined below) received by you, would be
allocated ratably over your holding period for the ordinary shares. The amounts allocated to the taxable year of the sale or other disposition
(or the taxable year of receipt, in the case of an excess distribution) and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations,
as appropriate, for that taxable year, and an interest charge would be imposed. For purposes of these rules, an excess distribution is
the amount by which any distribution received by you on your ordinary shares in a taxable year exceeds 125% of the average of the annual
distributions on the ordinary shares during the preceding three taxable years or your holding period, whichever is shorter. Distributions
below the 125% threshold are treated as dividends taxable in the year of receipt and are not subject to prior highest tax rates or the
interest charge.
If
we are treated as a PFIC with respect to you for any taxable year, you will be deemed to own shares in any of our subsidiaries that are
also PFICs, and you may be subject to the tax consequences described above with respect to the shares of such lower-tier PFIC you would
be deemed to own.
Mark-to-market
elections
If
we are a PFIC for any taxable year during which you hold ordinary shares, then in lieu of being subject to the tax and interest charge
rules discussed above, you may make an election to include gain on the ordinary shares as ordinary income under a mark-to-market method,
provided that such ordinary shares are "marketable." The ordinary shares will be marketable if they are "regularly traded" on a qualified
exchange or other market, as defined in applicable U.S. Treasury regulations, such as the New York Stock Exchange (or on a foreign stock
exchange that meets certain conditions). For these purposes, the ordinary shares will be considered regularly traded during any calendar
year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that
have as their principal purpose meeting this requirement will be disregarded. However, because a mark-to-market election cannot be made
for any lower-tier PFICs that we may own, you will generally continue to be subject to the PFIC rules discussed above with respect to
your indirect interest in any investments we hold that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
As a result, it is possible that any mark-to-market election will be of limited benefit.
If
you make an effective mark-to-market election, in each year that we are a PFIC, you will include in ordinary income the excess of the
fair market value of your ordinary shares at the end of the year over your adjusted tax basis in the ordinary shares. You will be entitled
to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the ordinary shares over their fair market value
at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
If you make an effective mark-to-market election, in each year that we are a PFIC, any gain that you recognize upon the sale or other
disposition of your ordinary shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the
extent of the net amount of previously included income as a result of the mark-to-market election.
74
Your
adjusted tax basis in the ordinary shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions
under the mark-to-market rules discussed above. If you make an effective mark-to-market election, it will be effective for the taxable
year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer regularly traded on a qualified
exchange or the IRS consents to the revocation of the election. You should consult your tax advisor about the availability of the mark-to-market
election, and whether making the election would be advisable in your particular circumstances.
Qualified
electing fund elections
In
certain circumstances, a U.S. equity holder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a
"qualified electing fund" election to include in income its share of the corporation's income on a current basis. However, you may make
a qualified electing fund election with respect to the ordinary shares only if we agree to furnish you annually with a PFIC annual information
statement as specified in the applicable U.S. Treasury regulations. We do not intend to provide the information necessary for you to make
a qualified electing fund election if we are classified as a PFIC. Therefore, you should assume that you will not receive such information
from us and would therefore be unable to make a qualified electing fund election with respect to any of our ordinary shares were we to
be or become a PFIC.
Tax
reporting
If
you own ordinary shares during any year in which we are a PFIC and you recognize gain on a disposition of such ordinary shares or receive
distributions with respect to such ordinary shares, you generally will be required to file an IRS Form 8621 with respect to us, generally
with your federal income tax return for that year. If we are a PFIC for a given taxable year, then you should consult your tax advisor
concerning your annual filing requirements.
You
should consult your tax advisor regarding whether we are a PFIC as well as the potential U.S. federal income tax consequences of holding
and disposing of our ordinary shares if we are or become classified as a PFIC, including the possibility of making a mark-to-market election
in your particular circumstances.
Backup
withholding tax and information reporting requirements
Dividend
payments on and proceeds paid from the sale or other taxable disposition of the ordinary shares may be subject to information reporting
to the IRS. In addition, a U.S. Holder may be subject to backup withholding on cash payments received in connection with dividend payments
and proceeds from the sale or other taxable disposition of ordinary shares made within the United States or through certain U.S. related
financial intermediaries.
Backup
withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number, provides other required
certification and otherwise complies with the applicable requirements of the backup withholding rules or who is otherwise exempt from
backup withholding (and, when required, demonstrates such exemption). Backup withholding is not an additional tax. Rather, any amount
withheld under the backup withholding rules will be creditable or refundable against the U.S. Holder's U.S. federal income tax liability,
provided the required information is timely furnished to the IRS.
75
Foreign
asset reporting
Certain
U.S. Holders are required to report their holdings of certain foreign financial assets, including equity of foreign entities, if the aggregate
value of all of these assets exceeds certain threshold amounts, by filing IRS Form 8938 with their federal income tax return. Our ordinary
shares are expected to constitute foreign financial assets subject to these requirements unless the ordinary shares are held in an account
at certain financial institutions. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations,
if any, with respect to their ownership and disposition of our ordinary shares and the significant penalties for non-compliance.
The
above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition
of our ordinary shares. You should consult your tax advisor concerning the tax consequences of your particular situation.
| F. |
DIVIDENDS AND PAYING
AGENTS |
Not
applicable.
| G. |
STATEMENT BY EXPERTS |
Not
applicable.
| H. |
DOCUMENTS ON DISPLAY |
We
are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the Exchange
Act, applicable to foreign private issuers. As a foreign private issuer, we are exempt from certain rules and regulations under the Exchange
Act prescribing the content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our
ordinary shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as
U.S. companies whose securities are registered under the Exchange Act. However, we file annual reports with the SEC on Form 20-F containing
financial statements audited by an independent accounting firm. Substantially all of our SEC filings are available to the public at the
SEC's website at http://www.sec.gov.
We
maintain a corporate website http://www.holdme.co.il. 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.
|
H. |
SUBSIDIARY
INFORMATION |
We currently
have no subsidiaries.,
76
ITEM
11. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign
Exchange Risk
Foreign
Currency Exchange Rates
Currently,
our revenues from Israeli customers are collected in NIS. Some of our expenses are paid in NIS and some are paid in USD. We face foreign
currency rate translation risks when our results are translated to U.S. dollars.
Recently,
due to inflation, changes in interest rate and the political situation ion Israel The NIS was relatively not stable against the U.S. dollar
at approximately NIS3.65 to the US$1.00. There can be no assurance that such exchange rate will continue to remain stable in the future
amongst the volatility of currencies, globalization and the unstable economies in recent years. Since our revenues and net income are
denominated in NIS, any decrease in the value of NIS against U.S. dollars would adversely affect our revenues.
Interest
Rate Risk
We
are not currently exposed to interest rate risk. We do not own any interest-bearing instruments and our interest-bearing debt carries
a fixed rate.
Market
Price Risk
We
are not currently exposed to commodity price risk or market price risk.
ITEM
12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
Not
applicable.
PART
II
ITEM
13. DEFAULTS, DIVIDEND
ARREARAGES AND DELINQUENCIES
None.
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
Not
applicable.
ITEM
15. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
In
the course of auditing our consolidated financial statements for the years ended December 31, 2022 and 2021, we identified several material
weaknesses in our internal control over financial reporting and other control deficiencies as of December 31, 2022. A “material
weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented
or detected on a timely basis.
77
The
material weaknesses identified to date relate to (i) a lack of accounting staff and resources with appropriate knowledge of generally
accepted accounting principles in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements; (ii) a lack
of sufficient documented financial closing policies and procedures; (iii) a lack of independent directors and an audit committee; (iv)
lack of risk assessment in accordance with the requirement of COSO 2013 framework and (v) a lack of an effective review process by the
accounting manager which led to material audit adjustments to the financial statements.
Following
the identification of the material weaknesses and control deficiencies, we plan to continue to take remedial measures including (i) hiring
more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial
reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting
and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function
as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement
of overall internal control; and (iv) appointing independent directors, establishing an audit committee, and strengthening corporate governance.
Management
Annual Report on Internal Control over Financial Reporting
This Annual Report does
not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established
by rules of the SEC for newly public companies.
Changes
in Internal Control Over Financial Reporting
This Annual Report does
not include an attestation report of our independent registered public accounting firm due to a transition period established by rules
of the SEC for newly public companies. Additionally, our independent registered public accounting firm will not be required to opine on
the effectiveness of our internal control over financial reporting until we are no longer an emerging growth company.
ITEM
16A. AUDIT COMMITTEE
FINANCIAL EXPERT
Our board has determined
that Menachem Shalom is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K.
ITEM
16B. CODE OF ETHICS
We
have not formally adopted a code of ethics.
ITEM
16C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
These
accountants billed the following fees to us for professional services in each of those fiscal years:
|
|
2022 |
2021 | ||||||
| (in US Dollars) | ||||||||
|
Audit Fees |
$ |
11,000 |
$ | 12,960 | ||||
|
Tax Fees and other |
0 |
0 | ||||||
“Audit
Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that
generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC. These
fees also include accounting consultations regarding the accounting treatment of matters that occur in the regular course of business,
implications of new accounting pronouncements and other accounting issues that occur from time to time. “Tax Fees” are the
aggregate fees billed for professional services rendered for tax compliance, tax advice, other than in connection with the audit. Tax
compliance involves audit of original and amended tax returns, tax planning and tax advice.
78
ITEM
16D. EXEMPTIONS FROM
THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM
16E. PURCHASES OF
EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not
applicable.
ITEM
16G. CORPORATE GOVERNANCE
Not
applicable.
ITEM
16H. MINE SAFETY
DISCLOSURE
Not
applicable.
ITEM
16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
Not
applicable.
PART
III
ITEM
17. FINANCIAL STATEMENTS
See
Item 18.
ITEM
18. FINANCIAL STATEMENTS
The
financial statements and the related notes required by this Item are included in this annual report on Form 20-F beginning on page 49.
79
ITEM
19. EXHIBITS INDEX
|
Exhibit
Number |
Description |
|
101.INS* |
Inline XBRL Instance
Document |
|
101.SCH* |
Inline XBRL Taxonomy
Extension Schema Document |
|
101.CAL* |
Inline XBRL Taxonomy
Extension Calculation Linkbase Document |
|
101.DEF* |
Inline XBRL Taxonomy
Extension Definition Linkbase Document |
|
101.LAB* |
Inline XBRL Taxonomy
Extension Label Linkbase Document |
|
101.PRE* |
Inline XBRL Taxonomy
Extension Presentation Linkbase Document |
|
104 |
Cover Page Interactive
Data File (embedded within the Inline XBRL document); |
*
Previously filed with the Company’s Registration Statement on Form F-1 (Registration No. 333-255462).
** Previously filed with
the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 29, 2023
*** Furnished herewith
80
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 its behalf.
| HOLD ME LTD. | |||
|
By: |
/s/ Menachem Shalom | ||
| Name: Menachem Shalom | |||
| Title: Chief Executive Officer | |||
May
1, 2023
81
TABLE OF CONTENTS
Part IItem 1. Identity Of Directors, Senior Management and AdvisorsItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on The CompanyItem 4A. Unresolved Staff CommentsItem 5. Operating and Financial Review and ProspectsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholders and Related Party TransactionsItem 8. Financial InformationNote 1 - GeneralNote 2 - Summary Of Significant Accounting PoliciesNote 3 - Cash and Cash EquivalentsNote 4 - Receivables and Debit BalancesNote 5 - Fixed AssetsNote 6 - Banking Institutions (short Term Liabilities)Note 6 - Banking InstitutionsNote 7 - Payables and Credit BalancesNote 8 - Loans From Banking Corporations and Other Credit ProvidersNote 9 - Share CapitalNote 10 - Selling, Administrative and General ExpensesNote 11 - Related Parties TransactionsNote 12 - Income TaxesNote 13 - Subsequent EventsItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures About Market RiskItem 12. Description Of Securities Other Than Equity SecuritiesPart IIItem 13. Defaults, Dividend Arrearages and DelinquenciesItem 14. Material Modifications To The Rights Of Security Holders and Use Of ProceedsItem 15. Controls and ProceduresItem 16A. Audit Committee Financial ExpertItem 16B. Code Of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Change in Registrant S Certifying AccountantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosureItem 16I. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. Exhibits Index