CONDENSED CONSOLIDATED STATEMENTS
OF CONVERTIBLE PREFERRED STOCK AND CAPITAL DEFICIENCY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 1 –
GENERAL:
| a. | Actelis Networks, Inc. (hereafter -the Company) was established in 1998, under the
laws of the state of Delaware. The Company has a wholly-owned subsidiary in Israel, Actelis Networks Israel Ltd. (hereafter – the
Subsidiary). The Company is engaged in the design, development, manufacturing, and marketing of networking solutions for IoT and Telecommunication
companies. The Company’s customers include providers of telecommunication services and enterprises as well as resellers of the Company’s
products. |
| b. | Following the December 2019 outbreak of Coronavirus (COVID-19) in China and after
its spread into a large number of other countries, economic activity has suffered in many regions of the world, including in all markets
of the Company (Americas, Europe and Asia as well as specifically Israel). Among other things, the pandemic disrupted supply chains, suppressed
the volume of global transportation activity, prompted the Israeli and other governments worldwide to put in place restrictions on movement
and employment, and resulted in a drop in the values of financial assets and commodities on global markets. As a result, the Company suffered
delays in realization of new orders from its customers, delay in testing of its technologies at customer premises and an inability to
conduct business development activities in an effective way. To date, the Company adhered to all state and federal social distancing requirements
while prioritizing health and safety for its employees. |
| c. | The Company has suffered recurring losses from operations, has an accumulated deficit
as of March 31, 2022, and December 31, 2021 as well as negative cash outflows from operating activities. The Company monitors its cash
flow projections on a current basis. As of the date of issuance of these condensed consolidated financial statements, as a result of the
May IPO transaction (see note 12) the Company believes it has the ability to fund its planned operations for at least the next 12 months.
However, the Company expects to continue incurring losses and negative cash flows from operations and working capital until its products
reach commercial profitability. Therefore, in order to fund the Company’s operations and working capital until such time that the
Company can generate substantial revenues, the Company may need to use proceeds from raised capital. |
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES:
The accompanying unaudited consolidated
financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of the company,
the financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of its
financial position as of March 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2022 and 2021.
These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited
financial statements for the year ended December 31, 2021, as found in the Company’s prospectus, filed with the Securities and Exchange
Commission on May 16, 2022. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of results
that could be expected for the 2022 fiscal year or any other interim period or for any other future year. All intercompany transactions
and balances have been eliminated in consolidation.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
| b) | Use of estimates in preparation of financial statements |
The preparation of
the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments
and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes.
The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, Fair value of warrants, convertible
note and convertible loan liabilities, inventory write-offs, as well as in estimates used in applying the revenue recognition policy.
The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at
the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, and the reported amounts
of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
| c) | Cash, cash equivalents and restricted cash |
The Company considers all highly liquid investments with an
original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost, which
approximates their fair value.
Restricted cash consists of cash held in restricted accounts,
including cash held as collateral for guarantees to third parties and other compensating balances, classified as current or long term
based on the expected timing of the disbursement.
The Company’s product
consists of hardware and an embedded software that function together to deliver the product’s essential functionality. The embedded software
is essential to the functionality of the Company’s products. The Company’s products are sold with a two-year warranty for repairs or replacements
of the product in the event of damage or failure during the term of the support period, which is accounted for as a standard warranty.
Services relating to repair or replacement of hardware beyond the standard warranty period are offered under renewable, fee-based contracts
and include telephone support, remote diagnostics and access to on-site technical support personnel.
The Company also
offers its customers other management software. The Company sells its other non-embedded software either as perpetual or as term-based
license.
The Company provides,
to certain customers, software updates that it chooses to develop, which the Company refers to as unspecified software updates, and enhancements
related to the Company’s management software through support service contracts. The Company also offers its customers product support
services which include telephone support, remote diagnostics and access to on-site technical support personnel.
The Company’s
customers are comprised of resellers, system integrators and distributors.
The Company follows
five steps to record revenue: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) it satisfies its performance obligations.
Performance obligations
promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of
being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are
readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the
goods or services is separately identifiable from other promises in the contract.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
The transaction price is
determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the
customer. The Company’s contracts do not include additional discounts once product price was set, right of returns,
significant financing components or any forms of variable consideration.
The Company uses
the practical expedient and does not assess the existence of a significant financing component when the difference between payment and
revenue recognition is less than a year. The Company’s service period is for one year and is paid for either up front or on a quarterly
basis.
Most of the Company’s
contracts are of a single performance obligation (sales of the product with a standard warranty) thus the entire transaction price is
allocated to the single performance obligation. For contracts that contain more than one identified performance obligation (such as when
the product is sold with services and the management software), the Company determines standalone selling prices taking into account available
information such as historical selling prices of each identified performance obligation, geographic location, and market conditions, and
allocates the consideration based on the relative stand-alone selling price of each identified performance obligation. In term-based license
arrangements (for the management software), the contracts also include the related services, and as such, the Company determines the stand-alone
selling price of the term-base license based on a ratio from the perpetual management software license.
Revenue from selling
the Company’s product and/or the software management (either as term-based or perpetual license) is recognized at a point in time
which is typically at the time of shipment of products to the customer or when the code is transferred, respectively. Revenue from services
is (e.g., product support service, software support service or extended warranty) are recognized on a straight-line basis over the service
period, as a time-based measure of progress best reflects our performance in satisfying this obligation.
The
Company’s lease accounting policy until December 31, 2021, prior to the adoption of the new lease standard - ASC-842
The
Company leases real estate and cars for use in its operations, which are classified as operating leases. Rental expense for the
three months ended March 31, 2022 were $158.
The lease expenses are recognized on a straight-line basis
over the expected lease term and is included in the operating expenses in the Company’s condensed consolidated statements of operations.
The
Company’s lease accounting policy from January 1, 2022, following the adoption of the new lease standard
The Company adopted the
new lease standard and all the related amendments on January 1, 2022 and used the effective date as The Company’s date of initial
application. Consequently, historical financial information was not updated, and the disclosures required under the new standard are not
provided for dates and periods before January 1, 2022.
The new lease standard
provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’
which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct
costs under the new standard. The Company has also elected the practical expedient pertaining to the use of hindsight.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
Operating lease ROU assets represent the right to use the leased
asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease
payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental
borrowing rate based on the information available at the adoption date in determining the present value of future payments.
The new lease standard also provides practical expedients for an
entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter
than 12 months. This means, for those leases, The Company does not recognize ROU assets or lease liabilities, including not
recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition The Company also elected to
apply the practical expedient to not separate lease and non-lease components for its real-estate leases.
Regarding leases denominated in a foreign currency, the related
ROU assets are remeasured using the exchange rate in effect at the date of initial recognition; the related lease liabilities are remeasured
using the exchange rate in effect at the end of the reporting period.
Certain of the Company’s lease agreements include rental
payments based on changes in the CPI. Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the
CPI are treated as variable lease payments and recognized in the period in which the related obligation was incurred. The Company includes
these variable payments in the initial measurement of the lease right-of-use asset and lease liability. On the effective date, the Company
included, in the initial measurement of the ROU asset and lease liability, the lease payments based on the then-current CPI.
In lease agreements that include extension options, the lease
term includes the options to extend the lease, only to the extent it is reasonably certain that the Company will exercise such extension
options.
The application of ASC 842 has resulted in the recognition
of approximately $1,046 ROU assets and lease liabilities on the Company’s balance sheet as of the effective date, and in the requirement
to provide significant new disclosures regarding the Company’s leasing activities and to enable users of financial statements to
assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a significant
impact on the Company’s consolidated statements of comprehensive loss and consolidated statements of cash flows. See note 7 for
further discussion.
Sublease
In October 2021, the Company entered a sublease agreement for
its offices in the USA.
The Company applies the guidelines in ASC-842 regarding subleases,
which states that the classification should be based on the underlying asset being subleased and concluded that the sublease is an operating
lease where the Company is the Lessor.
The sublease income is recognized on a straight-line basis
over the expected lease term and is included in the operating expenses in the Company’s condensed consolidated statements of operations.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
| f) | Fair value of financial instruments |
Fair value measurements are classified
and disclosed in one of the following three categories:
Level 1 – Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Quoted prices in markets
that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table
represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as
of:
|
| |
| | |
Fair value measurements at March 31, 2022 | |
|
Description | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
|
| |
| | |
| | |
| | |
| |
|
Assets: | |
| | |
| | |
| | |
| |
|
Money market funds | |
$ | 99 | | |
$ | 99 | | |
$ | - | | |
$ | - | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Liabilities: | |
| | | |
| | | |
| | | |
| | |
|
Convertible Loan (See Note 5) | |
$ | 5,871 | | |
$ | - | | |
$ | - | | |
$ | 5,871 | |
|
Warrants (See Note 6) | |
$ | 3,207 | | |
$ | - | | |
$ | - | | |
$ | 3,207 | |
|
Convertible note (See Note 4) | |
$ | 2,923 | | |
$ | - | | |
$ | - | | |
$ | 2,923 | |
|
| |
| | |
Fair value measurements at December 31, 2021 | |
|
Description | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
|
| |
| | |
| | |
| | |
| |
|
Assets: | |
| | |
| | |
| | |
| |
|
Money market funds | |
$ | 102 | | |
$ | 102 | | |
$ | - | | |
$ | - | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Liabilities: | |
| | | |
| | | |
| | | |
| | |
|
Convertible Loan (See Note 5) | |
$ | 4,905 | | |
$ | - | | |
$ | - | | |
$ | 4,905 | |
|
Warrants (See Note 6) | |
$ | 2,149 | | |
$ | - | | |
$ | - | | |
$ | 2,149 | |
As of March 31, 2022, and December
31, 2021, the fair values of the Company’s cash, cash equivalents, short and long-term deposits, trade receivables, trade payables
long-term loan and restricted cash approximated the carrying values of these instruments presented in the Company’s consolidated
balance sheets because of their nature.
The Company has a
major customer, representing 59% and 9% of the Company’s revenues during the three months ended March 31, 2022, and 2021, respectively
and 60% and 47% of the Company Trade receivables balance as of March 31, 2022 and December 31, 2021 respectively. The Company does not
see any credit risk regarding this debt, as most of the remaining balance was paid off.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
| h) | Accounting standards updates not yet adopted |
As an emerging growth company, the
Jumpstart Our Business Startup Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this
extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
In June 2016, the FASB issued ASU No.
2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces
the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost
to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023,
and interim periods therein. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on
its consolidated financial statements.
In March 2020, the FASB issued ASU
2020-04 “Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging
relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts,
hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference
rate reform. This guidance is effective for all entities as of March 12, 2020, through December 31, 2022.
The Company’s exposure to reference
rate reform is due to royalties payments the Company is obligated to pay for research and development grants received from the Government
of Israel (see note 8b). As of the date of these condensed consolidated financial statements, the Israeli Innovation Authority (“IIA”)
did not determine an alternative benchmark rate to the LIBOR. However, the Company will consider this guidance as future modifications
are made.
In December 2019, the FASB issued ASU
No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes, which is intended to simplify various
aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for the Company for fiscal years
beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of this guidance
will not have a significant impact on the Company’s consolidated financial statements.
In June 2020 issued Accounting Standards
Update (“ASU”) 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU
2020-06”). ASU 2020-06 simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions
for contracts in an entity’s own equity and modifies the guidance on diluted earnings per share calculations as a result of these changes.
ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.
Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. The Company is currently evaluating the effect of this standard on its consolidated financial statements.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(continued):
On April 15, 2022 (the “Closing
Date”), the Company’s Board of Directors approved a Reverse Stock Split in the ratio of forty-six to-one. The Reverse Stock
split became effective as of May 2, 2022.
The Company accounted for the Reverse Stock
Split on a retroactive basis pursuant to ASC 260. As a result, all common stock, Non-voting Common stock, Preferred stock and
options outstanding and exercisable for common stock, exercise prices and income (loss) per share amounts have been adjusted, on a
retroactive basis, for all periods presented in these condensed consolidated financial statements, to reflect such Reverse Stock
Split.
NOTE 3 –
INVENTORIES:
|
| |
March 31, | | |
December 31, | |
|
| |
2022 | | |
2021 | |
|
Raw materials | |
| 429 | | |
| 356 | |
|
Finished goods | |
| 502 | | |
| 541 | |
|
| |
| 931 | | |
| 897 | |
Inventories write-downs
totaled to $43 and $9 during the three months ended March 31, 2022, and December 31, 2021 respectively.
NOTE 4 – CONVERTIBLE NOTE:
During December 2021 to March 2022, the Company
offered up to $3,000 of the Company’s 6% convertible note where both principal and 6% annual interest are due three years from
the date of execution (the “Notes”). The Notes were subject to optional and mandatory conversion into shares of the Company’s
Common stock, $0.0001 par value. In January 2022 the Company performed a first closing of $2,100 convertible notes out of the $3,000 offered,
which private placement was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act and
was funded by this amount (less fees and expenses). The notes may be converted at any time by the holders into common stock and automatically
converted to common stock upon the consummation of an Initial Public Offering. The conversion price for the notes will be at a 40% discount.
If the Initial Public Offering will not consummate, at an optional conversion, the conversion price for the notes will be at a 40% discount
based on $50 million. If an Initial Public Offering will not consummate within 18 months, the note value becomes 110% of its then balance
See Note 12 for further details.
The Company has determined that
the predominant scenario is the IPO event. The Company measured the convertible note in its entirety at fair value with changes in
fair value recognized as financial income or loss in accordance with ASC 480-10. The Company measured the notes in its entirety at
fair value with changes in fair value recognized as financial income or loss in accordance with ASC 480-10.
The Company recorded financial expenses
during the three months ended March 31, 2022 in the amount of $1,075.
As of March 31, 2022, due to the lack of an active market,
the fair value of the note was determined using a hybrid valuation methodology with a weighted average that combined Option Pricing Model
(OPM) and Probability Weighted Expected Return Method (PWERM). As such, the fair value of the notes was categorized within Level 3 in
accordance with ASC 820.
The valuation was performed under scenarios of IPO, estimated
at 75% (2021: 37.5%) of an IPO occurring in May 2022 (2021: May 2022) and staying private, estimated at 25% (2021: 62.5%) using a volatility
of 58%, a risk-free rate of 2.41% and an expected term of 0.17 years in the scenario of IPO and 2.75 years in the scenario of staying
private.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 5 – CONVERTIBLE LOAN:
As of March 31, 2022, and December 31, 2021, the estimated
fair value of the convertible loan agreement (“the CLA”) was based on a hybrid valuation methodology with a weighted average
that combined Option Pricing Model (OPM) and Probability Weighted Expected Return Method (PWERM); therefore, it is categorized as Level
3 in accordance with ASC 820.
The valuation was performed under a scenario of an IPO and
staying private.
The IPO scenario was estimated at 75% (2021: 37.5%) of an
IPO occurring in May 2022 (2021: May 2022). Upon consummation of an IPO, the holders of the CLA have the right to convert the principal
amount of the loan into common stock at a conversion price per common stock reflecting a discount of 30% plus an additional 1% for each
two calendar months following March 2017.
In addition, the holders of the
CLA would be entitled to an additional discount of 40% pursuant to convertible note subscription agreement from January 2022. Under
this scenario, the fair value of the CLA was estimated at the conversion value using a discount of 77.2% (2021: 77.2%) on the
anticipated value of a common stock and a risk adjusted discount rate of 21.4% (2021: 20.8%). The remain private scenario estimated
a 25% (2021: 62.5%) probability of remaining private for an expected period of 2.75 years (2021: 3 years) and an equity value of
$26.5 million (2021: $24.3 million). The Company applied a volatility of 58% (2021: 58%) and a risk-free rate of 2.41% (2021:
0.97%).
The following is
a roll forward of the fair values:
|
| |
March 31, | | |
December 31, | |
|
| |
2022 | | |
2021 | |
|
Fair value at the beginning of the year | |
| 4,905 | | |
| 3,563 | |
|
Change in fair value reported in statement of comprehensive loss | |
| 966 | | |
| 1,342 | |
|
| |
| 5,871 | | |
| 4,905 | |
The Company recorded financial expenses during the three
months ended March 31, 2022 and 2021 in the amount of $966 and $0, respectively.
NOTE 6 –
WARRANTS:
The following is
a roll forward of the fair values:
|
| |
March 31, | | |
December 31 | |
|
| |
2022 | | |
2021 | |
|
| |
| | |
| |
|
Outstanding as of beginning of period | |
| 2,149 | | |
| 1,023 | |
|
Fair value changes | |
| 1,058 | | |
| 1,031 | |
|
Additions | |
| - | | |
| 95 | |
|
Outstanding as of end of period | |
| 3,207 | | |
| 2,149 | |
As of March 31, 2022, and December 31, 2021 the estimated
fair value of the warrants was based on a hybrid valuation methodology with a weighted average that combined Option Pricing Model (OPM)
and Probability Weighted Expected Return Method (PWERM) using Level 3 inputs. The valuation was performed under scenarios of an IPO estimated
at 75% (2021: 37.5%) of an IPO occurring in May 2022 (2021: May 2022) and staying private estimated at 25% (2021: 62.5%), using a volatility
of 58% (2021: 58%), a risk-free rate of 2.41% (2021: 0.97%) and an expected term of 0.17 years (2021: 0.4 years) in the scenario of IPO
and 2.75 years (2021: 3 years) in the scenario of staying private.
The Company recorded financial expenses during the three
months ended March 31, 2022 and 2021 in the amount of $1,058 and $0, respectively, in connection with these warrants.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 7 – LEASES:
| 1) | The Company has an operating lease agreement for its facility in the USA, which expires on March 31, 2024.
The Company is not reasonably certain that it will exercise the 5-year extension option and hence, the extension period was excluded from
the measurement of the ROU asset and the lease liability. The lease payments are denominated in USD. |
| 2) | The Company’s Israeli subsidiary has an operating lease agreement for a facility in Israel, which
expires on April 30, 2023. The Company does not have an option for extending the lease agreement. The lease payments are denominated in
ILS and are indexed to the consumer price index. |
| 3) | On October 18, 2021, the Company entered into an agreement to sublease its facility to an unrelated third
party in the USA. The sublease ends March 31, 2024. |
| 4) | The Company leases its motor vehicles under operating lease agreements. |
| 5) | The Company adopted the new accounting standard ASC 842 “Leases” and all related amendments
on January 1, 2022 and used the effective date as The Company’s date of initial application. |
| 6) | In October 2021, the Company entered into a sublease agreement for its offices in the USA. The sublease ends
March 31, 2024. The sublease is classified as an operating lease. The Company recognized lease income from the sublease referenced in
3) above during the first quarter of 2022 in an amount of $41. |
Supplemental information related to
leases are as follows:
|
| |
March 31, | |
|
| |
2022 | |
|
Operating leases: | |
| | |
|
Operating lease right-of-use assets-Short term | |
| 804 | |
|
Current Operating lease liabilities | |
| 557 | |
|
Non-Current Operating lease liabilities | |
| 239 | |
|
Total Operating lease liabilities | |
| 796 | |
Other information:
|
| |
March 31, | |
|
| |
2022 | |
|
Operating cash flows from operating leases (cash paid in thousands) | |
| 161 | |
|
Weighted Average Remaining Lease Term | |
| 1.51 | |
|
Weighted Average Discount Rate
| |
| 2.5 | % |
The lease costs components are as follows:
|
| |
March 31, | |
|
| |
2022 | |
|
Operating lease cost | |
| 158 | |
|
Variable lease cost | |
| 3 | |
|
Total lease cost | |
| 161 | |
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 7 – LEASES (continued):
Maturities of operating lease liabilities
were as follows:
|
| |
March 31, | |
|
2022 | |
| 413 | |
|
2023 | |
| 327 | |
|
2024 | |
| 68 | |
|
Total operating lease payments | |
| 808 | |
|
Less: imputed interest | |
| (12 | ) |
|
Present value of lease liabilities | |
| 796 | |
NOTE 8 – COMMITMENTS AND CONTINGENCIES:
| a. | As of December 31, 2021, the Company was obligated under noncancellable operating lease agreements
for certain sales offices and vehicles. |
Future minimum lease
payments for noncancellable operating leases with initial or remaining terms in excess of one year are as follows:
Fiscal
year ending December 31:
|
2022 | |
| 573 | |
|
2023 | |
| 294 | |
|
2024 | |
| 42 | |
|
Total minimum lease payments | |
| 909 | |
The
lease fees expensed in each of the three months ended March 31, 2022 and for the year ended December 31, 2021, were $156 and $516 respectively
| b. | The Company is obligated to repay certain research and development grants
received from the Government of Israel in the form of a royalty rate on future sales of products derived from the funded research and
development activities. The aggregate amount of royalties to be paid is determined based on 100% of the total grants received for qualified
projects plus interest based on LIBOR. The Company may be required to pay royalties based on previous years funding in periods after March 31,
2022, for the
future sale of product that includes technology developed and funded with these research and development grants received to date. |
As
of March 31, 2022, the Company received approximately $14,300 (approximately $15,500 including LIBOR) and repaid approximately $10,000.
As
of March 31, 2022, and December 31, 2021, the Company had a liability to pay royalties in the amount of approximately $877 and $818, respectively.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 9 – CAPITAL
DEFICIENCY:
Share-based compensation
A summary of the Company’s share
option activity under option plans is as follows:
|
| |
Number of
Options | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Life | |
|
Outstanding – January 1, 2021 | |
| 879,251 | | |
$ | 0.0874 | | |
| 6.25 | |
|
Granted | |
| 43,261 | | |
$ | 1.3616 | | |
| | |
|
Exercised | |
| 2,763 | | |
$ | 0.1058 | | |
| | |
|
Expired and forfeited | |
| 29,256 | | |
$ | 0.0874 | | |
| | |
|
| |
| | | |
| | | |
| | |
|
Outstanding – December 31, 2021 | |
| 890,493 | | |
$ | 0.1518 | | |
| 5.43 | |
|
| |
| | | |
| | | |
| | |
|
Exercisable – December 31, 2021 | |
| 801,562 | | |
$ | 0.276 | | |
| 5.10 | |
|
| |
Number of Options | | |
| Weighted
Average
Exercise
Price | | |
| Weighted
Average
Remaining
Contractual
Life | |
|
Outstanding – January 1, 2022 | |
| 890,493 | | |
$ | 0.1518 | | |
| 5.43 | |
|
Granted | |
| - | | |
$ | - | | |
| | |
|
Exercised | |
| 15,459 | | |
$ | 0.0725 | | |
| | |
|
Expired and forfeited | |
| 1,862 | | |
$ | 0.1058 | | |
| | |
|
| |
| | | |
| | | |
| | |
|
Outstanding – March 31, 2022 | |
| 873,172 | | |
$ | 0.1516 | | |
| 4.83 | |
|
| |
| | | |
| | | |
| | |
|
Exercisable – March 31, 2022 | |
| 799,692 | | |
$ | 0.0917 | | |
| 5.13 | |
NOTE 10 –
BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is
computed using the weighted average number of common stock and fully vested RSUs outstanding during the period. In computing diluted
loss per share, basic loss per share is adjusted to take into account the potential dilution that could occur upon: (i) the exercise
of options and non-vested RSUs granted under employee stock compensation plans, and the exercise of warrants using the treasury
stock method; and (ii) the conversion of the convertible preferred stock, convertible note and convertible loan using the
“if-converted” method, by adding to net loss the change in the fair value of the convertible loan and convertible note,
net of tax benefits, and by adding the weighted average number of shares issuable upon assumed conversion of these instruments.
Options to purchase
873,172 and 890,493 shares of common stock at an average exercise price of $0.1516 and $0.1518 per share were outstanding as of March
31, 2022 and December 31, 2021, respectively, but were not included in the computation of diluted EPS because to do so would have had
antidilutive effect on the basic loss per share.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 10 –
BASIC AND DILUTED LOSS PER SHARE (continued):
Preferred stock, which
was convertible into 7,731,043 shares of common stock was outstanding as of March 31, 2022 and 2021 but was not included in the computation
of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
The convertible loan
was not included in the calculation of the diluted loss per share as the loan is convertible into shares only on contingent event which
have yet to occur as of March 31, 2022 and 2021.
The convertible note
was not included in the calculation of the diluted loss per share as the note is convertible into shares only on contingent event which
have yet to occur as of March 31, 2022 and 2021.
Warrants are convertible
into 256,242 and 120,899 of the Company’s preferred stock were outstanding as of March 31,2022 and 2021, respectively, but were
not included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
Warrants are convertible
into 77,366 and 12,042 of the Company’s common stock were outstanding as of March 31, 2022 and 2021, respectively, but were not
included in the computation of diluted EPS because to do so would have had antidilutive effect on the basic loss per share.
NOTE 11 – ENTITY WIDE
INFORMATION AND DISAGREGATED REVENUES:
The Company operates as one operating segment (developing
and marketing access broadband equipment for copper and fiber networks).
| a. | Geographic information: |
Following is a summary of revenues by
geographic areas. Revenues attributed to geographic areas, based on the location of the end customers:
|
| |
Three months Ended
March 31 | |
|
| |
2022 | | |
2021 | |
|
North America | |
| 568 | | |
| 1,019 | |
|
Europe, the Middle East and Africa | |
| 1,203 | | |
| 440 | |
|
Asia Pacific | |
| 97 | | |
| 87 | |
|
| |
| 1,868 | | |
| 1,546 | |
| b. | Revenues from contract liability: |
|
| |
March 31, | | |
December 31, | |
|
| |
2022 | | |
2021 | |
|
| |
| | |
| |
|
Opening balance | |
| 673 | | |
| 581 | |
|
Revenue recognized from contract liabilities | |
| (220 | ) | |
| (909 | ) |
|
Additions | |
| 159 | | |
| 1,001 | |
|
Remaining performance obligations | |
| 612 | | |
| 673 | |
The Company’s remaining performance
obligations will be completed by March 31, 2023.
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 11 – ENTITY WIDE
INFORMATION AND DISAGREGATED REVENUES (continued):
| c. | The Company’s long-lived assets are located as follows: |
Property and Equipment, net:
|
| |
March
31, | | |
December 31, | |
|
| |
2022 | | |
2021 | |
|
| |
| | |
| |
|
Israel | |
| 105 | | |
| 101 | |
|
North America | |
| 3 | | |
| 2 | |
|
| |
| 108 | | |
| 103 | |
| d. | Customers representing 10% or more of net revenues and the amount of revenues recognized are as follows: |
|
| |
Three months Ended
March 31, 2022 | |
|
| |
| % | | |
| | |
|
| |
| | | |
| | |
|
Customer A (*) | |
| 59 | % | |
| 1,114 | |
| (*) | Included in Europe, the Middle East and Africa. |
|
| |
Three months Ended
March 31, 2021 | |
|
| |
% | | |
| |
|
| |
| | |
| |
|
Customer A | |
| 21 | % | |
| 270 | |
|
Customer B | |
| 11 | % | |
| 145 | |
The majority of the Company’s revenues are recognized
at a point in time.
NOTE 12 –
IPO:
On May 17, 2022,
the Company finalized its IPO, offering of an aggregate of 4,212,500 shares of common stock, including the partial exercise by the underwriter
of its option to purchase 462,500 additional shares of common stock, at a price to the public of $4.00 per share.
The net proceeds
from the offering, including the over-allotment, to the Company were approximately $15.4 million, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company.
As a result
of the IPO, the Company issued common stock as described below:
| a. | Conversion of the convertible loan agreement -the Company issued 1,638,161 shares of common stock. |
| b. | Convertible preferred stock - the Company issued 7,731,083 common stock (on a one (1) for one (1) basis). |
|
c. |
Conversion of Warrants: |
| a. | The Company issued 180,000 shares of common stock to Migdalor as part of the loan agreement with Migdalor. |
| b. | The Company issued 617,567 shares of common stock to Mizrahi-Tefahot Bank. |
| d. | Convertible notes granted in the Company’s offering during December 2021 and March 2022 the Company issued 900,096 shares of common stock. |
| e. | The Company redeemed 1,783,773 shares of non-voting common stock for their par value. |
ACTELIS NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
U.S. DOLLARS IN THOUSANDS
NOTE 13 – SUBSEQUENT EVENTS:
The
Company evaluated subsequent events occurring through June 22, 2022, the date that these financial statements were originally available
to be issued, and determined the following subsequent events occurred that would require disclosure in these financial statements:
| a. | Promissory note repayment agreement |
On February 20, 2015, the Company
made a loan to the CEO, in the principal amount of $106, which loan was evidenced by a secured, non-negotiable promissory note. In April
2022, the Company entered into a Securities Purchase and Loan Repayment Agreement with the CEO, pursuant to which the CEO sold to the
Company 27,699 shares for a purchase price equal to $4.55 per share for an aggregate purchase consideration of $126. In lieu of paying
the CEO the Purchase Consideration for the shares in cash, the Purchase Consideration was used to repay in full the outstanding loan amount
and accrued interest owed to the Company by the CEO, and the promissory Note was terminated.
| b. | During April 2022, the Company performed a second closing of $60 convertible notes of the Company’s
offering described in Note 4 above. |
| c. | Change in authorized stock |
On May 2, 2022, the Company’s
Board of Directors approved an amendment to the Company’s Bylaws, stating the number of authorized stock to be increased, as described
below:
| a. | Common stock- $0.0001 par value – authorized shares increase to 42,803,774 shares from 11,009,315
shares. |
| b. | Non-voting common stock- $0.0001 par value-authorized shares remain 2,803,774 shares. |
| c. | Preferred stock- $0.0001 par value - authorized shares increase to 10,000,000 shares from 7,988,691
shares. |
| d. | On May 16, 2022, the Company filed with the Secretary of State of the State of Delaware an amended and
restated certificate of incorporation (the “A&R COI”), which became effective immediately. The A&R COI did not change
the Company’s authorized shares of common stock and preferred stock of 42,803,774 authorized shares of common stock., 2,803,774
shares of non-voting common stock and 10,000,000 shares of preferred stock. |