# Actelis Networks Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Actelis Networks Inc](/companies/asns.md) (CIK 1141284)
- Form: 10-Q
- Filed: 2024-05-14
- Accepted by EDGAR: May 14, 2024, 21:10 ET
- Period: 2024-03-31
- Accession: 0001213900-24-043030
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1141284/000121390024043030/ea0205455-10q_actelisnet.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1141284/000121390024043030/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $726.0k | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $506.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $220.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $647.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$1.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | −$61.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$2.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 3,978,828 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$203.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $1.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $1.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $6.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $10.5m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $8.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $12.0m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $2.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $1.1m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-03-31 | $574.0k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | −$1.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 15,212 characters.

References in this report to “we,” “Actelis,” “us,” “our,” or the “Company” refer to Actelis Networks, Inc. and its wholly owned subsidiary. References to our “management” or our “management team” refer to our officers and directors. You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with the management’s discussion and analysis of financial conditions and results of operations and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 26, 2024 (referred to herein as the “Annual Report”). The following discussion and analysis of our financial condition and results of operations should also be read in conjunction with the condensed consolidated financial statements (including the notes thereto) contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risk and uncertainties. For further information on items that could impact our future operating performance or financial condition, see the sections titled “Risk Factors” included in the Annual Report, as updated in Part II, Item 1A below, and the Special Note Regarding Forward Looking Statements above.

### Results of Operations

*(dollars in thousands)*

|  | Three months ended March 31 2024 | 2023 |
| --- | ---: | ---: |
| Revenues | $726 | $1,848 |
| Cost of revenues | 506 | 1,160 |
| Gross profit | 220 | 688 |
| Research and development expenses, net | 647 | 757 |
| Sales and marketing, net | 627 | 929 |
| General and administrative, net | 817 | 865 |
| Operating loss | (1,871) | (1,863) |
| Interest expenses | (207) | (180) |
| Other Financial income (expenses), net | 92 | 148 |
| Net Comprehensive Loss for the period | $(1,986) | (1,895) |

### Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

### Revenues

Our revenues for the three months ended March 31, 2024 amounted to $726,000, compared to $1.8 million for the three months ended March 31, 2023. The decrease from the corresponding period was primarily attributable to a decrease of $236,000 of revenues generated from North America, a decrease of $636,000 of revenues generated from Europe the Middle East and Africa as a major project phase completed in the three months ended March 31, 2023, and a decrease of $250,000 of revenues generated from Asia Pacific.

### Cost of Revenues

Our cost of revenues for the three months ended March 31, 2024, amounted to $506,000 compared to approximately $1.2 million for the three months ended March 31, 2023. The decrease from the corresponding period was mainly due to the decrease in revenues, partially offset by the higher effect of fixed costs as a higher percent of the lower revenues.

### Research and Development Expenses

Our research and development expenses for the three months ended March 31, 2024 amounted to $647,000 compared to $757,000 for the three months ended March 31, 2023. The decrease is mainly due to a decrease in payroll expenses.

### Sales and Marketing Expenses

Our sales and marketing expenses for the three months ended March 31, 2024 amounted to $627,000 compared to $929,000 for the three months ended March 31, 2023. The decrease was mainly due to a decrease in commission expenses as a result of the decrease in revenues primarily driven by the project phase completion in Europe, and a decrease in payroll associated with the Company’s cost reduction measures.

### General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2024 amounted to $817,000 compared to $865,000 for the three months ended March 31, 2023.

### Operating Loss

Our operating loss for the three months ended March 31, 2024, was approximately $1.87 million, compared to an operating loss of approximately $1.86 million for the three months ended March 31, 2023.

### Other Financial expenses, net and interest expenses

Our financial income, net for the three months ended March 31, 2024, was $115,000 (including $207,000 interest expenses) compared to $32,000 of financial expense, net (including $180,000 interest expenses) for the three months ended March 31, 2023. The increase is mainly due to a decrease in income from exchange rate differences.

### Net Loss

Our net loss for the three months ended March 31, 2024 was approximately $2.0 million, compared to net loss of approximately $1.9 million for the three months ended March 31, 2023.

### Non-GAAP Financial Measures

*(U.S. dollars in thousands)*

|  | Three months Ended March 31, 2024 | Three months Ended March 31, 2023 |
| --- | ---: | ---: |
| Revenues | $726 | $1,848 |
| GAAP net loss | (1,986) | (1,895) |
| Interest Expense | $207 | $180 |
| Other financial (income) expenses, net | (92) | (148) |
| Tax Expense | 17 | 21 |
| Fixed asset depreciation expense | 4 | 7 |
| Stock based compensation | 89 | 95 |
| Research and development, capitalization | - | 146 |
| Other one time costs and expenses | (26) | - |
| Non-GAAP Adjusted EBITDA | (1,787) | $(1,594) |
| GAAP net loss margin | (246.27)% | (102.54)% |
| Adjusted EBITDA margin | (90.00)% | (84.12)% |

2

### Use of Non-GAAP Financial Information

Non-GAAP Adjusted EBITDA and Adjusted EBITDA margin are Non-GAAP financial measures. In addition to reporting financial results in accordance with GAAP, we provide Non-GAAP supplemental operating results adjusted for certain items, including: financial expenses, which are interest, financial instrument fair value adjustments, exchange rate differences of assets and liabilities, stock based compensation expenses, depreciation and amortization expense, tax expense, and impact of development expenses ahead of product launch. We adjust for the items listed above and show non-GAAP financial measures in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.

We utilize the adjusted results to review our ongoing operations without the effect of these adjustments but not for comparison to budgeted operating results. We believe the supplemental adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees and optimizes our business operations on a day-to-day basis. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight to our financial performance. Adjusted results should be considered only in conjunction with results reported according to GAAP.

*(U.S. dollars in thousands)*

|  | Three months Ended March 31, 2024 | Three months Ended March 31, 2023 |
| --- | ---: | ---: |
| Revenues | $726 | $1,848 |
| Non-GAAP Adjusted EBITDA | (1,787) | (1,594) |
| as a percentage of revenues | (246.27)% | (84.12)% |

### Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through the sale of equity securities, debt financing, convertible loans and royalty-bearing grants that we received from the Israel Innovation Authority. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes.

Our future capital requirements will be affected by many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative costs, repayment of principal of our existing credit line, working capital to support securing raw material supply and many other factors as described under “Risk Factors.”

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the war in Israel and the war between Russia and the Ukraine, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.

As discussed in Note 1(b) to the condensed consolidated financial statements appearing elsewhere in this Quarterly report on Form 10-Q, we have incurred significant losses and negative cash flows from operations and incurred losses of approximately $2.0 million and approximately $1.9 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, we had negative cash flows from operations of $203,000 and $1.7 million, respectively.

As of March 31, 2024, we had an accumulated deficit of $41.7 million, cash on hand (including short term deposits and restricted cash equivalents) of $2.8 million, and long-term restricted cash and cash equivalents and restricted bank deposits of $2.6 million. We monitor our cash flow projections on a current basis and take active measures to obtain the funding we require to continue our operations. However, these cash flow projections are subject to various uncertainties concerning their fulfillment, such as the ability to increase revenues due to lack of customers or decrease cost structure. Our transition to profitable operations is dependent on generating a level of revenue adequate to support our cost structure through growth of existing and new customers.

We expect to fund operations using cash on hand, through operational cash flows and raising additional proceeds. There are no assurances, however, that we will be able to generate the revenue necessary to support our cost structure or that we will be successful in obtaining the level of financing necessary for our operations. Management has evaluated the significance of these conditions and has determined that we do not have sufficient resources to meet our operating obligations for at least one year from the issuance date of these condensed consolidated financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments that might result from the outcome of this uncertainty.

#### Cash Flows

The table below, for the periods indicated, provides selected cash flow information:

*(U.S. dollars in thousands)*

|  | Three months ended March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities including the effect of exchange rate changes on cash and cash equivalents and restricted cash) | $(205) | $(1,705) |
| Net cash used in investing activities | (1) | (334) |
| Net cash used in financing activities | (164) | (242) |
| Net change in cash | $(370) | $(2,281) |

As of March 31, 2024, we had cash, cash equivalents, and restricted cash and cash equivalents of approximately $5.1 million compared to approximately $5.5 million of cash, cash equivalents and restricted cash as of December 31, 2023.

Cash used in operating activities amounted to $205,000 for the three months ended March 31, 2024, compared to approximately $1.7 million for the three months ended March 31, 2023. The decrease in cash used in operating activities was mainly due to an increase in advances from customers and accounts payable, which were partially offset by a lower decrease in accounts receivables.

Net cash used in investing activities was $1,000 for the three months ended March 31, 2024, compared to cash used in investing activities of $334,000 for the three months ended March 31, 2023. The decrease from the corresponding period was mainly due to the increase in short term deposits and restricted bank deposits in the three months ended March 31, 2023.

Net cash used in financing activities was $164,000 for the three months ended March 31, 2024, compared to Net cash used in financing activities $242,000 for the three months ended March 31, 2023.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods. We evaluate our estimates, assumptions and judgments on an ongoing basis. Our estimates, assumptions and judgments are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported.

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles issued by the Financial Accounting Standards Board, or FASB.

Our significant accounting policies include revenue from contracts with customers which is more fully described in the notes to our condensed consolidated financial statements appearing elsewhere in this Quarterly report on Form 10-Q and our annual financial statements for the year ended December 31, 2023, including the footnotes, for a description of our significant accounting policies. We believe that these accounting policies discussed are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations.

## Controls and procedures

As filed, 8,559 characters.

### Evaluation of Disclosure Controls and Procedures

We continued to conduct ongoing evaluation of the effectiveness of our “disclosure controls and procedures”, as defined by Rules 13a-15(e) and 15d-15(e) of Exchange Act, as of March 31, 2024, the end of the period covered by this Quarterly Report. This evaluation, which was performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), is performed to determine whether our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Disclosure controls and procedures, no matter how well designed and effectively operated, can only provide reasonable assurance of achieving their control objectives.

Based upon that evaluation, our CEO and CFO concluded our disclosure controls and procedures were not effective as of the period covered by this Quarterly Report on Form 10-Q due to the material weakness discussed below.

### Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external reporting purposes in accordance with GAAP.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate over time.

Under the supervision and with the participation of the CEO and the CFO, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2024. We performed an assessment of the effectiveness of our internal control over financial reporting based on the framework described in *Internal Control - Integrated Framework* (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that we did not maintain effective internal control over financial reporting as of March 31, 2024 given the existence of the previously identified material weakness described below having not been remediated as of the last day of the period covered by this Quarterly Report.

### Material Weakness

We have identified one material weakness in the design and operation of our internal control over financial reporting in connection with the preparation of our financial statements, that had not been remediated as of March 31, 2024. 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 a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company’s management, including our CEO and CFO, concluded that, as of March 31, 2024:

We lacked a sufficient complement of professionals with an appropriate level of accounting knowledge, training and experience to maintain appropriate segregation of duties in our finance and accounting functions.

Our independent registered public accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company” as defined in the JOBS Act.

### Remediation Plan and Status

We have taken and intend to continue to take actions to remediate the material weakness described above. To remediate this material weakness, we continue to map, document and test our internal controls (recently, with the assistance of a third-party accounting firm with specific expertise in SOX compliance), and accordingly, we continued to make progress in our internal controls plan. Among other procedures, management has executed the following remedial actions:

- Hired new financial experts and increasing the number of financial personnel.
- Continued to map, document and test our internal controls, with the assistance of a third-party accounting firm with specific expertise in SOX compliance.
- Implemented new control procedures over certain areas identified as requiring enhancement in order to address the lack of a sufficient number of finance personnel to allow for adequate segregation of duties.

In addition to the actions underway, we continue to add enhancements to our internal controls over financial reporting in 2024. Additional remedial actions include:

- Maintain or increase the level and design of segregation of duties, including maintaining or growing the quality and number of finance personnel
- Continue to document and test annually our internal control over financial reporting
- Continue engagement with an outside accounting firm with specific SOX and Internal Control expertise
- Continued hiring of additional accounting, information technology, and internal controls resources who possess public company accounting, auditing and reporting expertise

The actions we are taking are subject to ongoing senior management review, as well as oversight of the audit committee of our Board. We also may conclude that additional measures may be required to remediate the material weaknesses or determine to modify the remediation plans described above. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively. We will continue to monitor the design and effectiveness of these and other processes, procedures, and controls and make any further changes management deems appropriate.

In addition to the items noted above, as we continue to evaluate, remediate and improve our internal control over financial reporting, executive management may elect to implement additional measures to address control deficiencies or may determine that the remediation efforts described above require modification. Executive management, in consultation with and at the direction of our Audit Committee and an expert outside consultant, will continue to assess the control environment and the above-mentioned efforts to remediate the underlying causes of the identified material weakness.

Although we plan to complete this remediation process as quickly as possible, we are unable, at this time to estimate how long it will take; and our efforts may not be successful in remediating the deficiencies or material weaknesses.

Notwithstanding the material weakness set forth above, based on the performance of additional procedures by management designed to ensure reliability of financial reporting, the Company’s management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q, fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with GAAP.

### Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 11,971 characters.

Except as set forth below in this Item 1A and the Risk Factors included in our previous filings made with the SEC, there have been no material changes to our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in the Form 10-K filed with the SEC on March 26, 2024.

***Conditions in the Middle East and in Israel, where our research and development facilities are located, may harm our operations.***

Our office where we conduct our research and development, operations, sales outside the Americas, and administration activities, is located in Israel. Many of our employees are residents of Israel. Most of our officers and directors are residents of Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon).

In particular, in October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and injuries, and Hamas additionally kidnapped many Israeli civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign against Hamas and Hezbollah and these terrorist organizations in parallel continued rocket and terror attacks. As a result of the events of October 7, 2023 whereby Hamas terrorists invaded southern Israel and launched thousands of rockets in a widespread terrorist attack on Israel, the Israeli government declared that the country was at war and the Israeli military began to call-up reservists for active duty. As of the date of this Quarterly Report on Form 10-Q, we have not been impacted by any absences of personnel at our service providers or counterparties located in Israel. Military service call ups that result in absences of personnel from us for an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations. As of the date of this Quarterly Report, we currently have 42 full-time employees, with 33 employees located in Israel and 9 employees located outside of Israel.

Since the war broke out on October 7, 2023, our operations have not been adversely affected by this situation, and we have not experienced any material disruptions to our operations. We have the ability, if necessary, to shift our manufacturing from Israel to other countries where we have business partners, and we have not had customers in Israel in the last year. However, the intensity and duration of the war in the Middle East is difficult to predict at this stage, as are such war’s economic implications on the Company’s business and operations and on Israel’s economy in general. if the war in the other fronts, such as Lebanon, Syria and the West Bank expands further, our operations may be adversely affected.

In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization) and southern border (with the Houthi movement in Yemen). It is possible that hostilities with Hezbollah in Lebanon will escalate, and that other terrorist organizations, including Palestinian military organizations in the West Bank as well as other hostile countries will join the hostilities. Such clashes may escalate in the future into a greater regional conflict. In addition, Iran recently launched a direct attack on Israel involving hundreds of drones and missiles, and has threatened to continue 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, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In recent years, the hostilities involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. 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. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations. To-date, we have received Israeli government war related support funding of approximately $100,000.

Finally, political conditions within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. To date, these initiatives have been substantially put on hold. 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 growth prospects.

***Our shares of common stock could be delisted from the Nasdaq Capital Market if we fail to regain compliance with the Nasdaq’s stockholders’ equity continued listing standards. Our ability to publicly or privately sell equity securities and the liquidity of our shares of common stock could be adversely affected if we are delisted from the Nasdaq Capital Market.***

On August 25, 2023, we received a notification letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that our stockholders’ equity did not comply with the minimum $2,500,000 stockholders’ equity requirement for continued listing set forth in Listing Rule 5550(b) (the “Equity Rule”).

We had until February 21, 2024 to evidence compliance with the Equity Rule. As of the date of Quarterly Report on Form 10-Q, we have not provided such evidence.

On March 27, 2024, we received a delist determination letter (the “Delist Letter”) from the Staff advising us that the Staff had determined to delist our securities from Nasdaq due to our non-compliance with the Equity Rule unless we timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). We have since timely requested a hearing, which request served to stay any further action by Nasdaq at least pending the hearing before the Panel and the expiration of any extension the Panel may grant following the hearing.

At a hearing, we intend to present our plan for regaining compliance with the Equity Rule and may request a further extension to complete the plan. No assurance can be provided that Nasdaq will ultimately accept our plan or that we will ultimately regain compliance with the Equity Rule.

We have in the past, and may in the future, be unable to comply with certain of the listing standards that we are required to meet to maintain the listing of our ordinary shares on Nasdaq. For instance, on November 3, 2022, we received notification from the Nasdaq Staff that we were not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had an initial grace period of 180 calendar days, or until May 2, 2023 (the “Minimum Bid Price Compliance Period”), to regain compliance with the minimum bid price requirement. On April 19, 2023, we implemented a 1-for-10 reverse stock split. One of the primary intents for the consolidation was that the anticipated increase in the price of our shares of common stock immediately following and resulting from a reverse stock split due to the reduction in the number of issued and outstanding shares of ordinary shares would help us meet the price criteria for continued listing on the Nasdaq Capital Market. On May 3, 2023, we received a notification from the Nasdaq Staff that we had regained compliance with the Nasdaq Listing Rule 5550(a)(2).

If we fail to satisfy the continued listing requirements of Nasdaq, such as minimum stockholders’ equity requirements or minimum bid price requirements, Nasdaq may take steps to delist our shares of common stock. Such a delisting would have a negative effect on the price of our shares of common stock, impair the ability to sell or purchase our shares of common stock when persons wish to do so, and any delisting materially adversely affect our ability to raise capital or pursue strategic restructuring, refinancing or other transactions on acceptable terms, or at all. Delisting from Nasdaq could also have other negative results, including the potential loss of institutional investor interest and fewer business development opportunities, as well as a limited amount of news and analyst coverage of us. Delisting could also result in a determination that our shares of common stock are a “penny stock,” which would require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary market for our shares of common stock. In the event of a delisting, we would attempt to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our shares of common stock to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our shares of common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

Filed May 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-043030. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.