Silynxcom Ltd F-1/A, filed Dec 19, 2023
Silynxcom Ltd. (SYNX)
As filed with the Securities and Exchange Commission on December 19, 2023
Registration No. 333-275195
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
to
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Silynxcom LTD.
(Exact name of registrant as specified in its charter)
| State of Israel | 3651 | Not Applicable | ||
| (State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification Number) |
19 Yad Ha’Harutzim St. Netanya, 4250519, Israel Tel: +972-9-8658-370 |
| (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
Silynx Communications Inc. Campus Drive 4630, Suite 109 Newport Beach, CA 92660 571-368-4423 |
| (Name, address, including zip code, and telephone number, including area code, of agent for service) |
Copies to:
Oded Har-Even, Esq. Ron Ben-Bassat, Esq. Eric Victorson, Esq. Sullivan & Worcester LLP 1633 Broadway New York, NY 10019 Tel: 212.660.3000 |
Reut Alfiah, Adv. Gal Cohen, Adv. Sullivan & Worcester Tel-Aviv (Har-Even & Co.) HaArba’a Towers 28 HaArba’a St. North Tower, 35th Floor Tel-Aviv, Israel 6473925 |
David Huberman, Esq. Gary Emmanuel, Esq. Win Rutherfurd, Esq. Greenberg Traurig, P.A. One Azrieli Center Round Tower, 30th Floor 132 Menachem Begin Rd Tel Aviv, Israel 6701101 Tel: +972 3.636.6033 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☒
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 7(a)(2)(B) of the Securities 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. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED DECEMBER 19, 2023 |
1,075,000 Ordinary Shares
| Silynxcom Ltd. |
This is a firm commitment initial public offering of Silynxcom Ltd. We are offering 1,075,000 ordinary shares, no par value, of our Company, or the Ordinary Shares. Prior to this offering, there has been no public market for our Ordinary Shares. We anticipate that the initial public offering price of our shares will be between $4.00 and $6.00.
We intend to apply to list the Ordinary Shares on the NYSE American LLC, or the “NYSE American”, under the symbol “SYNX”. This offering is contingent upon the Ordinary Shares being listed. We will not complete this offering if the Ordinary Shares are not approved for listing.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and a “foreign private issuer”, as defined in Rule 405 under the U.S. Securities Act of 1933, as amended, or the Securities Act, and are subject to reduced public company reporting requirements.
We are, and following the consummation of this offering will continue to be, a “controlled company” as defined under the Israeli Companies Law 5759-1999, or the Companies Law, and under the NYSE American rules because our existing controlling shareholders, Mr. Nir Klein and Mr. Ron Klein, will own 52.11% of the total voting power of our issued and outstanding Ordinary Shares immediately after the consummation of this offering, assuming the sale of all of the Ordinary Shares we are offering. As a result, Mr. Nir Klein and Mr. Ron Klein will be able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendment of our amended and restated articles of association and approval of significant corporate transactions.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8.
Neither the Securities and Exchange Commission, or the SEC, nor any state or other foreign securities commission has approved nor disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Ordinary Share | Total | |||||||
| Initial public offering price | $ | $ | ||||||
| Underwriting discounts and commissions(1) | $ | $ | ||||||
| Proceeds to us (before expenses)(2) | $ | $ | ||||||
| (1) | Excludes a non-accountable expense allowance equal to 1.0% of the initial public offering price payable to the underwriters. See the section titled “Underwriting” beginning on page 95 of this prospectus for additional information regarding underwriters’ compensation. |
| (2) | We have granted the underwriters an option for a period of up to 45 days to purchase from us, at the public offering price, up to 161,250 additional Ordinary Shares, less underwriting discounts and commissions, to cover over-allotments, if any. |
The underwriters expect to deliver the Ordinary Shares on or about , 2023.
ThinkEquity
The date of this prospectus is , 2023
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are offering to sell the securities and seeking offers to buy the securities, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities.
For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
In this prospectus, “we,” “us,” “our,” the “Company”, “Silynx” and “Silynxcom” refer to Silynxcom Ltd., an Israeli corporation, Silynx Communications Inc., a Delaware corporation and Source of Sound Ltd., an Israeli corporation.
Our reporting currency and functional currency is the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus supplement and the accompanying prospectus to “NIS” are to New Israeli Shekels, and references to “dollars” or “$” are to U.S. dollars.
We report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
On August 6, 2023, a 5.612-for-one reverse split of our Ordinary Shares became effective. Furthermore, on November 28, 2023 a 1.065472054-for-one reverse split of our outstanding Ordinary Shares, or the November Reverse Split, became effective. Unless the context expressly indicates otherwise, all references to share and per share amounts referred to herein reflect the amounts after giving effect to the November Reverse Split. The number of Ordinary Shares currently issued and outstanding is 3,161,779.
This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable, we have not independently verified the information contained in such publications. While we believe the estimated market position, market opportunity and market size information included in this prospectus is generally reliable, such information, which is derived in part from management’s estimates and beliefs, is inherently uncertain and imprecise. Other market data and industry information is based on management’s knowledge of the industry and good faith estimates of management. All of the market data, panel data and industry information used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
i
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our securities. Before you decide to invest in our securities, you should read the entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.
Our Company
For over a decade, we have been developing, manufacturing, marketing, and selling ruggedized tactical communication headset devices as well as other communication accessories, all of which have been field-tested and combat-proven. Our in-ear headset devices, or In-Ear Headsets, are used in combat, the battlefield, riot control, demonstrations and weapons training courses. Our In-Ear Headsets seamlessly integrate with third party manufacturers of professional-grade ruggedized radios that are used by soldiers in combat or police officers in riot situations. Our In-Ear Headsets also fit tightly into the protective gear to enable users to speak and hear clearly and precisely while they are protected from the hazardous sounds of combat, riots or dangerous situations.
Our sleek, lightweight, In-Ear Headsets include active sound protection to eliminate unsafe sounds, while maintaining ambient environmental awareness, giving our customers 360° situational awareness.
We work closely with our customers and seek to improve the functionality and quality of our products based on actual feedback from soldiers and police officers “in the field.” Our headset devices are compatible and easily integrate with the various communication equipment devices currently being used by tens of thousands of military and law enforcement personnel in leading military and law enforcement units globally.
We sell our In-Ear Headsets and communication accessories directly to military forces, police and other law enforcement units around the world. We also sell indirectly, through a specialized network of local distributors in each geography in which we operate, as well as through key strategic partnerships with radio equipment manufacturers. Our direct sales are generally conducted through government-run official tender processes. Our indirect sales are conducted through our distributor network, specialized agents, and strategic original equipment manufacturers, or OEMs. Our distributor network has grown by six times from 2020 to 2022. While our primary markets are currently in Israel, Europe, Asia and the United States, we intend to expand our sales, marketing and distribution network into new markets such as Southeast Asia and Latin America.
Recent Developments
On October 7, 2023, Hamas terrorists invaded southern Israel and launched thousands of rockets in a widespread terrorist attack on Israel. On the same day, the Israeli government declared that the country was at war. In the days that followed, the Israeli military began to call-up reservists for active duty and deploy units across all service branches to take positions in preparation for a war that, according to Israeli government officials, could last for months.
We sell our products directly and indirectly to the Israel Defense Forces. From October 10, 2023 until the date of this prospectus, we received purchase orders from the Israel Defense Forces and police forces in Israel, amounting to an aggregate of over $4.0 million to supply certain products in the near-term to be used by all branches of the Israel Defense Forces and police departments in Israel as well as in the longer term to resupply inventory stockpiles of equipment for the Israel Defense Forces. We expect to receive additional purchase orders as a result of the ongoing war. There is no assurance, however, that any further purchase orders will materialize in connection with this war. For further information, see “Business—Our Technology—Sales and Marketing” and “Risk Factors—Risks Related to Israeli Law and Our Operations in Israel”.
Corporate Information
We are an Israeli corporation and were incorporated under the name Silynxcom Ltd. Our principal executive offices are located at 19 Yad Haruzim Street in Netanya, Israel. Our telephone number in Israel is +972 9-8658-370. Our website address https://www.silynxcom.com. The information contained on, or that can be accessed through, our website is not part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
This prospectus contains trademarks, trade names and service marks, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
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Implications of Being an Emerging Growth Company and a Foreign Private Issuer
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to, and intend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the U.S. Securities Exchange Act of 1934, as amended, or 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 (c) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.
Implications of being a Controlled Company under the Companies Law
The term “control” is defined in the Companies Law as the ability to direct the activities of a company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder “holds” (within the meaning of the Companies Law) 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a 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 but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.
As of the date of this prospectus, Mr. Nir Klein, the Company’s Chief Executive Officer, owns more than 50% of our voting power.
Following the consummation of the offering, Mr. Nir Klein and Mr. Ron Klein may not own, in the aggregate, more than 50% of the voting rights in the Company. The Board will periodically assess and decide whether any person(s) retain control of our Company within the meaning of the Companies Law.
For so long as we have one or more controlling shareholder(s) (as defined above) following the consummation of the offering, any transaction which involves the controlling shareholder(s) must be approved by a special majority of our shareholders general meeting, in addition to other required approvals under Companies Law, without taking the controlling shareholder(s) vote into consideration in the said matter. Certain exemptions may apply to transactions with our controlling shareholder(s), as described in the Companies Law regulations.
Additionally, for so long as the Company has a controlling shareholder(s), members of the audit and compensation committees of the board of directors may not be an employee or service provider of the controlling shareholder(s).
Under regulations promulgated pursuant to the Companies Law, in case we do not have a controlling shareholder(s) in the future, the Board may adopt exemptions from various corporate governance requirements of the Companies Law, so long as such company satisfies the requirements of applicable foreign country laws and regulations, including applicable stock exchange rules, that apply to companies organized in that country and relating to the appointment of independent directors and the composition of audit and compensation committees. Such exemptions include an exemption from the requirement to appoint external directors and the requirement that an external director be a member of certain committees, as well as exemption from limitations on directors’ compensation.
Implications of being a Controlled Company under NYSE American Rules
In addition for purposes of the NYSE American rules, we are a “controlled company”, meaning a company over which 50% of the voting power for the election of directors is held by an individual a group, or another company.
Since Mr. Ron Klein and Mr. Nir Klein will own together 52.11% of our Ordinary Shares immediately after the consummation of this offering, assuming the sale of all of the Ordinary Shares we are offering, which means that they will control 52.11% of our voting power, we are eligible for exemptions from certain NYSE American corporate governance standards.
Under these rules, a controlled company may elect to be exempt from the requirements that a majority of its board of directors are independent and that the compensation committee is composed entirely of independent directors. However, we have decided not to avail ourselves of the exemptions available for controlled companies under NYSE American rules. However, our decision not to rely on the “controlled company” exemption could change. As a result, you may in the future not have the same protection afforded to shareholders of companies that are subject to all of the NYSE American corporate governance requirements. See “Risk Factors – Risks Relating to this Offering and Ownership of our Securities – As a “controlled company” within the meaning of the NYSE American rules, we qualify for exemptions from certain corporate governance standards. We do not currently expect or intend to rely on any of these exemptions, but we cannot assure that we will not rely on these exemptions in the future.”
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Implications of being a “Foreign Private Issuer”
We are subject to the information reporting requirements of the Exchange Act that are applicable to “foreign private issuers,” and under those requirements, we file reports with the SEC. As a foreign private issuer, we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual report with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Our officers, directors, and principal shareholders are exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, as a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NYSE American rules for domestic U.S. issuers and are not required to be compliant with all NYSE American rules as of the date of our initial listing on the NYSE American as would domestic U.S. issuers. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting company. We intend to take advantage of the exemptions available to us as a foreign private issuer during and after the period we qualify as an “emerging growth company.”
Risk Factor Summary
Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in the Ordinary Shares. In particular, our risks include, but are not limited to, the following:
Risks Related to Our Business and Industry
| ● | Our consolidated financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all. |
| ● | A reduction in the spending patterns of government agencies or delays in obtaining government approval for our products could materially and adversely affect our net sales, results of operations, earnings and cash flow. |
| ● | The markets in which we compete are highly competitive and some of our competitors have greater financial and other resources than we do. The competitive pressures faced by us could materially and adversely affect our business, results of operations and financial condition. |
| ● | A significant portion of our revenues is derived from certain customers. |
| ● | If any customer accounts for a significant portion of our revenue in our operations, the loss of any such customers or a material decline in the transaction would have an adverse effect on our operating results |
| ● | We generally do not have long-term contracts with our distributors, which makes forecasting our revenues and operating results difficult. |
Risks Related to the Supply and Manufacturing of our Products
| ● | Disruptions of our production could adversely affect our operating results. |
| ● | We use a variety of raw materials, supplier-provided parts, electronic and acoustic among other components, local manufacturing sub-contractors and contract manufacturing services, and significant shortages, capacity constraints, production disruptions or price increases could increase our operating costs and adversely impact the competitive positions of our products. |
| ● | Security, geopolitical and political conditions in Israel and across the world may adversely impact our financial conditions and business operations in particular impact on access to acquire components and raw material and other supply chain disruptions. |
| ● | Our customers who purchase our products for defense applications typically incorporate our products into their products, which are sold to the U.S. government under contracts. U.S. government contracts generally are not fully funded at inception and may be terminated or modified prior to completion, which could adversely affect our business. |
| ● | Unfavorable outcomes in legal proceedings may harm our business and results of operations. |
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Risks Related to Intellectual Property
| ● | Any loss or limitations on our right to use intellectual property licensed from third parties could have a material adverse effect on our business, operating results and financial condition. |
| ● | We consider our industry know-how proprietary but own no registered intellectual property or technology, and others may seek to copy it without compensating us. |
| ● | Our results of operations may be adversely affected if we are subject to a protracted infringement claim or a claim that results in a significant damage award. |
Risks Related to this Offering and Ownership of Our Securities
| ● | The market price of our Ordinary Shares may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price. |
| ● | We will incur significantly increased costs and devote substantial management time as a result of operating as a public company. |
| ● | Section 404 of the Sarbanes-Oxley Act requires us to assess the effectiveness of our internal controls over financial reporting, which assessment, as a private company, we have not yet performed. |
| ● | Raising additional capital would cause dilution to our existing shareholders and may adversely affect the rights of existing shareholders. |
| ● | If you purchase Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares. |
| ● | Since we are deemed to be a controlled company under the Companies Law and NYSE American Rules, we qualify for exemptions from certain corporate governance requirements that would otherwise provide protection to shareholders of other companies. The controlling shareholder(s) will continue to be able to exert significant control over matters submitted to our shareholders for approval. Investors often perceive disadvantages in owning shares in companies with controlling shareholders which may adversely affect the trading price for our Ordinary Shares. |
Risks Related to Israeli Law and Our Operations in Israel
| ● | Potential political, economic and military instability in the State of Israel, where our headquarters, members of our management team, our production and research and development facilities are located, may adversely affect our results of operations. |
| ● | Our financial performance is subject to risks associated with changes in the value of the U.S. dollar, Israeli shekel, versus local currencies. |
| ● | We may not be able to enforce covenants not-to-compete under current Israeli law that might result in added competition for our products. |
| ● | We may be required to pay monetary remuneration to our Israeli employees for their inventions, even if the rights to such inventions have been duly assigned to us. |
| ● | It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors and the Israeli experts named in this prospectus in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts. |
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THE OFFERING
| Issuer | Silynxcom Ltd. | |
| Ordinary Shares offered by us | 1,075,000 Ordinary Shares. | |
| Ordinary Shares currently issued and outstanding | 3,161,779. | |
| Ordinary Shares to be issued and outstanding after this offering | 5,075,000 Ordinary Shares (or 5,236,250 Ordinary Shares if the underwriters exercise in full the over-allotment option to purchase additional Ordinary Shares). | |
| Over-allotment option | We have granted the underwriters an option for a period of up to 45 days to purchase, at the public offering price, up to 161,250 additional Ordinary Shares, representing 15%, less underwriting discounts and commissions, to cover over-allotments, if any. | |
| Use of proceeds |
We expect to receive approximately $4.0 million in net proceeds from the sale of the securities offered by us in this offering (approximately $4.74 million if the underwriters exercise their over-allotment option in full ), based upon an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
We currently expect to use the net proceeds from this offering for the following purposes:
● approximately $1.5 million for marketing and business development;
● approximately $1.0 million for research and development; and
● the remainder for working capital and general corporate purposes.
The amounts and schedule of our actual expenditures will depend on multiple factors. As a result, our management will have broad discretion in the application of the net proceeds of this offering.
See “Use of Proceeds” on page 31 of this prospectus for a more complete description of the intended use of proceeds from this offering as well as “Risk Factors — Risks Related to this Offering and Ownership of Our Securities.” |
5
| Risk factors | Investing in our securities involves a high degree of risk. You should read the “Risk Factors” section starting on page 8 of this prospectus for a discussion of factors to consider carefully before deciding to invest in the Ordinary Shares. | |
| Listing | We intend to apply to list our shares on the NYSE American, under the symbol SYNX. |
The number of the Ordinary Shares to be outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold and is based on 3,161,779 Ordinary Shares outstanding as of June 30, 2023. This number excludes:
| ● | 454,105 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our Employee Share Option Plan, or the ESOP, outstanding as of June 30, 2023, at a weighted average exercise price of $2.15, of which 454,105 were vested as of June 30, 2023; | |
| ● | 53,624 Ordinary Shares issuable upon exercise of warrants issued to an employee, at an exercise price of NIS 2.965; and |
| ● | 696,171 Ordinary Shares reserved for future issuance under our ESOP. |
Unless otherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the Representative’s Warrants; | |
| ● | no exercise of the underwriters’ over-allotment option; | |
| ● | no exercise of the outstanding options described above;
| |
| ● | 102,346 Ordinary Shares issuable upon the conversion of certain equity investment agreements, which we refer to as Simple Agreements for Future Equity, or SAFEs, for aggregate proceeds of NIS 1.14 million (approximately $342 thousand), which will automatically convert upon the consummation of this offering, based on an offering price of $5.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and | |
| ● | 735,875 Ordinary Shares to be issued upon consummation of this offering under the Investors Agreement (as defined below). |
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SUMMARY FINANCIAL DATA
The following table summarizes our financial data. We have derived the following statements of operations data for the years ended December 31, 2022 and 2021 from our audited consolidated financial statements, which are included elsewhere in this prospectus. We have derived the following statements of operations data for the six months ended June 30, 2023 and 2022, and balance sheet data as of June 30, 2023 from our unaudited interim consolidated financial statements, which are included elsewhere in this prospectus. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB and its interpretations. Our historical results are not necessarily indicative of the results that may be expected in the future and interim results are not necessarily indicative of the results that may be achieved in an entire fiscal year. The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto, which are included elsewhere in this prospectus.
| Year
Ended December 31, | Six
Months Ended June 30, | |||||||||||||||
| U.S. dollars in thousands, except share and per share data | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| (Unaudited) | ||||||||||||||||
| Consolidated Statement of Comprehensive Income: | ||||||||||||||||
| Revenues | 7,264 | 9,581 | 3,096 | 1,980 | ||||||||||||
| Cost of revenue | 4,836 | 6,379 | 1,901 | 1,318 | ||||||||||||
| Gross Profit | 2,428 | 3,202 | 1,195 | 662 | ||||||||||||
| Research and development expenses | 439 | 448 | 569 | 200 | ||||||||||||
| Selling and marketing expenses | 672 | 852 | 1,989 | 348 | ||||||||||||
| General and administrative expenses | 837 | 1,255 | 965 | 392 | ||||||||||||
| Other income | - | 166 | - | - | ||||||||||||
| Operating profit (loss) | 480 | 813 | (2,328 | ) | (278 | ) | ||||||||||
| Finance income | 1,443 | - | 35 | 69 | ||||||||||||
| Finance expenses | 123 | 964 | 37 | 1,356 | ||||||||||||
| Income (loss) before income tax | 1,800 | (151 | ) | (2,326 | ) | 1,009 | ||||||||||
| Income tax expenses | 2 | 2 | - | - | ||||||||||||
| Net income (loss) | 1,798 | (153 | ) | (2,326 | ) | 1,009 | ||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Gain (loss) from remeasurement of defined benefit plans | 16 | (5 | ) | - | - | |||||||||||
| Total comprehensive income (loss) | 1,814 | (158 | ) | (2,326 | ) | 1,009 | ||||||||||
| Basic earnings (loss) per share | 0.605 | (0.051 | ) | (0.783 | ) | 0.339 | ||||||||||
| Diluted earnings (loss) per share | 0.577 | (0.051 | ) | (0.783 | ) | 0.305 | ||||||||||
| As of June 30, 2023 | ||||||||
| U.S. dollars in thousands | Actual | Pro Forma asAdjusted(1) | ||||||
| Consolidated Balance Sheet Data: | (Unaudited) | |||||||
| Cash and cash equivalents | 351 | 4,422 | ||||||
| Total assets | 4,541 | 8,612 | ||||||
| Total non-current liabilities | 155 | 155 | ||||||
| Accumulated loss | (19,780 | ) | (21,065 | ) | ||||
| Total shareholders’ equity | 1,276 | 5,569 | ||||||
| (1) | Pro forma as adjusted data gives effect to: (a) the sale of 1,075,000 Ordinary Shares in this offering, at an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses (assuming no exercise of the over-allotment option and no exercise of any of the Representative’s Warrants issued pursuant to this offering), (b) the issuance of 102,346 Ordinary Shares to be issued upon the conversion of the SAFEs upon the consummation of this offering, and (c) the issuance of 735,875 Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement as if such events had occurred on June 30, 2023. |
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You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making a decision to invest in our securities. Additional risks and uncertainties 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 and uncertainties. The trading price and value of our securities could decline due to any of these risks and uncertainties and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties faced by us described below and elsewhere in this prospectus.
Risks Related to Our Business and Industry
Our consolidated financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Our independent registered public accounting firm has included in its report for the year ended December 31, 2022 an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. Our ability to continue as a going concern is contingent upon, other factors, our ability to raise additional capital through sales of our securities, including this offering, and incurrence of debt. Additionally, future capital requirements will depend on many factors, including the rate of revenue growth, the selling price of our products, the expansion of sales and marketing activities, and the continuing market acceptance of our products. These factors raise substantial doubt about our ability to continue as a going concern. There is no assurance that additional financing will be available at terms acceptable to us or at all. If we cannot continue as a viable entity, this could materially adversely affect the value of the shares of Ordinary Shares.
A reduction in the spending patterns of government agencies or delays in obtaining government approval for our products could materially and adversely affect our net sales, results of operations, earnings and cash flow.
The demand for our products sold to the military market, the homeland security market and other government agencies is, in large part, driven by available government funding. Government budgets are set annually and may fluctuate. A significant reduction in available government funding could result in declines in our net sales, results of operations, earnings and cash flow.
A significant portion of our sales are made to government agencies (such as ministries of defense and ministries of interior affairs) or municipal parties (such as police departments, security departments and fire services), which operate in accordance with multi-year investment and work plans that are approved and budgeted by relevant government authorities. Our sales may be impacted if these government agencies divert funds to other areas, such as to the purchase of weapons or other needs. Further, because some government contracts are often for long term periods, such as three or five years, we may lose customer business for a significant period if we lose a government tender and such contract will not be reopened for bidding until such long term period nears expiration.
The markets in which we compete are highly competitive and some of our competitors have greater financial and other resources than we do. The competitive pressures faced by us could materially and adversely affect our business, results of operations and financial condition.
The military and law enforcement market and the homeland security market are highly competitive, with participants ranging in size from small companies focusing on single types of similar communication products, to large multinational corporations that manufacture and supply many types of safety products. Our main competitors vary by region and product. We believe that participants in this industry compete primarily on the basis of product characteristics (such as functional performance, technology, cost of ownership, comfort, design and style), price, service and delivery, customer support, the ability to meet the special requirements of customers, brand name trust and recognition. Some of our competitors have greater financial and other resources than we do and our business could be adversely affected by competitors’ new product innovations, technological advances made to competing products and pricing changes made by us in response to competition from existing or new competitors. We may not be able to compete successfully against current and future competitors and the competitive pressures faced by us could have a material adverse effect our business, consolidated results of operations and financial condition.
A significant portion of our revenues is derived from certain customers.
We have one customer that comprised 65.91% of our total revenues in 2021 but none of our total revenues in 2022 and 6.76% of our total revenues in the six months ended June 30, 2023. We have another customer that comprised 3.49% of our total revenues in 2021, 55.3% of our total revenues in 2022 and 14.1% of our total revenues in the six months ended June 30, 2023. The contracts entered into with these customers are generally one-off and repeated individual orders, without a term of any specific duration. There were no other customers that comprised greater than 10% of our total revenues during these years. While we consider our relationships with our major customers to be good, the reduction, delay or cancellation of orders from this customer or any delays in payments beyond their payment terms, for any reason, would reduce our revenue and operating income and could materially and adversely affect our business, operating results and financial condition in other ways.
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If any customer accounts for a significant portion of our revenue, the loss of any such customer or a material decline in our transactions with such customer would have an adverse effect on our operating results.
Our management’s strategy plans to avoid customer concentration and is expanding the customer base by growing our distributor and agent network. However, one customer accounted for a significant portion of our revenue in the year ended December 31, 2021 and another customer accounted for a significant portion of our revenue for the year ended December 31, 2022. In the six months ended June 30, 2023, two customers exceeded 10% of total revenue but no single customer exceeded 15% of our total revenue for the period. Despite our efforts to expand our customer base, we cannot assure you that we will be able to create a wide customer base in future periods.
Although we continually seek to diversify our customer base, we cannot assure you that such customer concentration will not persist. Dependence on a limited number of major customers exposes us to the risks of substantial losses if any of them reduces or ceases business with us. Specifically, any one of the following events, among others, may cause material fluctuations or declines in our revenues and have a material and adverse effect on our business, results of operations, financial condition and prospects:
| ● | an overall decline in the business of one or more of our significant customers; |
| ● | the decision by one or more of our significant customers to switch to our competitors; |
| ● | the reduction in the prices of our products agreed by one or more of our significant customers; |
| ● | the failure or inability of any of our significant customers to make timely payment for our products; or |
| ● | regulatory developments that may negatively affect the business of one or more of our significant customers or cryptocurrency mining activities in general. |
There are inherent risks whenever a large percentage of total revenues are concentrated in a limited number of customers. It is not possible for us to predict the future level of demand for our services that will be generated by these customers. In addition, revenues from these larger customers may fluctuate from time based on deal-flow, the timing of which may be affected by market conditions or other facts, some of which may be outside of our control. If any of these customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services and products which could have an adverse effect on our margins and financial position and could negatively affect our revenues and results of operations and/or trading price of our Ordinary Shares. If any of our large customers cease to procure from us, such cessation would negatively affect our revenues and results of operations and/or trading price of our Ordinary Shares. There is no assurance that we will be successful in our efforts to convince customers to accept our products. Our failure to sell our products could have a material adverse effect on our financial condition and results of operations.
For most of our sales and customers, we do not have long-term contracts. No assurance can be given that our customers will continue to do business with us. The loss of any of our significant customers will have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.
We generally do not have long-term contracts with our distributors, which makes forecasting our revenues and operating results difficult.
We generally do not enter into long-term agreements with our distributors obligating them to purchase our products. Our business is characterized by short-term purchase orders with shipment schedules within six months and we generally permit orders to be canceled or rescheduled before shipment without significant penalty. As a result, our distributors may cease purchasing our products at any time, which makes forecasting our revenues and operating results difficult. In addition, due to the absence of substantial non-cancelable backlog, we typically plan our production and inventory levels based on our distributors’ and partners’ forecasts of customer demand, which can fluctuate substantially. The uncertainty of product orders makes it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales. Moreover, our expense levels and the amounts we invest in capital equipment and new product development costs are based in part on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls and our results of operations and financial condition could be materially adversely affected.
Fluctuations in operating results make financial forecasting difficult and could adversely affect the price of our Ordinary Shares.
Our interim and annual revenues and operating results may fluctuate significantly for numerous reasons, including:
| ● | the timing of receiving purchase orders may result in revenue recognition shift due to delivery schedule;
| |
| ● | availability of electronic components to build our products; | |
| ● | the timing and cancellation of customer orders | |
| ● | cancellation of government contracts; and
| |
| ● | our ability to secure agreements from our direct and indirect distributers for the purchase of our products. |
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As a result of these and other factors, our revenues and our operating results for any one period or year may not be indictive of our future revenues or operating results. If our revenues or results of operations fall below expectations of investors or market analysts, the price of our Ordinary Shares could fall substantially.
We may incur significant costs or liabilities to satisfy obligations under the terms of the warranties we supply and the contractual terms under which we sell our products and services.
With respect to our products, we typically offer a warranty against any defects in manufacture or workmanship for a period up to one year from the date of purchase. Our customers may extend the warranty period for additional payment. An exercise of the warranty within such time is unusual based on our historical records and the expense is therefore negligible. However, we provide a reserve for these potential warranty expenses, which is based on an analysis of historical warranty issues. There is no assurance that future warranty claims will be consistent with past history and in the event that we experience a significant increase in warranty claims, there is no assurance that our reserves will be sufficient. Excessive warranty claims could have a material adverse effect on our business, financial condition and results of operations.
Our business is affected by the security, geopolitical and political conditions in the United States, Israel and across the world. Such trend may affect the demand for tactical speech and audio accessories as our Communication Devices products which may affect our business and operations.
Our business is affected by the security, geopolitical and political conditions in the United States, Israel and across the world. Unstable security conditions in the United States and Israel in particular may increase the demand for our communication devices products. Precarious political conditions may trigger sanctions, cancellation of export licenses or the stopping of manufacturing activities in a certain country which may affect our business and operations.
A cancellation of our authorized supplier approval issued by the Israeli Ministry of Defense, our security clearance and non-compliance with preconditions, rules and other regulations may affect our future revenues, cash flow and financial results for contracts with Israeli government or its agencies.
We are an authorized supplier of the Israeli Ministry of Defense and we maintain security clearance required for conducting business with them and, accordingly, we are required to comply with preconditions, rules and other regulations that apply to its engagement with the Ministry of Defense and contracts with the Israeli government or it agencies. If our authorized supplier approval with the Ministry of the Defense is cancelled or if we fail to comply with preconditions, rules and other applicable regulations it could have a material adverse effect on our operations and future revenues, cash flow and financial results.
Our earnings and margin depend on our ability to perform on our contracts.
When agreeing to contractual terms, our management team makes assumptions and projections about future conditions and events. The accounting for our contracts and programs requires assumptions and estimates about these conditions and events. These projections and estimates assess:
| ● | the productivity and availability of labor;
| |
| ● | the complexity of the work to be performed;
| |
| ● | the cost and availability of materials and components; and
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| ● | schedule requirements. |
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If there is a significant change in one or more of these circumstances, estimates or assumptions, or if the risks under our contracts are not managed adequately, the profitability of contracts could be adversely affected. This could affect earnings and margin materially.
Our earnings and margin depend in part on subcontractor and supplier performance.
We rely on other companies to provide materials, components and subsystems for our products. We depend on these subcontractors and suppliers to meet their contractual obligations in full. We manage our supplier base carefully to avoid or minimize customer issues. We sometimes rely on only one or two sources of supply that, if disrupted, could have an adverse effect on our ability to meet our customer commitments. Our ability to perform our obligations may be materially adversely affected if one or more of these suppliers is unable to provide the agreed-upon materials, perform the agreed-upon services in a timely and cost-effective manner, or engages in misconduct or other improper activities.
Damage to our reputation or the reputation of one or more of our product brands could adversely affect our business.
Developing, maintaining and enhancing our reputation, as well as the reputation of our brands, is a critical factor in our relationship with customers, distributors and others. Our inability to address negative publicity or other issues, including concerns about product safety or quality, real or perceived, could negatively impact our business which could have a material adverse effect on our business, consolidated results of operations and financial condition. In addition, any errors, defects, disruptions, or other performance problems with our products could harm our brand and may damage the safety of our end-users.
Our future success depends in part on our ability to continue to develop and improve our products and technologies and maintain a qualified workforce to meet the needs of our customers.
Many of the products and services we provide involve sophisticated technologies and engineering, with related complex manufacturing and system-integration processes. Our customers’ requirements may change and evolve. Accordingly, our future performance depends in part on our ability to continue to develop, manufacture and provide innovative products and services and bring those offerings to market quickly at cost-effective prices. Some new products must meet extensive and time-consuming regulatory requirements that are often outside our control and may result in unanticipated delays. Additionally, due to the highly specialized nature of our business, we must hire and retain the skilled and qualified personnel. To the extent that the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting or training costs in order to attract and retain such employees. If we were unable to develop new products that meet customers’ changing needs and satisfy regulatory requirements in a timely manner or successfully attract and retain qualified personnel, our future revenue and earnings may be materially adversely affected.
Claims of injuries or potential safety issues related to alleged product defects, or quality concerns against us could have a material adverse effect on our business, operating results, financial condition and liquidity.
Our mission, reputation and business success rely on our ability to design and provide safe, high quality and reliable products that earn and maintain customer trust. Our products are often used in high-risk and unpredictable environments, and we face an inherent business risk of exposure to product liability claims. In the event the parties using our products are injured or any of our products are alleged to be defective, we could be subject to claims. In addition, we may be required to or may voluntarily recall or redesign certain products or components due to concern about product safety, quality, or reliability. Any significant claims, recalls or field actions that result in significant expense or negative publicity against us could have a material adverse effect on our business, operating results, financial condition and liquidity, including any successful claim brought against us in excess or outside of available insurance coverage.
We derive a significant portion of our revenues from international sales and are exposed to the risks of doing business in multiple countries.
In 2022, our primary markets for deriving our revenues were Israel and the United States. Our non-Israel and U.S. customers, which includes international military sales, accounted for approximately 60.3% of our revenues. We expect that sales from a variety of international markets will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are exposed to the risks of doing business in multiple countries.
Government policies on international trade and investment and changes in regulatory requirements can affect the demand for our products, impact the competitive position of our products or prevent us from being able to sell or manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, financial condition and results of operations. For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations. If we were unable to navigate the foreign regulatory environment, or if we were unable to enforce our contract rights in foreign countries, our business could be adversely impacted. Any of these events could reduce our sales, limit the prices at which we can sell our products, interrupt our supply chain or otherwise have an adverse effect on our operating performance. Furthermore, volatility in international political and economic environments changes in governments’ national priorities and budgets can lead to delays or fluctuations in orders.
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While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations in the future. For example, changing tax treaties between Israel and countries to which we ship products may levy tariffs or taxes on us, which would affect our cash flow. Impacts from these or future potential tariffs, or deterioration in trade relations between Israel and one or more other countries, sanctions and other trade restrictions could have a material adverse impact on our financial position, results of operations and cash flows.
We are subject to various U.S and foreign tax laws and any changes in these laws related to the taxation of businesses and resolutions of tax disputes could adversely affect our results of operations.
The U.S. Congress, the Organization for Economic Co-operation and Development or, OECD, and other government agencies in jurisdictions in which we and our affiliates invest or do business, including the Israeli Tax Authority, have maintained a focus on issues related to the taxation of multinational companies. The OECD has changed numerous long-standing tax principles through its base erosion and profit shifting project which could adversely impact our effective tax rate.
We are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements, which could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.
We depend on the recruitment and retention of qualified personnel, including our key executives, and our failure to attract, train and retain such personnel and to maintain our corporate culture and high ethical standards could seriously harm our business.
Due to the specialized nature of our business, our future performance is highly dependent upon the continued services of our key technical personnel and executive officers, the development of additional management personnel, and the hiring of new qualified technical, manufacturing, marketing, sales and management personnel for our operations. Our defense business in particular requires qualified personnel with security clearances due to our classified programs. Competition for personnel is intense and we may not be successful in attracting, training or retaining qualified personnel with the requisite skills or security clearances. In addition, certain existing personnel may be required to receive various security clearances and substantial training in order to work on certain programs or perform certain tasks. Necessary security clearances may be delayed, which may impact our ability to perform on our U.S. government contracts. To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified personnel and successfully manage the transfer of critical knowledge. In addition, new qualified personnel may have different expectations from our current workforce, which could result in difficulties attracting and retaining new employees. Loss of key employees, increased attrition for various reasons, failure to attract new qualified employees or adequately train them, delays in receiving required security clearances, or delays in hiring key personnel could seriously harm our business. Moreover, we believe that a critical element of our ability to successfully attract, train and retain qualified personnel is our corporate culture, which we believe fosters innovation, collaboration, diversity and inclusion, and a focus on execution, all in an environment of high ethical standards. Our global operations may present challenges in maintaining these important aspects of our corporate culture. Any failure to maintain these elements of our corporate culture could negatively impact our ability to attract, train and retain essential qualified personnel who are vital to our business and the value of our company. Further, we rely on our key personnel to lead with integrity and to meet our high ethical standards that promote excellent performance and cultivate diversity, equity and inclusion. To the extent any of our key personnel were to behave in a way that is inconsistent with our values, including with respect to product safety or quality, legal or regulatory compliance, financial reporting or people management, we could experience a materially adverse impact to our reputation and our operating results.
The loss of top management and key personnel could significantly harm our business, and our ability to put in place a succession plan and recruit experienced, competent management is critical to the success of the business.
The continuity of our officers and executive team is vital to the successful implementation of our business model and growth strategy designed to deliver sustainable, consistent profitability.
Because of the specialized, technical nature of our business, we are highly dependent on certain members of our management, sales, engineering and technical staff. A top management priority has been the development and implementation of a formal written succession plan to mitigate the risks associated with the loss of senior executives. While we have a formal written succession plan in place, there is no guarantee that we will be successful in our efforts to effectively implement our succession plan. The loss of these employees could have a material adverse effect on our business, financial condition and results of operations. Our ability to effectively pursue our business strategy will depend upon, among other factors, the successful retention of our key personnel, recruitment of additional highly skilled and experienced managerial, sales, engineering and technical personnel, and the integration of such personnel obtained through business acquisitions. We cannot be certain that we will be able to retain or recruit this type of personnel. An inability to hire sufficient numbers of people or to find people with the desired skills could result in greater demands being placed on limited management resources which could delay or impede the execution of our business plans and have other material adverse effects on our business, financial condition and results of operations.
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Our business and financial performance may be adversely affected by cyber-attacks on information technology infrastructure and products.
Our business may be impacted by disruptions to our own or third-party information technology (IT) infrastructure, which could result from, among other causes, cyber-attacks on or failures of such infrastructure or compromises to its physical security. Cybersecurity threats are evolving and include, but are not limited to, both attacks on our IT infrastructure and attacks on the IT infrastructure of our customers, suppliers, subcontractors and other third parties with whom we do business routinely, both on premises and in the cloud, attempting to gain unauthorized access to our confidential or other proprietary information, classified information, or information relating to our employees, customers and other third parties, or to disrupt our systems. We have experienced cyber-based attacks, and due to the evolving threat landscape, may continue to experience them going forward, potentially with more frequency. The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries, including nation states, which target us and other defense contractors. We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cybersecurity threats. However, given the unpredictability, nature and scope of cyber-attacks, it is possible that we are unable to prevent cyber-attacks, that potential vulnerabilities could go undetected for an extended period, that we may be unsuccessful in defending an attack against those vulnerabilities, or that we may otherwise be unable to mitigate other potential consequences of these attacks. We could be exposed to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products to our customers, the compromise of confidential information, intellectual property or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our or third-party systems, networks or products, financial losses from remedial actions, loss of business, or potential liability, penalties, fines and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity. Some of these risks may be heightened due to our Company and its suppliers and other third parties operating with a significant number of employees working remotely. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted. Further, our insurance coverage may not be adequate to cover all related costs and we may not otherwise be fully indemnified for them.
Unauthorized access to our information and systems could negatively impact our business.
We face certain security threats, including threats to the confidentiality, availability and integrity of our data and systems. We maintain an extensive network of technical security controls, policy enforcement mechanisms, monitoring systems and management oversight in order to address these threats. While these measures are designed to prevent, detect and respond to unauthorized activity in our systems, certain types of attacks, including cyber-attacks, could result in significant financial or information losses and/or reputational harm. If we cannot prevent the unauthorized access, release and/or corruption of our confidential, classified or personally identifiable information, our reputation could be damaged, and/or we could face financial losses.
Business disruptions could seriously affect our future sales, results of operations and financial condition or liquidity and competitive position or increase our costs and expenses.
Our business may be impacted by disruptions including threats to physical security, information technology, or cyber-attacks or failures, damaging or extreme weather (including effects of climate change), or other acts of nature and pandemics or other public health crises. Any of these disruptions could affect our internal operations or our suppliers’ operations and delay delivery of products and services to our customers. Any significant production delays, or any destruction, manipulation or improper use of our Company or our suppliers’ data, information systems or networks could impact our sales, results of operations, financial condition or liquidity and competitive position or increase our expenses and/or have an adverse effect on our reputation and of our products and services.
The U.S. government may modify, curtail or terminate one or more of our contracts.
The U.S. government contracting party may modify, curtail or terminate its contracts and subcontracts with us, without prior notice and either at its convenience or for default based on performance. In addition, funding pursuant to our U.S. government contracts may be reduced or withheld as part of the U.S. Congressional appropriations process due to fiscal constraints, changes in U.S. national security strategy and/or priorities or other reasons. Further uncertainty with respect to ongoing programs could also result in the event that the U.S. government finances its operations through temporary funding measures such as “continuing resolutions” rather than full-year appropriations. Any loss or anticipated loss or reduction of expected funding and/or modification, curtailment or termination of one or more large programs could have a material adverse effect on our financial position, results of operations and/or cash flows.
Global inflationary pressure could negatively impact our operations and cash flows.
While inflation in the U.S. has significantly reduced, we nonetheless still face two possible inflationary pressures: a general pressure from a global inflation-related economic slowdown and the effect on the price of raw materials due to inflation. The former inflationary pressure was initially triggered by the slowdown in production and disruption to supply chains due to governmental responses to COVID-19, which was then subsequently exacerbated by the Russian Invasion of Ukraine, or the Invasion, which led to a resulting increase in fuel prices, which in turn led to worsening economic conditions stemming from a decrease in worldwide productivity. Our business has managed to maintain a continuous supply of components and raw materials to meet its customers’ needs despite increased costs and delayed shipment times. There is, however, still a risk that this global inflationary pressure could potentially impact operations and cash flows if global disruptions to the supply chain continue or are exacerbated by certain fallouts from the Invasion.
Global interest rate increases may affect our borrowing and financing costs.
Fluctuations in market interest rates may negatively affect our financial condition, the cost of financing projects, increased costs for components, higher outsourced labor costs and results of operations. We are exposed to floating interest rate risk on cash deposit and borrowings rate, and the risks due to changes in interest rates are not material. We have not used any derivative financial instruments to manage our interest risk exposure.
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Risks Related to Legal and Regulatory Matters
Our ability to market and sell our products is subject to existing government laws, regulations and standards, including by the Israeli Defense Export Control Agency within the Israeli Ministry of Defense, or DECA, and the U.S. State Department’s Directorate of Defense Trade Controls, or DDTC. Changes in such laws, regulations and standards (in Israel and in the United States) or our failure to comply with them could materially and adversely affect our results of operations.
Most of our products are required to meet performance and test standards designed to protect the safety of people around the world. Our inability to comply with these standards could result in declines in revenue, profitability and cash flow. Changes in laws and regulations could reduce the demand for our products or require us to re-engineer our products, thereby creating opportunities for our competitors. Regulatory approvals for our products may be delayed or denied for a variety of reasons that are outside of our control. Additionally, market anticipation of significant new standards can cause customers to accelerate or delay buying decisions.
In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act, or FCPA, export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, the State Department’s Directorate of Defense Trade Controls, or DDTC, and the Bureau of Industry and Security, or BIS, of the Department of Commerce. As a result of doing business in foreign countries and with foreign customers, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations.
As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the provisions of anti-bribery and anti-corruption laws in some jurisdictions extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. Some of the international locations in which we may operate lack a developed legal system and have higher than normal levels of corruption. Our continued expansion worldwide could increase the risk of FCPA, OFAC or other similar violations in the future.
We may be subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of our products, technology, operations and markets. For example, the marketing and export of defense related equipment, services, ‘know-how’ are subject to DECA’s regulation under the Defense Export Act, collectively, Israeli Trade Control Laws, which impact our operations, for example by limiting our ability to sell, export, or otherwise transfer our products or technology, or to release controlled technology to non-Israeli companies.
In the U.S., these laws include the International Traffic in Arms Regulations, or ITAR, administered by the DDTC, the Export Administration Regulations, or EAR, administered by the BIS and trade sanctions against embargoed countries and destinations administered by OFAC and collectively, American Trade Control Laws. The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called “dual use” items, and ITAR governs military items listed on the United States Munitions List, or USML. Prior to shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity and restrictions on our ability to export our parts, and repeat failures could carry more significant penalties.
We may not be able to retain licenses and other authorizations required under the applicable American Trade Control Laws and Israeli Trade Control Laws. The failure to satisfy the requirements under the American Trade Control Laws and Israeli Trade Control Laws, including the failure or inability to obtain necessary licenses or qualify for license exceptions, could delay or prevent the development, production, export, import, and/or in-country transfer of our products and technology, which could adversely affect our revenues and profitability.
If we fail to comply with complex procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.
We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts. These laws and regulations affect how we conduct business with our federal government customers. In complying with these laws and regulations, we may incur additional costs, and non-compliance may result in fines and penalties, including contractual damages. Among the more significant laws and regulations affecting our business are:
| ● | the Federal Acquisition Regulation, which comprehensively regulates the formation, administration and performance of federal government contracts;
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| ● | the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations
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| ● | the Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based federal government contracts; and |
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| ● | laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the export of certain products, services and technical data. We engage in international work falling under the jurisdiction of U.S. export control laws. Failure to comply with these control regimes can lead to severe penalties, both civil and criminal, and can include debarment from contracting with the U.S. government. |
Our contracting agency customers may review our performance under and compliance with the terms of our federal government contracts. If a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including:
| ● | termination of contracts;
| |
| ● | forfeiture of profits;
| |
| ● | cost associated with triggering of price reduction clauses;
| |
| ● | suspension of payments;
| |
| ● | fines; and
| |
| ● | suspension or debarment from doing business with federal government agencies. |
Additionally, the False Claims Act provides for substantial civil penalties where, for example, a contractor presents a false or fraudulent claim to the government for payment or approval. Civil actions under the False Claims Act may be brought by the government or by other persons on behalf of the government (who may then share a portion of any recovery).
If we fail to comply with these laws and regulations, we may also suffer harm to our reputation, which could impair our ability to win awards of contracts in the future or receive renewals of existing contracts. If we are subject to civil or criminal penalties and administrative sanctions or suffer harm to our reputation, our current business, future prospects, financial condition or operating results could be materially harmed.
The U.S. government may also revise its procurement practices or adopt new contracting rules and regulations, including cost accounting standards, at any time. Any new contracting methods could be costly to satisfy, be administratively difficult for us to implement and could impair our ability to obtain new contracts.
Our sales to the U.S. government are subject to extensive procurement regulations, and changes to those regulations could increase our costs.
New procurement regulations, or changes to existing requirements, could increase our compliance costs or otherwise have a material impact on the operating margins. Any new U.S. procurement requirements or regulations that are enacted may also result in withheld payments and/or reduced future business if we fail to comply. For example, proposals to raise domestic content thresholds for our U.S. government contracts could have negative impacts on our business. Compliance costs attributable to current and potential future procurement regulations such as these could negatively impact our financial position, results of operations and/or cash flows.
Environmental, social and corporate governance, or ESG, issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally, public interest and legislative pressure related to public companies’ ESG practices continue to grow. If our ESG practices fail to meet regulatory requirements or investor, customer, consumer, employee or other stakeholders’ evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, Board of Director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us.
Customers, consumers, investors and other stakeholders are increasingly focusing on environmental issues, including climate change, energy and water use, plastic waste and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Changing customer and consumer preferences or increased regulatory requirements may result in increased demands or requirements regarding plastics and packaging materials, including single-use and non-recyclable plastic products and packaging, other components of our products and their environmental impact on sustainability, or increased customer and consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of substances present in certain of our products. Complying with these demands or requirements could cause us to incur additional manufacturing, operating or product development costs.
If we do not adapt to or comply with new regulations, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our Company, and customers and consumers may choose to stop purchasing our products, which could have a material adverse effect on our reputation, business or financial condition.
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We are subject to Israeli and U.S. government inquiries and investigations, including periodic audits of costs that we determine are reimbursable under U.S. government contracts.
Under the Defense Export Act the Israeli Ministry of Defense and DECA have various audit and supervision powers to ensure compliance with the Defense Export Act, to which violations are subject to criminal and administrative penalties. We are also required to submit quarterly reports to DECA, and to maintain and retain records as to the information and documents pertaining to defense export transactions.
U.S. government agencies, including the Defense Contract Audit Agency and the Defense Contract Management Agency, routinely audit government contractors. These agencies review our performance under contracts, cost structure and compliance with applicable laws, regulations and standards, as well as the adequacy of and our compliance with our internal control systems and policies. Any costs found to be misclassified or inaccurately allocated to a specific contract will be deemed non-reimbursable, and to the extent already reimbursed, must be refunded. Any inadequacies in our systems and policies could result in withholds on billed receivables, penalties and reduced future business. Furthermore, if any audit, inquiry or investigation uncovers improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with the U.S. government. We also could suffer reputational harm if allegations of impropriety were made against us, even if such allegations are later determined to be false.
We are subject to governmental export and import and marketing controls in Israel and in the United States that could subject us to liability in the event of non-compliance or impair our ability to compete in international markets.
We are also subject to U.S. and Israeli export control and economic sanctions laws, which prohibit the delivery and sale of certain products to embargoed or sanctioned countries, governments and persons. Our products could be exported to these sanctioned targets by our channel partners despite the contractual undertakings they have given us and any such export could have negative consequences, including government investigations, penalties and reputational harm.
In addition, we are subject to defense-related export controls. For example, currently certain of our Communication Devices are subject to supervision under the Israeli Defense Export Control Act, 5767-2007, or the Defense Export Act, and we retain and maintain licenses from DACA for marketing activities and export limitations covered by the Defense Export Act. In particular, under the Defense Export Control Act, an Israeli company may not conduct “defense marketing activity” without a defense marketing license from the Israeli Ministry of Defense, or the MOD, and may be subject to a requirement to obtain a specific license from the MOD for any export of defense related products and/or knowhow. The definition of defense marketing activity is broad and includes any marketing of “defense equipment,” “defense knowhow” or “defense services” outside of Israel, which includes “dual-use goods and technology,” (material and equipment intended in principle for civilian use and that can also be used for defensive purposes, such as our Communication Devices) that is specified in the list of Goods and Dual-Use Technology annexed to the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, if intended for defense use only, or is specified under Israeli legislation. “Dual-use goods and technology” will be subject to control by the Ministry of Economy if intended for civilian use only.
We could be subject to liability in the event of non-compliance or impair our ability to compete in international markets (including, if we fail to submit quarterly reports to DECA, to maintain and retain records as to the information and documents pertaining to defense export transactions or to otherwise not comply with the terms of the licenses). Furthermore, there is no certainty that the above-mentioned licenses will be renewed or remain in effect. In addition, DECA may not renew such licenses when they expire and DECA may cancel them in accordance with the regulations and powers vested in DECA by law.
Furthermore, any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.
Risks Related to the Supply and Manufacturing of our Products
Disruptions of our production could adversely affect our operating results.
If we were to experience any significant disruption in the operation of our facilities, we would be unable to supply our products to our customers. Some of our sales contracts include financial penalties for late delivery. In the past, we have experienced power outages at our facilities, which generally lasted of one day. Additionally, our products could be subject to especially wide variations in manufacturing yields and efficiency. We may experience manufacturing problems that would result in delays in product introduction and delivery or yield fluctuations.
We use a variety of raw materials, supplier-provided parts, electronic and acoustic among other components, local manufacturing sub-contractors and contract manufacturing services, and significant shortages, capacity constraints, production disruptions or price increases could increase our operating costs and adversely impact the competitive positions of our products.
Our products are composed mainly of electronic components, acoustic components, connectors, cables, plastic parts and seals, that are manufactured by subcontractors in accordance with dedicated and unique specifications. Our reliance on U.S. and non-U.S. suppliers (including third-party manufacturing suppliers, subcontractors and service providers) and commodity markets to secure raw materials, parts, components and sub-systems used in our products exposes us to volatility in the prices and availability of these materials and services. In many instances, we depend upon a single source of supply, manufacturing, services support or assembly, or participate in commodity markets that may be subject to allocations of limited supplies by suppliers. Generally, the final assembly of the product is carried out in our Netanya factory. However, in certain cases, we may be required to manufacture our products locally in one of its target markets; manufacturing is carried out by sub-contractors.
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Electronic and acoustic components are commercial off-the-shelf components, while plastic components are manufactured using means of production that belong to us and are located at subcontractors’ premises.
Generally, components may be acquired and supplied within a relatively short period, and we, through our subcontractors, buy the components ahead of time, while attempting to maintain minimum inventory levels in accordance with our short-term manufacturing plan. However, a disruption in deliveries from our suppliers, supplier capacity constraints, supplier production disruptions, supplier quality issues (such as issues with defects or fraudulent parts), closing, bankruptcy or financial difficulties of our suppliers, price increases due to inflation or otherwise, or decreased availability of raw materials or commodities, including as a result of war, natural disaster, health pandemic or other business continuity events, could have a material adverse effect on our ability to meet our commitments to customers or increase our operating costs.
We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. Nonetheless, price increases, supplier capacity constraints, supplier production disruptions or the unavailability of some raw materials may have a material adverse effect on our competitive position, results of operations, financial condition or liquidity.
Our defense businesses are subject to specific procurement requirements that limit the types of materials they use, which may further limit the suppliers and subcontractors they may utilize. They also must require suppliers to comply with various governmental cybersecurity requirements.
Furthermore, our Company enters into engagement agreements with the subcontractors through specific purchase orders or as part of master agreements. Generally, our Company’s terms of payment range between 30-90 days. In exceptional cases, our Company pays in advance for the components. Our engagement agreements with some suppliers are carried out by ad-hoc orders.
We face risks related to the ongoing Russian Invasion of Ukraine
Reduced availability or higher prices for the raw materials used in manufacturing our products, other higher costs and expenses associated with the manufacturing of our products, disruptions to manufacturing of our products and supply and distribution chains and other factors that may result in higher prices or lower demand for our products arising directly or indirectly from the continuing impact of the ongoing Invasion could result in decreases from any projections of sales and margins for our business, making past performance less predictive of the future performance of our business. In addition, any deterioration in credit markets resulting directly or indirectly from the ongoing Invasion could limit our ability to obtain external financing to fund our operations and capital expenditures. We may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Adverse economic conditions may also result in a higher rate of losses on accounts receivable that we accrue in the future due to credit defaults. As a result, a downturn in the worldwide economy resulting from the Invasion and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations, and/or financial condition.
The board of directors closely follows the fallout from the Invasion and, as a result oversees any possible risks related to the Invasion, which includes, but is not limited to, risks related to cybersecurity, sanctions, employees based in affected regions, and supply chain/suppliers/service providers in affected regions as well as risks connected with ongoing or halted operations or investments in affected regions.
We do not believe that we are more vulnerable to potential cyberattacks by state actors or others since the Invasion. We maintain cybersecurity protocols and procedures we believe are appropriate for a company of our size.
Our customers who purchase our products for defense applications typically incorporate our products into their products, which are sold to the U.S. government under contracts. U.S. government contracts generally are not fully funded at inception and may be terminated or modified prior to completion, which could adversely affect our business.
Congress funds the vast majority of the federal budget on an annual basis, and Congress often does not provide agencies with all the money requested in their budget. Many of our customers’ contracts cover multiple years and, as such, are not fully funded at contract award. If Congress or a U.S. government agency chooses to spend money on other programs, our customers’ contracts may be terminated for convenience. Federal laws, collectively called the Anti-Deficiency Act, prohibit involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. Therefore, the Anti-Deficiency Act indirectly regulates how agencies award our contracts and pay our invoices. Federal government contracts generally contain provisions that provide the federal government rights and remedies not typically found in commercial contracts, including provisions permitting the federal government to, among other things: terminate our existing contracts; modify some of the terms and conditions in our existing contracts; subject the award to protest or challenge by competitors; suspend work under existing multiple year contracts and related delivery orders; and claim rights in technologies and systems invented, developed or produced by us.
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The federal government may terminate a contract with us or our customers either “for convenience” (for instance, due to a change in its perceived needs) or if we default due to our failure or the failure of a general or subcontractor to perform under the contract. If the federal government terminates a contract with one of our customers, our contract with our customers generally would entitle us to recover only our incurred or committed costs, settlement expenses and possibly retain any profit on the work that was completed prior to termination. However, under certain circumstances, our recovery costs upon termination for convenience of such a contract may be limited. As is common with government contractors, we have experienced occasional performance issues under some of our contracts. We have received Stop Work Orders wherein work is suspended pending a review of the program. We may in the future receive show-cause or cure notices under contracts that, if not addressed to the federal government’s satisfaction, could give the government the right to terminate those contracts for default or to cease procuring our services under those contracts.
In addition, U.S. government contracts and subcontracts typically involve long purchase and payment cycles, competitive bidding, qualification requirements, delays or changes in funding, extensive specification and performance requirements, price negotiations and milestone requirements. Each U.S. government agency often also maintains its own rules and regulations with which we must comply, and which can vary significantly among agencies.
Unfavorable outcomes in legal proceedings may harm our business and results of operations.
Our business and results of operations may be affected by the outcome of any future litigation, claims, investigations, legal and administrative cases and proceedings, whether civil or criminal, or lawsuits by governmental agencies or private parties. Regardless of whether or not there is merit to the claims underlying any legal proceedings to which we are subject, and regardless of whether or not we are found as a result of such proceedings to have violated any applicable laws, such proceedings can be expensive to defend or respond to, and could result in substantial costs and diversion of management’s attention and resources, which could harm our business, and potentially could cause substantial and irreparable harm to our public reputation. Moreover, if the results or settlement of these legal proceedings are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay monetary damages or may be subject to fines, penalties, injunctions or other censure that could have an adverse effect on our business, results of operations, financial condition and reputation. Further, our liability insurance coverage may not be sufficient to satisfy, or may not cover, any expenses or liabilities that may arise. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could harm our business, results of operations and financial condition.
Risks Related to Intellectual Property
Any loss or limitations on our right to use intellectual property licensed from third parties could have a material adverse effect on our business, operating results and financial condition.
We have been granted an exclusive license to use certain intellectual property. While we are not aware of any disputes between the owner of such intellectual property and us or any third party, the owner may determine not to protect the intellectual property rights that we license from it and we may be unable to defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property rights of the owner. Any loss or limitations on our right to use the intellectual property licensed from the owner could have a material adverse effect on our business, operating results and financial condition.
We consider our industry know-how proprietary but own no registered intellectual property or technology, and others may seek to copy it without compensating us.
We have no registered intellectual property rights as to the industry know-how and trade secrets that we believe we have developed relating to our decontamination chambers and pumps and certain other minor products, and we cannot be sure that others will not independently develop the same or similar industry know-how, or otherwise obtain access to or duplicate our industry know-how without compensating us. To protect our rights in these areas, we require all employees, consultants and others who work for or with us to enter into confidentiality agreements. We cannot be sure that these agreements will provide meaningful protection for our industry know-how, trade secrets or other information in the event of any unauthorized use, misappropriation or disclosure. We do not consider the grant of patents, trademarks or other registered intellectual property essential to the success of our business.
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Our results of operations may be adversely affected if we are subject to a protracted infringement claim or a claim that results in a significant damage award.
There is considerable patent and other intellectual property development activity in our industry. Our success depends on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities, may own or claim to own intellectual property rights relating to our industry and may challenge the validity or scope of our intellectual property rights. A claim may also be made relating to technology or intellectual property rights that we acquire or license from third parties. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could:
| ● | require costly litigation to resolve and the payment of substantial damages; |
| ● | significant management time; | |
| ● | cause us to enter into unfavorable royalty or license agreements; |
| ● | require us to discontinue the sale of products and solutions; |
| ● | require us to expend additional development resources to redesign our products. |
Risks Related to this Offering and Ownership of Our Securities
The market price of our Ordinary Shares may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.
Prior to this offering, there has not been a public market for our securities. Although we intend to apply to list our Ordinary Shares on the NYSE American, an active trading market for the Ordinary Shares may not develop or be sustained. If an active trading market for our Ordinary Shares does not develop following this offering, you may not be able to sell your Ordinary Shares quickly or at the market price. The initial public offering price for the Ordinary Shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the trading market.
The trading price of each of our Ordinary Shares is likely to be volatile. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of such securities:
| ● | overall performance of the equity markets and/or publicly-listed companies; | |
| ● | actual or anticipated fluctuations in our net revenue or other operating metrics; | |
| ● | changes in the financial projections we provide to the public or our failure to meet these projections; | |
| ● | failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet the estimates or the expectations of investors; | |
| ● | the economy as a whole and market conditions in our industry; |
| ● | rumors and market speculation involving us or other companies in our industry; |
| ● | the depth of the trading market in our Ordinary Shares; |
| ● | announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| ● | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
| ● | lawsuits threatened or filed against us; |
| ● | recruitment or departure of key personnel; and |
| ● | other events or factors, including those resulting from war, public health concerns and epidemics, incidents of terrorism or responses to these events. |
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In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance. Further, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.
The trading price of our Ordinary Shares is likely to be volatile, which could result in substantial losses to investors.
Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.
In addition, the price and trading volume for our Ordinary Shares may be highly volatile for factors specific to our own operations, including the following:
| · | overall performance of the equity markets and/or publicly-listed companies; |
| · | variations in our income, earnings and cash flow; |
| · | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| · | announcements of new services 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; |
| · | release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and |
| · | potential litigation or regulatory investigations. |
The impact of one or more of the foregoing or other factors may cause our results of operations to vary significantly. Such fluctuations make forecasting more difficult and could cause us to fail to meet the expectations of investors and securities analysts, which could cause the trading price of our Ordinary Shares to fall substantially, resulting in the loss of all or part of your investment, and subject us to costly lawsuits, including securities class action suits.
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We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will become subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of operating as a public company or the timing of such costs.
We believe that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and skilled executive officers. As a result of disclosure of information in our publicly-filed documents, our business and financial condition will become more visible, which we believe may result in potential or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be materially adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect our business, financial condition and operating results.
Section 404 of the Sarbanes-Oxley Act requires us to assesses the effectiveness of our internal controls over financial reporting, which assessment, as a private company, we have not yet performed.
We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act, or Section 404 and, therefore, are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a publicly traded company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of control over financial reporting. Though we will be required to disclose material changes in internal control over financial reporting on an annual basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC.
Additionally, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
We currently have limited accounting personnel and we have begun the process of evaluating the adequacy of our accounting personnel staffing level and other matters related to our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses once we are a public company, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. As a result, the market price of our Ordinary Shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Raising additional capital would cause dilution to our existing shareholders and may adversely affect the rights of existing shareholders.
We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the issuance of equity (such as this offering) or otherwise including through 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 shareholder. Future sales of our Ordinary Shares or of securities convertible into our Ordinary Shares, or the perception that such sales may occur, could cause immediate dilution and adversely affect the market price of our Ordinary Shares.
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If you purchase Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The assumed public offering price of the Ordinary Shares being offered hereby is substantially higher than the net tangible book value per share of our outstanding Ordinary Shares. Therefore, if you purchase securities in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible book value per Ordinary Share after this offering. To the extent outstanding options are exercised, you will incur further dilution. Based on an assumed offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $3.27 per Ordinary Share, representing the difference between our pro forma net tangible book value per Ordinary Share after giving effect to this offering and the offering price. See “Dilution” for further information.
Our articles of association to be in effect upon the consummation of this offering provide that, unless we consent to an alternative forum, the federal district courts of the United States shall be the exclusive forum for resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our shareholders’ ability to choose the judicial forum for disputes with us, our directors, shareholders, or other employees.
Our articles of association to be in effect upon the consummation of this offering provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for U.S. federal and state courts over all such Securities Act actions. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our articles of association to be in effect upon the consummation of this offering provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. This exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, and our shareholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations promulgated under the Securities Act or the Exchange Act as a result of our exclusive forum provision.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to the foregoing provision of our articles of association. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suits, or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provision in our articles of association. If a court were to find the exclusive forum provision contained in our articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.
Although we believe the exclusive forum provision benefit us by providing increased consistency in the application of U.S. federal securities laws or the Israeli Companies Law, 5759-1999, or the Companies Law, as applicable, in the types of lawsuits to which they apply, such exclusive forum provision may limit a shareholder’s ability to bring a claim in the judicial forum that they find favorable and may increase certain litigation costs for disputes with us or any of our directors, shareholders, officers, or other employees, which may discourage lawsuits with respect to such claims against us and our current and former directors, shareholders, officers, or other employees.
If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business or our market, or if they change their recommendations regarding our Ordinary Shares adversely, the trading price or trading volume of our Ordinary Shares could decline.
The trading market for our Ordinary Shares will be influenced in part by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade our Ordinary Shares, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, the market prices of our Ordinary Shares would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Ordinary Shares to decline.
We do not know whether a market for the Ordinary Shares will be sustained or what the trading price of the Ordinary Shares will be and as a result it may be difficult for you to sell your Ordinary Shares.
Although we intend to list our Ordinary Shares on the NYSE American, an active trading market for the Ordinary Shares may not be sustained. It may be difficult for you to sell your Ordinary Shares without depressing the market price for the Ordinary Shares or at all. As a result of these and other factors, you may not be able to sell your Ordinary Shares at or above the offering price or at all. Further, an inactive market may also impair our ability to raise capital by selling Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies, products, or services by using our equity securities as consideration.
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Sales, or the perception of future sales, of a substantial number of our Ordinary Shares in the public market by our existing shareholders could cause our share price to fall.
Sales of a substantial number of our Ordinary Shares in the public market or the perception that these sales might occur, could depress the market price of our Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Ordinary Shares. While Ordinary Shares sold to non-affiliates in this offering will be freely tradable, without restriction, in the public market, approximately 3,912,682 of the outstanding Ordinary Shares prior to this offering are expected to be subject to lock-up agreements with the underwriters of this offering that restrict the ability of these shareholders to transfer our Ordinary Shares held by them for at least 180 days from the date of this prospectus. These outstanding shares that are subject to lock-up agreements are expected to become eligible for unrestricted sale upon expiration of the lockup period, as described in the section of this prospectus entitled “Shares Eligible for Future Sale.” In addition, Ordinary Shares issued or issuable upon exercise of options vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of shares by these shareholders could have a material adverse effect on the trading price of our Ordinary Shares.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.
Our principal shareholders and management own a significant percentage of our Ordinary Shares and will be able to exert significant influence over matters subject to shareholder approval.
After the closing of this offering, our executive officers, directors, five percent shareholders and their affiliates will, in the aggregate, beneficially own approximately 70.51% of our Ordinary Shares (assuming no exercise of the underwriters’ over-allotment option). Therefore, these shareholders, and in particular, our largest shareholder, Mr. Nir Klein, will have the ability to influence us through their ownership positions. These shareholders may be able to determine all matters requiring shareholder approval. For example, these shareholders, acting together, may be able to control elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our Ordinary Shares that you may believe are in your best interest as one of our shareholders.
Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively.
Our management will have broad discretion in the allocation of the net proceeds and could use them for purposes other than those contemplated at the time of this offering and as described in the section titled “Use of Proceeds.” Our management could spend the proceeds in ways that you do not agree with or that do not improve our results of operations or enhance the value of our Ordinary Shares.
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We may be a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of the Ordinary Shares if we are or were to become a PFIC.
Based on the composition of our income and valuation of our assets, we were not a PFIC for 2022 and we do not expect to become a PFIC in the future, although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of the Ordinary Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year during which a U.S. taxpayer holds the Ordinary Shares, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of the Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the Ordinary Shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held the Ordinary Shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold the Ordinary Shares if we believe we will be treated as a PFIC for any taxable year in order to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. taxpayers annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold the Ordinary Shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to the Ordinary Shares in the event that we are a PFIC. See “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
We have not paid, and do not intend to pay, dividends on our Ordinary Shares and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our Ordinary Shares.
We have never declared or paid any dividends on our Ordinary Shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant. The Companies Law imposes restrictions on our ability to declare and pay dividends. See “Dividend Policy.”
As a “foreign private issuer” we are subject to less stringent disclosure requirements than domestic registrants and are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and NYSE American requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. registrants.
As a foreign private issuer, we may be subject to different disclosure and other requirements than domestic U.S. registrants. For example, as a foreign private issuer we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Israeli legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
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We will follow Israeli laws and regulations that are applicable to Israeli companies. However, Israeli laws and regulations applicable to Israeli companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic registrants that are non-accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Israeli laws and regulations which we believe will have substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Israeli law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. registrant.
These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.
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, 2024. In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens and/or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic registrant may be significantly higher.
As a “controlled company” within the meaning of the NYSE American rules, we qualify for exemptions from certain corporate governance standards. We do not currently expect or intend to rely on any of these exemptions, but we cannot assure that we will not rely on these exemptions in the future.
For purposes of the NYSE American rules, we are a “controlled company”, meaning a company over which 50% of the voting power for the election of directors is held by an individual a group, or another company. Since Mr. Ron Klein and Mr. Nir Klein will hold together 52.11% of our Ordinary Shares immediately after the consummation of this offering, assuming the sale of all Ordinary Shares we are offering, which means that they control 52.11% of our voting power, we are eligible for exemptions from certain NYSE American corporate governance standards.
Under the NYSE American rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:
| ● | a majority of the board of directors consist of independent directors; |
| ● | the nominating committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| ● | the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. |
We have decided not to rely on or avail ourselves of the exemptions available for controlled companies under NYSE American rules. However, our decision not to rely on the “controlled company” exemption could change and we cannot assure that we will not rely on these exemptions in the future. If we make such an election, we would disclose such reliance in our next annual report on Form 20-F or annual meeting proxy statement and you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE American. In the event that we cease to be a controlled company within the meaning of the applicable rules of the NYSE American, and at such time we have availed ourselves of such corporate governance exemptions available to controlled companies, we will then be required to comply with these requirements after specified transition periods.
The JOBS Act allows us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our Company and adversely affect the market price of our Ordinary Shares.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:
| ● | The provisions of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; |
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| ● | Section 107 of the JOBS Act, which 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 for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. As a result of this adoption, our financial statements may not be comparable to companies that comply with the public company effective date; |
| ● | Any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements; and |
| ● | Our ability to furnish two rather than three years of income statements and statements of cash flows in various required filings. |
We intend to take advantage of these exemptions until we are no longer an “emerging growth company.” We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, as defined in the rule under the Exchange Act as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We cannot predict if investors will find our Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for each such traded security, and the trading price of each may be more volatile and may decline.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
The requirements associated with being a public company will require significant company resources and management attention.
Following this offering, we will become subject to the reporting requirements of the Exchange Act, NYSE American listing requirements and other applicable securities rules and regulations. The Exchange Act requires that we file periodic reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and the NYSE American may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses that we did not incur as a non-public company, particularly if we are no longer an “emerging growth company” as defined in the JOBS Act. In the period following this offering, we estimate that these expenses will be at least several hundred thousand dollars annually. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our development plans. We have made changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. The measures we take, however, may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our Ordinary Shares, fines, sanctions and other regulatory action and potentially civil litigation.
Risks Related to Israeli Law and Our Operations in Israel
Potential political, economic and military instability in the State of Israel, where our headquarters, members of our management team, our production and research and development facilities are located, may adversely affect our results of operations.
Our executive offices and research and development facilities are located in Netanya, Israel. In addition, the majority of our employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and groups in its neighboring countries, Hamas (an Islamist militia and political group that has historically controlled the Gaza Strip) and Hezbollah (an Islamist militia and political group based in Lebanon). In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terrorist activities, political instability or violence in the region or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations and the market price of our Ordinary Shares.
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Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering 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, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.
Further, 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 certain reservists) 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.
Additionally, having already passed into law a bill that removes the power of the Israeli judiciary to strike down legislation it deems unreasonable, the Israeli government also announced its plans to pass into legislation other judicial reforms that would, for example, increase political influence over the selection of judges. These plans have been met with mass protests in Israel and criticism from leading Israeli business leaders and certain foreign leaders. If such government plans are eventually enacted, they may cause operational challenges for us since we are headquartered in Israel and the majority of our employees are located in Israel. In addition, if foreign policy is negatively impacted with regard to Israel, this could impact our business with suppliers and customers which could in turn adversely impact our reputation, results of operations or financial condition.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted an orchestrated series of attacks on civilian and military targets, resulting in the mass death, maiming and kidnapping of civilians and soldiers. Hamas also launched extensive rocket attacks on Israeli population and industrial centers in Israel. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks.
Following the attack, the Israeli government declared that the country was at war and the Israeli military began to call up reservists for active duty, including one of our employees, in anticipation of an active military campaign. While none of our facilities or infrastructure have been damaged nor have our supply chains been impacted since the war broke out on October 7, 2023, the import and export of goods may experience disruptions in and out of Israel as a result of such military conflict. A prolonged war could result in further military reserve duty call-ups in the future as well as irregularities to our supply chain and the movement of components and raw material into Israel and our finished products exported from Israel, which could disrupt our operations. Such disruption could materially adversely affect our business, prospects, financial condition and results of operations.
The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are its economic implications on the Company’s business and operations and on Israel’s economy in general.
Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our business. The political and security situation in Israel may result in parties, with whom we have contracts, claiming that they have been discharged from performance, based on force majeure provisions. Political and economic implications of these hostilities, therefore, could harm our operations and product development.
Any hostilities involving Israel and the potential interruption and curtailment of trade between Israel and its trading partners could adversely affect our operations and make it more difficult for us to raise capital. We may experience disruptions if acts associated with such hostilities result in serious damage to our business and manufacturing facilities. Our business interruption insurance may not adequately compensate us for potential losses that may occur as a result of events associated with the security situation in the Middle East. Any losses or damages incurred by us could have a material adverse effect on our business.
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Our financial performance is subject to risks associated with changes in the value of the U.S. dollar, Israeli shekel, versus local currencies.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of our foreign currency-denominated sales and earnings, and generally leads us to raise international pricing, potentially reducing demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of the Israeli shekel or foreign currencies relative to the U.S. dollar will increase our Israeli operations costs and could cause us to increase our international pricing and become less competitive. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.
We may not be able to enforce covenants not-to-compete under current Israeli law that might result in added competition for our products.
We have non-competition agreements with all of our executive officers and the majority of our key employees, all of which are governed by Israeli law. These agreements prohibit our employees from competing with or working for our competitors, generally during their employment and for up to a range of 3-12 months after termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively brief periods of time in restricted geographical areas, and only when the employee has obtained unique value to the employer specific to that employer’s business and not just regarding the professional development of the employee. If we are not able to enforce non-compete covenants, we may be faced with added competition.
We may be required to pay monetary remuneration to our Israeli employees for their inventions, even if the rights to such inventions have been duly assigned to us.
We enter into agreements with our Israeli employees pursuant to which such individuals agree that any inventions created in the scope of their employment are either owned exclusively by us or are assigned to us, depending on the jurisdiction, without the employee retaining any rights. A portion of our intellectual property has been developed by our Israeli employees during their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the course of his or her employment and within the scope of said employment are considered “service inventions.” Service inventions belong to the employer by default, absent a specific agreement between the employee and employer otherwise. The Patent Law also provides that if there is no agreement regarding the remuneration for the service inventions, even if the ownership rights were assigned to the employer, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for these inventions. The Committee has not yet determined the method for calculating this Committee-enforced remuneration. Case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Although our Israeli employees have agreed that we exclusively own any rights related to their inventions, we may face claims demanding remuneration in consideration for employees’ service inventions. As a result, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors and the Israeli experts named in this prospectus in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts.
We were incorporated in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court (see “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus).
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Provisions of Israeli law and our articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, us, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of our Company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect their fair market value, and petition an Israeli court to alter the consideration for the acquisition accordingly, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published all required information with respect to the tender offer prior to the tender offer’s response date.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfilment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Our articles of association to be effective upon the closing of this offering may be deemed to have an anti-takeover effect.
Certain provisions of our articles of association to be effective upon the closing of this offering may make a change in control of us more difficult to effect. Our articles of association will provide for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our shareholders. This classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of shareholders, instead of one, will generally be required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may delay, defer or prevent an attempt to change control of us, even though a change in control might be considered by our shareholders to be in their best interest.
Your rights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S. companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in such company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval, as well as a general duty to refrain from discriminating against other shareholders. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. companies.
The termination or reduction of tax and other incentives that the Israeli government provides to Israeli companies may increase our costs and taxes.
The Israeli government currently provides tax and capital investment incentives to Israeli companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli government has reduced the benefits available under these programs and the Israeli governmental authorities may in the future further reduce or eliminate the benefits of these programs. We may take advantage of these benefits and programs in the future; however, there can be no assurance that such benefits and programs will be available to us. If we qualify for such benefits and programs and fail to meet the conditions thereof, the benefits could be cancelled and we could be required to refund any benefits we might already have enjoyed and become subject to penalties. Additionally, if we qualify for such benefits and programs and they are subsequently terminated or reduced, it could have an adverse effect on our financial condition and results of operations.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | our ability to maintain our business models; | |
| ● | our ability to correctly predict the market growth; | |
| ● | our ability to secure government tenders and maintain relationships with government contractors; | |
| ● | the acceptance of our technology and headset devices in the industry as opposed to communications devices currently on the market; | |
| ● | our ability to retain our key employees; | |
| ● | our ability to maintain, protect, and enhance our intellectual property; | |
| ● | our ability to raise capital through the issuance of additional securities; | |
| ● | a resurgence of COVID-19 or spread of other infectious disease and resulting government actions on us; | |
| ● | the impact of competition and new technologies; | |
| ● | general market, political and economic conditions in the countries in which we operate, including as a result of Israel’s war with Hamas; | |
| ● | projected capital expenditures and liquidity; | |
| ● | our ability to maintain our relationships with suppliers, manufacturers and other partners; | |
| ● | changes in our strategy; and | |
| ● | litigation. |
These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.
30
We have applied to list the Ordinary Shares on the NYSE American under the symbol “SYNX” . This offering is contingent upon the Ordinary Shares being listed; however, no assurance can be given that our listing application will be approved by the NYSE American or that a liquid trading market will develop. As of the date of this prospectus our only listed class of securities will be Ordinary Shares outstanding. All of the Ordinary Shares have the same rights and privileges. See “Description of Share Capital.”
We expect to receive approximately $4.0 million in net proceeds from the sale of the securities offered by us in this offering (approximately $4.74 million if the underwriters exercise their over-allotment option in full), based upon an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
A $1.00 increase or decrease in the assumed public offering price of $5.00 per Ordinary Share would increase or decrease the proceeds from this offering by approximately $0.99 million, assuming that the number of Ordinary Shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 100,000 Ordinary Shares offered would increase or decrease our proceeds by approximately $0.46 million, assuming the assumed public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We currently expect to use the net proceeds from this offering for the following purposes:
| ● | approximately $1.5 million for marketing and business development; | |
| ● | approximately $1.0 million for research and development; and | |
| ● | the remainder for working capital and general corporate purposes. |
To the extent the underwriters exercise their over-allotment option or any Representative’s Warrants are exercised, we currently expect to use the net proceeds from such exercise for working capital and general corporate purposes, including potential acquisitions.
Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our global marketing and sales efforts, the development efforts and the overall economic environment. Therefore, our management will retain broad discretion over the use of the proceeds from this offering. We may ultimately use the proceeds for different purposes than what we currently intend. Pending any ultimate use of any portion of the proceeds from this offering, if the anticipated proceeds will not be sufficient to fund all the proposed purposes, our management will determine the order of priority for using the proceeds, as well as the amount and sources of other funds needed.
Pending our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.
31
We have never declared or paid any cash dividends on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Under the Companies Law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distribution according to our then last reviewed or audited consolidated financial statements, provided that the end of the period to which the consolidated financial statements relate is not more than six months prior to the date of distribution. In the event that we do not meet such earnings criteria, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
Payment of dividends may be subject to Israeli withholding taxes. See “Taxation—Israeli Tax Considerations and Government Programs” for additional information.
32
The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2023:
| ● | on an actual basis; | |
| ● | on a pro forma as adjusted basis to give effect to (a) the sale of 1,075,000 Ordinary Shares in this offering, at an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses and assuming no exercise of the over-allotment option and no exercise of any of the Representative’s Warrants issued pursuant to this offering, (b) the issuance of 102,346 Ordinary Shares to be issued upon the conversion of SAFEs upon the consummation of this offering, and (c) the issuance of 735,875 Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement, as if such events had occurred on June 30, 2023. |
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
You should read this table in conjunction with the sections titled “Summary Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
| As of June 30, 2023 | ||||||||
| U.S. dollars in thousands | Actual | Pro Forma as | ||||||
| (Unaudited) | ||||||||
| Cash and cash equivalents | $ | 351 | $ | 4,422 | ||||
| Loans from interested parties and others | 33 | 33 | ||||||
| Non-Current Liabilities | 155 | 155 | ||||||
| Shareholders’ equity (deficit): | ||||||||
| Share capital | 52 | 0 | ||||||
| Premium on shares and other capital reserves | 19,462 | 25,092 | ||||||
| Share based payment capital reserve | ||||||||
| Warrants | 0 | 0 | ||||||
| Capital reserve for transactions with controlling shareholders | 1,542 | 1,542 | ||||||
| Accumulated loss | $ | (19,780 | ) | $ | (21,065 | ) | ||
| Total shareholders’ equity | $ | 1,276 | $ | 5,569 | ||||
| Total capitalization | $ | 1,431 | $ | 5,724 | ||||
| (1) | A $1.00 increase or decrease in the assumed public offering price of $5.00 per Ordinary Share would increase or decrease the amount of each of cash and cash equivalents and total shareholders’ equity by approximately $0.99 million, assuming that the number of Ordinary Share offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A 100,000 increase or decrease in the number of Ordinary Shares offered by us would increase or decrease each of cash and cash equivalents and total shareholders’ equity by approximately $0.46 million after deducting estimated underwriting discounts and commissions and any estimated offering expenses payable by us. |
| (2) | If the underwriters’ over-allotment option is exercised in full, as adjusted cash and cash equivalents, total shareholders’ equity (deficit), total capitalization, and Ordinary Shares outstanding as of June 30, 2023, would be $5.164 million, $6.311 million, $6.5 million, and 5,236,250 shares, respectively. |
The number of the Ordinary Shares to be outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold and is based on 3,161,779 Ordinary Shares outstanding as of June 30, 2023. This number excludes:
| ● | 454,105 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our share incentive plan, outstanding as of June 30, 2023, at a weighted average exercise price of $2.15, of which 454,105 were vested as of June 30, 2023; |
| ● | 53,624 Ordinary Shares issuable upon exercise of warrants issued to an employee, at an exercise price of NIS 2.965; and |
| ● | 696,171 Ordinary Shares reserved for future issuance under the ESOP. |
Unless otherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the Representative’s Warrants; |
| ● | no exercise of the underwriters’ over-allotment option; |
| ● | no exercise of the outstanding options described above; |
| ● | 102,346 Ordinary Shares issuable upon the conversion of SAFEs for aggregate proceeds of NIS 1.14 million (approximately $342 thousand), which will automatically convert upon the consummation of this offering, based on an offering price of $5.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and |
| ● | 735,875 Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement. |
33
If you invest in our securities, your interest will be diluted immediately to the extent of the difference between the public offering price per Ordinary Share you will pay in this offering and the pro forma net tangible book value per Ordinary Share after this offering.
As of June 30, 2023, we had a net tangible book value of $1,276 thousand, corresponding to a net tangible book value of $0.40 per Ordinary Share. Net tangible book value per share or per Ordinary Share represents the amount of our total tangible assets less our total liabilities, divided by 3,161,779, the total number of Ordinary Shares issued and outstanding on June 30, 2023.
After giving effect to (i) the issuance and sale of the securities offered by us in this offering, assuming no exercise of the underwriters’ over-allotment option and no exercise of any of the Representative’s Warrants issued pursuant to this offering, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the issuance of Ordinary Shares issuable upon the closing of this offering in connection with the conversion of certain outstanding loans, our as adjusted net tangible book value estimated at June 30, 2023 would have been approximately $5.57 million, representing $1.1 per Ordinary Share. Based on the assumed public offering price of $5.00 per Ordinary Share which is the midpoint of the price range set forth on the cover page of this prospectus, this represents an immediate increase in historical net tangible book value of $0.69 per Ordinary Share to existing shareholders and an immediate dilution in net tangible book value of $3.9 per Ordinary Share to purchasers of Ordinary Shares in this offering. Dilution for this purpose represents the difference between the price per Ordinary Share paid by investors in this offering and as adjusted net tangible book value per Ordinary Share immediately after the completion of this offering.
The following table illustrates this dilution on a per Ordinary Share basis to purchasers of Ordinary Shares in this offering:
| Assumed public offering price per Ordinary Share | $ | 5.00 | ||
| Net tangible book value per share as of June 30, 2023 | $ | 0.40 | ||
| Increase in net tangible book value per Ordinary Share attributable to new investors | $ | 0.69 | ||
| As adjusted net tangible book value per Ordinary Share after this offering | $ | 1.1 | ||
| Dilution per Ordinary Share to new investors | $ | 3.9 | ||
| Percentage of dilution in net tangible book value per Ordinary Share for new investors | 78.05 | % |
The dilution information set forth in the table above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
A $1.00 increase or decrease in the assumed initial public offering price of $5.00 per Ordinary Share would increase or decrease our as adjusted net tangible book value per Ordinary Share after this offering by $0.19 and the dilution per Ordinary Share to new investors by $0.81, assuming the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the over-allotment option and no exercise of any of the Representative’s Warrants issued pursuant to this offering. We may also increase or decrease the number of Ordinary Shares we are offering. An increase or decrease of 100,000 in the number of Ordinary Shares offered by us would increase or decrease our as adjusted net tangible book value after this offering by approximately $0.46 million and the increase or decrease as adjusted net tangible book value per Ordinary Share after this offering by $0.07 per Ordinary Share and would increase or decrease the dilution per Ordinary Share to new investors by $0.07, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and estimated offering expenses payable by us.
34
The information above assumes that the underwriters do not exercise their over-allotment option. If the underwriters exercise their over-allotment option in full for Ordinary Shares, the as adjusted net tangible book value for the offering will increase to $1.21 per Ordinary Share, representing an immediate increase to existing shareholders of $0.80 per Ordinary Share and an immediate dilution of $3.8 per Ordinary Share to new investors.
The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise or conversion of outstanding options having a per share exercise or conversion price less than the per Ordinary Share initial public offering price in this offering.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.
The following table summarizes, on an as adjusted basis as of June 30, 2023, the differences between the number of Ordinary Shares acquired from us, the total amount paid and the average price per Ordinary Share paid by the existing holders of our Ordinary Shares and by investors in this offering and based upon an assumed public offering price of $5.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
| Shares | Total Consideration | Average Price Per Ordinary | ||||||||||||||||||
| Number | Percent | Amount | Percent | Share | ||||||||||||||||
| Existing shareholders | 4,000,000 | 78.82 | % | $ | 1,824 | 32.75 | % | $ | 0.46 | |||||||||||
| New investors | 1,075,000 | 21.18 | % | $ | 3,745 | 67.25 | % | $ | 5.00 | |||||||||||
| Total | 5,075,000 | 100.0 | % | $ | 5,569 | 100 | % | $ | 1.10 | |||||||||||
The number of the Ordinary Shares to be outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold and is based on 3,161,779 Ordinary Shares outstanding as of June 30, 2023. This number excludes:
| ● | 454,105 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our share incentive plan, outstanding as of June 30, 2023, at a weighted average exercise price of $2.15, of which 454,105 were vested as of June 30, 2023; |
| ● | 53,624 Ordinary Shares issuable upon exercise of warrants issued to an employee, at an exercise price of NIS 2.965; and |
| ● | 696,171 Ordinary Shares reserved for future issuance under the ESOP. |
Unless otherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the Representative’s Warrants; |
| ● | no exercise of the underwriters’ over-allotment option; |
| ● | no exercise of the outstanding options described above; |
| ● | 102,346 Ordinary Shares issuable upon the conversion of SAFEs for aggregate proceeds of NIS 1.14 million (approximately $342 thousand), which will automatically convert upon the consummation of this offering, based on an offering price of $5.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and |
| ● | 735,875 Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement |
If all of such issued and outstanding options had been exercised as of June 30, 2023, the number of Ordinary Shares held by existing shareholders would increase to 3,669,508, or 66% of the total number of Ordinary Shares outstanding after this offering (in each case, not taking into account the conversion of SAFEs and the issuance of Ordinary Shares to Investors Agreement investors as described above), and the average price per Ordinary Share paid by the existing shareholders would be $0.67.
If the underwriters exercise their option to purchase additional Ordinary Shares in full in this offering, the number of Ordinary Shares held by new investors will increase to 1,236,250, or 23.6% of the total number of Ordinary Shares issued and outstanding after this offering and the percentage of Ordinary Shares held by existing shareholders will decrease to 60.38% of the total Ordinary Shares issued and outstanding (in each case, not taking into account the conversion of SAFEs and the issuance of Ordinary Shares to Investors Agreement investors as described above).
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with both our audited consolidated financial statements as of and for the years ended December 31, 2022, and 2021 and our unaudited interim consolidated financial statements as of and for the six months ended June 30, 2023, and 2022, and the accompanying notes included elsewhere in this prospectus. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and under “Risk Factors” elsewhere in this prospectus.
Overview
For over a decade, we have been developing, manufacturing, marketing and selling ruggedized tactical communication headset devices (“Personal Headset Devices”) as well as other communications accessories, all of which have been battlefield-tested and combat-proven. We specialize in developing the In-Ear Headset device, a subsegment of the Personal Headset Device market. The In-Ear Headset device is used in both in training and operations by the military, law enforcement, and disaster recovery industry professionals. Our agility, innovation, pricing, and technical performance have enabled us to gain early traction in commercial and industrial markets where a growing emphasis is being placed on safety and reducing certain long-term health issues related to hearing loss as a result of working on the factory floor.
Our In-Ear Headsets seamlessly integrate with third-party manufactured, professional-grade ruggedized radios sold to these aforementioned markets. The key driving factors in the growth of our business has been the recent dramatic growth in the In-Ear Headset subsegment of the Personal Headset Device market coupled with our unique ergonomic design and technology which enables users to both speak and hear clearly and precisely, providing the 360° situational awareness that they require while simultaneously protecting them from hazardous sounds around them.
In addition, we also develop, market and sell push-to-talk devices, communication controllers, and communication device cables and connectors. Our products are designed to be compatible with other products that we offer and compatible with other third-party communication products available in the market that are used by our customers.
Components of Our Results of Operations
Revenues
Our revenues primarily consist of the sale of our products.
Set forth below is a table presenting breakdown of our revenues by our two product groups in the periods presented:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Unaudited | ||||||||||||||||
| Product group | Amount (in USD thousands) | |||||||||||||||
| In-Ear Headset systems | 6,038 | 8,697 | 2,143 | 1,395 | ||||||||||||
| SST Headset systems | 749 | 840 | 678 | 267 | ||||||||||||
| Other revenues | 477 | 44 | 275 | 318 | ||||||||||||
Set forth below is information about our revenues from sale of our products by geography for the periods presented:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Geography | Revenue (in USD thousands) | Revenue (in USD thousands) Unaudited | ||||||||||||||
| Israel | 5,423 | 1,010 | 1,260 | 1,131 | ||||||||||||
| Europe | 146 | 89 | 78 | 46 | ||||||||||||
| Asia | 127 | 6,324 | 1,015 | 38 | ||||||||||||
| USA | 1,477 | 2,064 | 623 | 738 | ||||||||||||
| Other | 91 | 94 | 120 | 27 | ||||||||||||
36
Operating Expenses
Our current operating expenses consist of three components — research and development expenses, selling and marketing expenses and general and administrative expenses.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and related personnel expenses, subcontractor’s expenses and other related research and development expenses.
The following table discloses the breakdown of research and development expenses for the periods presented:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| U.S. dollars in thousands | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Unaudited | ||||||||||||||||
| Salaries and related expenses | 311 | 381 | 527 | 130 | ||||||||||||
| Purchases | 6 | 7 | 3 | 3 | ||||||||||||
| Professional consulting | 91 | 32 | 15 | 39 | ||||||||||||
| Depreciation and amortization | 9 | 0 | 10 | 5 | ||||||||||||
| Other | 22 | 28 | 14 | 23 | ||||||||||||
| Total | 439 | 448 | 569 | 200 | ||||||||||||
We expect that our research and development expenses will materially increase as we continue to develop our products and recruit additional research and development employees.
Selling and marketing expenses
Our selling and marketing expenses consist primarily of consultants and other marketing and sales expenses.
The following table presents a breakdown of selling and marketing expenses for the periods presented:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| U.S. dollars in thousands | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Unaudited | ||||||||||||||||
| Salaries and related expenses | 537 | 679 | 1,877 | 249 | ||||||||||||
| Exhibitions and advertising | 38 | 43 | 40 | 47 | ||||||||||||
| Depreciations and amortization | 23 | 3 | 13 | 11 | ||||||||||||
| Other | 74 | 127 | 59 | 41 | ||||||||||||
| Total | 672 | 852 | 1,989 | 348 | ||||||||||||
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, professional service fees for accounting, legal and bookkeeping, facilities, travel expenses and other general and administrative expenses.
The following table presents a breakdown of general and administrative expenses for the periods presented:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| U.S. dollars in thousands | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Unaudited | ||||||||||||||||
| Salaries and related expenses | 529 | 444 | 841 | 251 | ||||||||||||
| Professional services | 102 | 279 | 43 | 30 | ||||||||||||
| Rent and maintenance | 60 | 110 | 28 | 32 | ||||||||||||
| Depreciation and amortization | 10 | 41 | 12 | 4 | ||||||||||||
| Other | 136 | 381 | 41 | 75 | ||||||||||||
| Total | 837 | 1,255 | 965 | 392 | ||||||||||||
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Results of Operations
The following table sets forth our results of operations for the periods presented:
| Year
Ended December 31, |
Six
Months Ended June 30, |
|||||||||||||||
| U.S. dollars in thousands, except share and per share data | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Unaudited | ||||||||||||||||
| Revenues | 7,264 | 9,581 | 3,096 | 1,980 | ||||||||||||
| Cost of revenue | 4,836 | 6,379 | 1,901 | 1,318 | ||||||||||||
| Gross profit | 2,428 | 3,202 | 1,195 | 662 | ||||||||||||
| Research and development expenses | 439 | 448 | 569 | 200 | ||||||||||||
| Selling and marketing expenses | 672 | 852 | 1,989 | 348 | ||||||||||||
| General and administrative expenses | 837 | 1,255 | 965 | 392 | ||||||||||||
| Other income | - | 166 | - | - | ||||||||||||
| Operating profit (loss) | 480 | 813 | (2,328 | ) | (278 | ) | ||||||||||
| Finance income (expense), net | 1,320 | (964 | ) | 2 | 1,287 | |||||||||||
| Income (Loss) before income tax | 1,800 | (151 | ) | (2,326 | ) | 1,009 | ||||||||||
| Income tax expenses | 2 | 2 | - | - | ||||||||||||
| Net income (loss) | 1,798 | (153 | ) | (2,326 | ) | 1,009 | ||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Gain (loss) from remeasurement of defined benefit plans | 16 | (5 | ) | - | - | |||||||||||
| Total comprehensive income (loss) attributed to the shareholders of the Company | 1,814 | (158 | ) | (2,236 | ) | 1,009 | ||||||||||
Comparison of Period to Period Results of Operations
Six Months ended June 30, 2023 and six months ended June 30, 2022
Revenues
Our revenues for the six months ended June 30, 2023 amounted to $3,096 thousand, representing an increase of $1,116 thousand, or 56.4 %, compared to $1,980 thousand for the six months ended June 30, 2022. The increase was due to deliveries to new customers and an increase in deliveries to existing customers.
Cost of revenue
Our cost of revenue for the six months ended June 30, 2023 amounted to $1,901 thousand, representing an increase of $583 thousand, or 44.2 %, compared to $1,318 thousand for the six months ended June 30, 2022. The increase was primarily due to an increase in sales and share-based payment expenses, the latter of which is a result of options granted in January 2023.
Research and development expenses
Our research and development expenses for six months ended June 30, 2023, amounted to $569 thousand representing an increase of $369 thousand, or 184.5%, compared to $200 thousand for the six months ended June 30, 2022. The increase was primarily due to share-based payment expenses, the latter of which is a result of options granted in January 2023.
Selling and marketing expenses
Our marketing and sales expenses for the six months ended June 30, 2023 amounted to $1,989 thousand, representing an increase of $1,641 thousand, or 471.6%, compared to $348 thousand for the six months ended June 30, 2022. Selling and marketing expenses increased primarily due to share-based payment expenses, the latter of which is a result of options granted in January 2023.
General and administrative expenses
Our general and administrative expenses totaled $965 thousand for the six months ended June 30, 2023, representing an increase of $573 thousand, or 146.2%, compared to $392 thousand for the six months ended June 30, 2022. These expenses increased primarily due to shared-based payment expenses, the latter of which is a result of options granted in January 2023.
Operating loss
As a result of the foregoing, our operating loss totaled $2,328 for the six months ended June 30, 2023, representing an increase of $2,050 thousand or 737.4%, compared to $278 thousand for the six months ended June 30, 2022. The increase in operating loss was primarily due to recognizing share-based payment expenses of $2,804 thousand and a decrease of $832 thousand in the cost of revenue.
38
Financial income (expense), net
We recognized financial income of $2 thousand for the six months ended June 30, 2023, representing a decrease of $1,285, or 99.8%, compared to financial income of $1,287 for the six months ended June 30, 2022. The decrease was primarily attributable to a change in the fair value of warrants of $1,033 thousand for the six months ended June 30, 2022.
Total comprehensive income
As a result of the foregoing, our total comprehensive loss totaled $2,326 thousand for the six months ended June 30, 2023, representing a decrease of $3,335 thousand, or 330.5%, compared to a profit of $1,009 for the six months ended June 30, 2022. The decrease in profit is primarily attributable to finance income, mentioned in the preceding paragraph, that was recorded in the six months ended June 30, 2022 and to share-based compensation expenses recorded in the six months ended June 30, 2023.
Year ended December 31, 2022 and year ended December 31, 2021
Revenues
Our revenues for the year ended December 31, 2022, amounted to $7,264 thousand, representing a decrease of $2,317 thousand, or 24.2%, compared to $9,581 thousand for the year ended December 31, 2021. The decrease was primarily attributable to the lack of working capital availability because we did not have enough funds to receive and carry out orders.
Cost of revenue
Our cost of revenue for the year ended December 31, 2022, amounted to $4,836 thousand, representing a Decrease of $1,431 thousand, or 22.8%, compared to $6,379 thousand for the year ended December 31, 2021. The decrease was primarily due to a decrease in sales.
Research and development expenses
Our research and development expenses for the year ended December 31, 2022, amounted to $439 thousand representing a decrease of $9 thousand, or 2%, compared to $448 thousand for the year ended December 31, 2021. The decrease was primarily due to a reduction in cost of materials, due to focusing on software instead of purchasing hardware components, which is more capital intensive than research and development related to our software.
Selling and marketing expenses
Our marketing and sales expenses for the year ended December 31, 2022 amounted to $672 thousand, representing a decrease of $180 thousand, or 21.12%, compared to $852 thousand for the year ended December 31, 2021. Selling and marketing expenses decreased primarily due to a decrease in salaries expenses.
General and administrative expenses
Our general and administrative expenses totaled $837 thousand for the year ended December 31, 2022, representing a decrease of $418 thousand, or 33.3%, compared to $1,255 thousand for the year ended December 31, 2021. These expenses decreased primarily due to a decrease in professional consulting fees following the completion of our structural reorganization in August 2021. For more information on our structural reorganization, see “Business — M&A and Organizational Structure.”
Other income
We had other income totaling $166 thousand for the year ended December 31, 2021. No other income was record for the year ended December 31, 2022. The other income received for the year ended December 31, 2021 was primarily attributed to Pandemic grants received from the Israeli government, and we did not receive any such grants during the year ended December 31, 2022.
Operating profit
As a result of the foregoing, our operating profit totaled $480 thousand for the year ended December 31, 2022, representing a decrease of $333 thousand or 41%, compared to $813 thousand for the year ended December 31, 2021.
Financial income (expense), net
We recognized financial income of $1,320 thousand for the year ended December 31, 2022, representing an increase of $2,284, or 237%, compared financial expenses of $964 for the year ended December 31, 2021. Financial income includes $300 thousand in bank fees and exchange rate fluctuations. A difference in income of $1,509 thousand for the year ended December 31, 2022 compared to expenses of $433 thousand for the year ended December 31, 2021 was attributable to refinancing warrants. Additionally, a difference in income of $437 thousand, $368 thousand in income for the year ended December 31, 2022 compared to expenses of $69 thousand for the year ended December 31, 2021 was attributable to exchange rate differences.
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Total comprehensive income
As a result of the foregoing, our net profit totaled $1,814 thousand for the year ended December 31, 2022, representing an increase of $1,972 thousand, or 1,248%, compared to loss of $158 for the year ended December 31, 2021. The increase in profit is primarily attributable to finance expenses in 2021 and finance revenues in 2022.
Liquidity and Capital Resources
Overview
Since our inception through June 30, 2023, we have funded our operations primarily with cash generated from our operating activities. As of June 30, 2023 and December 31, 2022, we had $351 thousand and $69 thousand in cash and cash equivalents, respectively.
The table below presents our cash flows for the periods indicated:
| Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
| U.S. dollars in thousands | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Net cash provided by (used in) operating activities | (1,739 | ) | 1,619 | 403 | (1,366 | ) | ||||||||||
| Net cash used in investing activities | (20 | ) | (125 | ) | (15 | ) | (9 | ) | ||||||||
| Net cash provided by (used in) financing activities | 255 | (74 | ) | (101 | ) | 271 | ||||||||||
| Effects of exchange rates on cash and cash equivalents | 12 | (25 | ) | (5 | ) | (13 | ) | |||||||||
| Net decrease (increase)in cash and cash equivalents | (1,492 | ) | 1,395 | 282 | (1,117 | ) | ||||||||||
Operating Activities
During the six months ended June 30, 2023, net cash provided by operating activities was $403 thousand, compared to $1,366 thousand used in operating activities during the six months ended June 30, 2022, primarily attributable to generating revenue from deliveries to new customers and an increase in deliveries to existing customers and the evolution of our working capital. The principal drivers of working capital during this period was a decrease of $1,993 thousand in trade receivables, offset by trade payables that decreased by $1,021 thousand in the six months ended June 30, 2023, compared to a decrease of $983 in trade receivables, offset by trade payables that decreased by $1,514 in the six months ended June 30, 2022.
During the year ended December 31, 2022, net cash used in operating activities was $1,739 thousand, compared to net cash provided by operating activities of $1,619 thousand during the year ended December 31, 2021, primarily attributable to receiving and fulfilling fewer orders in 2022 compared to 2021 and the evolution of our working capital. The principal drivers of working capital during this period was a decrease of $197 thousand in trade payables and a decrease of $46 thousand in other accounts payable in the year ended December 31, 2022 compared to an increase of $1,671 in trade payables and an increase of $879 thousand in other accounts payable in the year ended December 31, 2021.
As of December 31, 2020, our unaudited current assets were $1,837 and current liabilities were $2,830, which resulted in a working capital deficit of $991.7 thousand as of such date.
Investing Activities
Net cash used in investing activities was $15 thousand during the six months ended June 30, 2023, compared to $9 thousand during the six months ended June 30, 2022. The cash used in the investing activities was primarily attributable to the purchase of property, plant and equipment.
Net cash used in investing activities was $20 thousand during the year ended December 31, 2022, compared to $125 thousand during the year ended December 31, 2021. The cash used in the investing activities was primarily attributable to the purchase of property, plant and equipment.
Financing Activities
Net cash flow used in financing activities was $101 thousand during the six months ended June 30, 2023, compared to net cash provided by financing activities of $271 thousand during the six months ended June 30, 2022. The cash provided by financial activities in the six months ended June 30, 2022 was primarily attributable to proceeds from the SAFE agreements.
Net cash flow provided by financing activities was $255 thousand during the year ended December 31, 2022, compared to $74 thousand used in financing activities during the year ended December 31, 2021. The cash provided by financial activities in the six months ended June 30, 2022 was primarily attributable to proceeds from the SAFE agreements.
On May 5, 2020, we entered into a loan agreement with Bank Mizrahi for NIS 1 million (approximately $284 thousand). Pursuant to the terms of the loan, the loan’s principal was to be repaid in 48 consecutive monthly installments starting on May 30, 2021, and the interest shall be repaid in 48 consecutive monthly installments starting on May 30, 2020. Early repayment is permitted. As of September 30, 2023, the balance of the loan is approximately $116 thousand.
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On December 29, 2021, we entered into an agreement, or the Investors Agreement, with Shlomi Amsallem and Ofer Amir, or the Investors, whereby they invested NIS 700 thousand (approximately $225 thousand) for the issuance of securities either directly by the Investors and/or by way of raising capital from other investors that will be introduced by the Investors, or the Additional Investors. The Investors and the Additional Investors will be subject to a dilution of up to 40% of our Company’s issued and paid up share capital as a result of an initial public offering, and if the offering amount in such initial public offering will exceed NIS 16 million (approximately $5,145 thousand) , than the Investors and the Additional Investors will be diluted on a pro rata basis, in accordance with their stake in our Company’s shares. The Investors Agreement was amended October 26, 2022, or the Amendment, to include any initial public offering on Nasdaq or the NYSE American (and, in such event, cease promoting any public offering on the TASE). Further, the Amendment specified that, subject to the Investors’ commitment in the original agreement, we will work to complete a public offering on a U.S. stock exchange by June 30, 2023, with a minimum amount raised of $17 million. If we are deemed to have started the process of raising capital in a public offering on an American stock exchange pursuant to the provisions of the Amendment, even though this condition was not completed by June 30, 2023, and the process of raising public capital continues to proceed in conjunction with an underwriter, then the relevant provisions of the Amendment continue to apply after June 30, 2023 until the completion date of the public offering. In addition, the Investors Agreement was amended such that, in the event of an initial public offering on a U.S. stock exchange: (1) existing shareholders will hold 50% of our issued and outstanding share capital following the offering (including 442,118 options to be assigned to our Company’s vice president); (2) the Investors would hold a minimum of 13.48% of our issued and outstanding share capital following the offering; (3) following the completion of the offering, we may allocate 12% of our share capital to our option plan; and (4) we will list the Investors’ shares for trading up to six months following the completion of the offering. The Investors also agreed to transfer to us an amount of $200 thousand in connection with any expenses associated with our initial public offering. Finally, upon completion of the offering, we will enter into a service agreement with Mr. Amir whereby he will provide advisory services to us until the earliest of: (a) the end of a period of 3 years from the date of completion of the offering; or (b) the date on which Mr. Amir’s holdings in the share capital of our Company will be less than 3%.
On June 1, 2022, we entered into SAFEs for an aggregate net proceeds of NIS 1.14 million (approximately $342 thousand). The amounts we received under the SAFEs will be converted into our Ordinary Shares at a discount rate of (i) 67% (i.e., 33% discount) with respect to an initial public offering or change of control, or a Liquidity Event, or (ii) 70% (i.e., 30% discount) with respect to a bona fide transaction with the principal purpose of raising capital, pursuant to which our Company issues and sells shares in consideration for investment in an aggregate amount of at least NIS 10,000 thousand (approximately $3,007 thousand) in one or more related closings, or Equity Financing.
On May 20, 2015, we entered a warrant agreement with Bank Mizrahi, as amended on January 16, 2017, granting Bank Mizrahi the right to purchase from us 335,959 warrants at an exercise price of $0.89 per ordinary share, for a total amount of $300 thousand. The warrants had an exercise period of six years from the effective date of January 16, 2017. On September 22, 2022, we signed a warrant buyback agreement with Bank Mizrahi, cancelling the bank’s warrants for a one-time fee of NIS 600 thousand (approximately $157 thousand). No warrants were exercised by Bank Mizrahi prior to the buyback agreement and the cancellation of its warrants. The cancellation of the options is conditional on the Company becoming public by March 31, 2024.
Current Outlook
We have financed our operations to date primarily from ongoing sales.
As of June 30, 2023 and December 31, 2022, our cash and cash equivalents were $351 thousand and $69 thousand, respectively. We expect to generate revenues from the sale of our products and other revenues in the future. However, we do not expect these revenues to support all of our operations in the near future. We expect our expenses to increase in connection with our activities, particularly as we continue the development of our products, and continue our commercialization efforts. Accordingly, we expect that we will require substantial additional funding in connection with the growth of our operations and commercializing our products. Until we can generate significant recurring revenues and profit, we expect to satisfy our future cash needs through this public offering, as well as other debt and equity financings. However, there is no assurance that we will be successful accomplishing these plans. If we are unable to obtain sufficient capital we may need to reduce, delay, or adjust our operating expenses, including commercialization of existing products or be unable to expand our operations, as desired. As a result of these expected losses and negative cash flows from operations, along with our current cash position, our management and auditors have concluded that a material uncertainty exists that may cast significant doubt about our ability to continue as a going concern. 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:
| ● | the progress and costs of our research and development activities; |
| ● | the costs of working capital; |
| ● | the costs of raising capital; |
| ● | large new orders that needs to financed; and |
| ● | the magnitude of our general and administrative expenses. |
Critical Accounting Policies and Estimates
We describe our significant accounting policies more fully in Note 2 to our audited consolidated financial statements for the year ended December 31, 2022 included elsewhere in this prospectus.
We prepare our financial statements in accordance with IFRS. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations, income and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to the estimate is made.
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Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
We make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Accounting for investments and loans from investors
The investments and loan agreements which we entered, as described in Note 15 to our audited consolidated financial statements, involve the sale of shares as well as loans obtained from investors, and require as such require the allocation of the total consideration raised in these funding rounds to the share and debt instruments sold, with the difference between the consideration amount allocated to the loans and the contractual loan amounts being recorded in equity with a corresponding discount on the loans. The amount allocated to the loan was determined based on the fair value of the loans at the date of the investment, using a capitalized value of future payments, in different scenarios method, using a discount rate of 4.65% and 5.7% for our investors loans, respectively.
As of December 31, 2022, the discounts recorded on our investors’ loans were $41,934.
Off-Balance Sheet Arrangements
As of December 31, 2022, we do not believe we had any off-balance sheet arrangements and commitments.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-minus. Accordingly, some of our cash and cash equivalents is held in deposits that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of U.S. dollar/NIS exchange rates, which is discussed in detail in the following paragraph.
Impact of Inflation and Currency Fluctuations
Our functional and reporting currency is the U.S. dollar. We incur some of our expenses in other currencies. As a result, we are exposed to the risk that the rate of inflation in countries in which we are active other than the United States will exceed the rate of devaluation of such countries’ currencies in relation to the dollar or that the timing of any such devaluation will lag behind inflation in such countries. To date, we have been affected by changes in the rate of inflation or the exchange rates of other countries’ currencies compared to the dollar, and we cannot assure you that we will not be adversely affected in the future.
The annual rate of inflation in Israel was 5.3% in 2022 and 2.8% in 2021. The NIS weakened against the U.S. dollar by approximately 11.6% in 2022 and strengthened 3.26% in 2021.
The main impact of inflation for the Company in its production and operations capacity has been felt in terms of increased costs for components, higher outsourced labor costs and, due to increasing interest rates in response to inflation, an increase in the cost of financing projects.
Impact of Russia’s Invasion of Ukraine
The Invasion has not directly affected us. As of the date of this prospectus, we do not engage in commercial activity in Russia or Ukraine; therefore, the Invasion and sanctions imposed by governments and other sanctioning authorities have not affected our financial position our activity. Our acquisition of components and raw materials has been affected by the invasion insofar as commodity prices have risen. There has been no material impact to our cash flows, liquidity, capital resources, cash requirements, financial position, or results of operations arising from, related to, or caused by the global disruption from the Invasion.
Rising commodity and energy prices, as a result of the import or export bans resulting from the Invasion, have affected us indirectly.
Impact of the War in Israel
On October 7, 2023, Hamas terrorists invaded southern Israel and launched thousands of rockets in a widespread terrorist attack on Israel. On the same day, the Israeli government declared that the country was at war. Our facilities, infrastructure and acquisition of components and raw materials have not been affected by the war. However, certain of our employees who are military reservists have been called-up for active duty.
We sell our products directly and indirectly to the Israel Defense Forces. From October 10, 2023 until the date of this prospectus, we received purchase orders from the Israel Defense Forces and police forces in Israel amounting to an aggregate of over $4.0 million to supply certain products in the near-term to be used by all branches of the Israel Defense Forces and police departments in Israel as well as in the longer term to resupply inventory stockpiles of equipment for the Israel Defense Forces. We expect to receive additional purchase orders as a result of the ongoing war. There is no assurance, however, that any further purchase orders will materialize in connection with this war.
We are closely monitoring the developments of this war. See “Prospectus Summary—Recent Developments” and “Risk Factors—Risks Related to Israeli Law and Our Operations in Israel—Potential political, economic and military instability in the State of Israel, where our headquarters, members of our management team, our production and research and development facilities are located, may adversely affect our results of operations.”
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Overview
For over a decade, we have been developing, manufacturing, marketing and selling ruggedized Personal Headset Devices as well as other communications accessories, all of which have been battlefield-tested and combat-proven. We specialize in developing the In-Ear Headset device, a subsegment of the Personal Headset Device market. The In-Ear Headset device is used in both in training and operations by the military, law enforcement, and disaster recovery industry professionals. Our agility, innovation, pricing, and technical performance have enabled us to gain early traction in commercial and industrial markets where a growing emphasis, as evidenced by the growing demand for our products from major companies in private industry, is being placed on safety and reducing certain long-term health issues related to hearing loss as a result of working on the factory floor.
Our In-Ear Headsets seamlessly integrate with third-party manufactured, professional-grade ruggedized radios sold to these aforementioned markets. The key driving factors in the growth of our business has been the recent dramatic growth in the In-Ear Headset subsegment of the Personal Headset Device market coupled with our unique ergonomic design and technology which enables users to both speak and hear clearly and precisely, providing the 360° situational awareness that they require while simultaneously protecting them from hazardous sounds around them.
In addition, we also develop, market and sell push-to-talk devices, communication controllers, and communication device cables and connectors. Our products are designed to be compatible with other products that we offer and compatible with other third-party communication products available in the market that are used by our customers.
Our key business strengths and key competitive advantages are:
| ● | Innovative In-Ear hearing protection and “talking from the ear” technology; | |
| ● | Rapid prototyping of new devices and broad radio interface knowledge; | |
| ● | Ability to be flexible, tailor-design and manufacture for each customer’s needs; | |
| ● | Ability to produce in small batches and with short lead times; | |
| ● | Many years of experience and first-mover advantage in the growing in-ear headset market segment; | |
| ● | Our growing distributor and re-seller network that provide us with local knowledge and feedback from customer use experiences “in the field”; and |
| ● | Demonstrated performance at a cost-effective pricing. |
We sell our products directly to military forces, law enforcement, and government agencies and indirectly, through a specialized network of local distributors, specialized agents, and, in some cases, strategic long-term original equipment manufacturer (OEM) agreements with large military equipment providers. While our primary markets are in Israel, Europe, and the United States, we intend to expand our sales, marketing and distribution network into new markets such as Southeast Asia and Latin America.
The Market for Personal Headset Devices
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The sound protection personal tactical communication headset device market is comprised of two types of headsets:
| (1) | Over-the-Ear Headsets. Over-the-Ear Headsets are generally comprised of two ear shells attached to each ear by a bow, which include an external environment microphone (located at the external side of the ear shell), an ear speaker (located at the inner side of the ear shell), and a boom microphone used to transmit the user’s speech. |
A typical Over-the-Ear Headset
| (2) | In-Ear Headsets. In-Ear-Headsets are similar in functionality to Over-The-Ear headsets, but with components (external environment microphone and ear speaker) that are miniaturized and installed in an earbud that is inserted into the ear. The user’s microphone is also embedded in the earbud (instead of in a boom microphone). As a result, in-ear headsets are superior in terms of their ability to clearly transmit and listen to communication while enabling sound protection. |
We focus on the development, marketing, and sale of in-ear headsets.
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| Silynx “Protego” In-Ear Headset | Silynx In-Ear Headset System Operating with Two Radios Simultaneously |
Military Tactical Communication Equipment Market
According to the Global Tactical Headset Market Research Report, published by Wantstats Research and Media Pvt Ltd in 2022 (the “GTHM Report”), the tactical communications equipment market was estimated to be worth $2.66 billion as of 2021 and is expected to grow to $3.8 billion by 2027, with a compound annual growth rate of 6.09%. North America accounts for the largest market share (35.81%) followed by Europe (24.07%) and then Asia Pacific (22.92%). This market includes both personal headsets and communication equipment mounted on certain types of vehicles and tanks.
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Military Personal Headset Market
According to the GTHM Report, the personal headset segment of the defense, military and law enforcement tactical communication headset market, defined as headsets that are worn by the user is the largest segment of accounting for 72.25%. In 2021, this segment was estimated at $1.845 billion and is forecasted to reach $2.616 billion by 2027, reflecting a compound annual growth rate of 5.99% between 2021-2027.
Military In-Ear Headset Market
More specifically, our market, the In-Ear Headset market was estimated at $87.8 million in 2021 and is expected to reach $726.3 million by 2027, reflecting a compound annual growth rate of 40.93% for years 2021-2027. According to the GTHM report, Over-The-Ear Headsets accounted for 92% of this market. However, it is expected that over this same period, In-Ear Headsets will overtake Over-The-Ear Headsets in terms of market share growing from 8% of this market in 2021 to 42% of this market in 2027.
The following table provides data and estimated forecast regarding the size of the global tactical headset market broken down by active sound protection headsets type from 2018 through 2027:
| Active Sound Protection Headsets Type | 2018 | 2019 | 2020 | 2021 | 2027 (Estimated) | CAGR (2021-2027) | ||||||||||||||||||
| In-Ear Sound Protection Headsets | $ | 40.95 | $ | 55.08 | $ | 70.71 | $ | 87.84 | $ | 726.34 | 42.0 | % | ||||||||||||
| Over-the-Ear Sound Protection Headsets | $ | 896.15 | $ | 944.71 | $ | 992.80 | $ | 1,040.10 | $ | 1,008.82 | -0.51 | % | ||||||||||||
| Total | $ | 937.10 | $ | 999.79 | $ | 1,063.51 | $ | 1,127.93 | $ | 1,735.16 | 7.44 | % | ||||||||||||
Source: GTHM Report: https://www.marketresearchfuture.com/reports/tactical-headset-market-3840
We believe there are several reasons for this shift:
| ● | Soldiers and police officers are more amenable to In-Ear Headsets than ever before, driven by the overall shift in consumer behavior towards In-Ear-based listening devices. |
| ● | Increased military and law enforcement budget spending on the personal equipment of soldiers, law enforcement and riot police who nowadays require more nimble and advanced In-Ear-based solutions as new weapons systems become noisier, while their field of combat or theatre of riot operations becomes increasingly complex. |
| ● | New soldier-based systems such as Microsoft’s Integrated Visual Augmentation System are equipped with heavy cables hardware equipment fixed to their helmets – making wearing an Over-The-Ear Headset on a helmet even more challenging. |
| ● | Growing awareness of the health effects and economic costs of hearing loss and impairment to soldiers. According to data from the U.S. Department of Veteran Affairs, 13.4% of first-time military service-connected compensation recipients had disabilities related to tinnitus and hearing impairment as of 2022. |
| ● | As the In-Ear Headset comprises of simple hardware due to the low number of parts and low amount of assembly work, In-Ear Headsets systems provide a better cost-effective solution. | |
| ● | One key driver of growth in the use of In-Ear Headsets for workers at commercial and/or industrial manufacturers has been the emphasis on safety and efficiency at the workplace related to hands-free operations and reducing long-term health issues related to hearing loss as a result of working on the factory floor. Moreover, we have begun selling our In-Ear Headsets to the professional cycling market with our first sales to a leading road bicycle racing team and are now focusing our marketing efforts towards the professional auto racing market as well. |
Advantages of In-Ear Headsets
We believe that In-Ear Headsets have the following advantages above Over-the-Ear Headsets:
| ● | higher level of sound protection, including against blast shock waves; |
| ● | lighter weight; |
| ● | higher quality of communication in noisy environments; |
| ● | higher levels of directional hearing with the pinna not covered up; |
| ● | no interference with head gear, eyewear or helmets; |
| ● | lower snag hazard, or risk that components will get tangled or caught in something (because there is no boom microphone); and |
| ● | no interference with head gear, eyewear or helmets; |
| ● | no sweat accumulation, meaning the device is suitable for hot environments; and |
| ● | cheap to produce with the simple, rugged structure. |
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Our Products
Personal Headset Devices typically have three operational requirements. First, the user needs to be aware of and able to hear ambient noise around them. Second, the user needs to be able to hear and be heard clearly while using his or her communication device, such as a radio, cellular phone, or satellite phone. Third, the user needs to be protected from unpredictable and unsafe sounds, such as explosions, sounds on a battlefield, large demonstrations and weapons training courses.
These requirements seemingly contradict each other. However, our In-Ear Headsets incorporate our electronically enhanced hearing technology along with our active sound protection technology that cuts off or compresses potentially harmful sounds, such as explosions or gunshots.
We focus on developing, marketing and selling two types of In-Ear Headset products. In addition, we also develop, market and sell push-to-talk devices, communication controllers, and communication device cables and connectors.
Our products are designed to be compatible with other products that we offer, as well as compatible with other existing third-party communication products available on the market that are used by our customers. The image below demonstrates the typical Silynxcom System Configuration Options:
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In-the-Ear Headset Products
Our In-the-Ear Headset products are designed and manufactured with modular integration that enable our customers to use them together with various different radios, cellphones, intercom systems, Bluetooth adaptor and other communications devices. We manufacture two main types of tactical Headsets: (1) In Ear Headsets; and (2) Single-Sided Headsets, or “SST Headsets”.
In-Ear Headset. Our In-Ear Headset enables customers to enjoy high quality, clear communication and multi-directional hearing while providing a high rate of sound protection.
Our In-Ear Headset is unique in its structure, comfort and design. It is composed of lightweight (five gram) earbuds with foam tips. Because it is an In-Ear solution, it is more comfortable to wear than an Over-the-Ear Headset.
This technology allows us to manufacture a headset that enables our customers to speak and be heard clearly even when they are in a noisy environment. This quality enables our customers to use their headset in situations where traditional Over-The-Ear headsets with boom microphones cannot be used properly. The In-Ear Headset integrates active noise protection with surrounding hearing enhancement technologies ,while incorporating our “talking from the ear” technology. Our “talking from the ear” technology detects minute air movements (naturally created in the ear canal when a person speaks) and converts them into audio signals. In contrast to Over-the-Ear Headsets, our In-Ear Headset not only does not limit our customers, given its size, but it can also be worn with additional head or face gear, such as a protective mask, breathing apparatus or respirator, which may be critical for the safety of our customers. Furthermore, our In-Ear Headset may be used with any type of helmet, including full-cut ballistic helmets, full-face riot helmets, driving helmets and other helmets that supply better head and face protection, protecting our customers while they navigate precarious situations.
We offer two main In-Ear Headsets models:
| ● | The Protego PRO – with external microphone connectivity. |
| ● | The Protego STD – without external microphone connectivity. |
Both models share the same earbuds. The image below exhibits our Protego headset’s ear bud structure.
As shown in the image below, the Protego PRO includes an additional plug to allow an external microphone to be connected to the headset, a feature that is not available in the Protego STD.
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Protego PRO (left) and Protego STD (right) |
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We expect that our In-Ear Headset family of products will be our main growth driver in the near term.
Single-Sided Headset Products
Our SST Headsets are mounted on a user’s head, helmet or protective vest and are equipped with a boom microphone- creating a weapon-mounted wireless push-to-talk device. These SST Headsets are designed to be highly ruggedized and withstand extreme environments.
We offer three main SST Headsets models:
| ● | The Eagle headset is designed to be worn on helmets or headbands such that the headset’s speaker is placed near the ear. |
| ● | The Falcon headset is designed to be worn either on a helmet or a protective vest and it supports an acoustic tube (with a silicon nip) to channel audio output directly to the ear. |
| ● | The HSI headset is designed to be worn together with an over-the-ear passive sound protection gear. |
The images below depict our three alternative SST Headsets models:
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| HIS SST Headset | Eagle SST Headset | Falcon SST Headset |
Push-To-Talk and Communication Controller Products
We offer push-to-talk-only devices and communications controller products. Both products are hardware devices with embedded software. Controlling multiple communication networks at the same time is crucial for our customers because they often need to communicate simultaneously with multiple people and groups, each of whom is on a different network. We are seeing increasing demand for these products as we see dramatic growth in our customers’ adoption of multi-network-based and software-defined radios and cellular phones.
We have designed our controllers for multiple levels of configurations, modularity, and flexibility, enabling our customers to use these controllers with either our own In-Ear Headsets or third party manufactured headsets. We believe that our controllers provide an opportunity to monetize the cross-selling of our In-Ear Headsets once they have purchased our controllers.
Our push-to-talk-only products are used with our SST Headsets or sold separately. Our communication controller products are used with our Protego headsets and include “push-to-talk” audio processing features, like a push-to-talk control box, and enhanced sound protection processing. We believe our push-to-talk products also provide an opportunity to cross-sell our controller products in addition to our In-Ear Headsets.
We manufacture two main models of communication controllers, the Clarus and the Fortis:
| ● | The Clarus is designed to control up to two communication networks at the same time (with two different push-to-talk buttons). |
| ● | The Fortis is designed to control up to four communication networks at the same time (with four different push-to-talk buttons). |
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The image below depicts our Clarus and the Fortis controllers
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| Fortis Radio Controller/Push-to-Talk | Clarus Radio Controller/Push-to-Talk |
Communication Cables and Connectors
We manufacture, market and sell our communication cables and connectors in order to provide a full end-to-end solution so that our customers can connect our In-Ear Headsets with the different radios that they may use. Based on our in-house developed and proprietary Quick Disconnect Connector (“QDC”) technology we have developed a 10 pin QDC that enables customers to easily connect our In-Ear Headsets with a variety of different signal and power input/output sources. A QDC is a robust, proprietary, multi-pin, twenty-meter diving-certified connector. We provide our customers with different QDC integration options that give our customers more configuration flexibility and levels of modularity.
We believe that our family of QDC products provide an opportunity to monetize cross-selling of our other products, particularly, our controller products as well as our In-Ear Headsets.
We also sell our QDC technology to third-party equipment manufacturers.
Converter & Reseller Agreement with Peltor Communications, a 3M Company
In January 2023, we signed a Converter & Reseller Agreement with Peltor Protective Communications (“Peltor”), a 3M company, and one of the world’s leading manufacturers and an iconic brand name of headsets and two-way radio accessory products for military, law enforcement, hunting, sport shooting, racing, rally sports, aviation, and manufacturing industries. Under the agreement, Silynxcom will purchase Peltor’s family of Over-the Ear headset products from Peltor and will resell a modified version of the Peltor Over-the-Ear Headset which includes Silynxcom’s QDC connector, an upgraded electronic wiring system embedded with a Silynxcom-designed circuit board. We believe this enables Silynxcom to compete in the high-end market for Over-the-Ear Headsets with a more advanced battery power source and can also provide the end-user the versatility of hearing from two different radios simultaneously from each earpiece respectively.
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We also believe this agreement will assist our endeavors to lead in the transformation from Over-the-Ear headsets to In-Ear headsets. We anticipate that our certified embedded technology inside this iconic 3M Peltor brand family of headsets will provide us with both quicker access to a still large customer base of Over-the-Ear headsets and the opportunity to eventually cross-sell our In-Ear Headsets and ancillary connector products to these new customers. We also believe that our certified embedded technology provides excellent market validation and a natural barrier to entry to our competitors. In July 2023, we received a first order to deliver 360 modified units (combined with Silynxcom products) from a first-time military client.
Professional Services and Maintenance Support
We provide professional services and maintenance support for all our products through our one-year warranty and extended paid-for warranty programs. This support is available either onsite or remotely at the customer’s location.
Our Technology
The technologies that drive our In-Ear Headsets are based on our in-house developed real-time use of software and hardware, hardware miniaturization techniques, ergonomic design, and “hardening” manufacturing techniques.
| ● | Our hardware and software technology is designed to process, gauge and control surrounding sounds while in real-time while simultaneously (and in real-time) identify potentially hazardous surrounding sounds and instantly compress them to a pre-defined safe level. This is performed through our proprietary software that, coupled with the ergonomic design of our In-Ear-Headsets, enables our “talking from the ear” technology to pick up minute movements of air in the ear canal and convert them into clear and precise speech. |
| ● | Our In-Ear Headsets are manufactured using our proprietary hardening technology which provides them with intense durability and enables long use-life in harsh environments. We use this same technology when manufacturing our cables and connectors, which taken together with our In-Ear Headsets and QDC connectors, make up the entire Personal Headset unit. We also employ proprietary technology related to our manufacturing processes, including miniaturization and assembly technologies that we have developed, that enables us to reduce the physical dimensions of our products while decreasing our own production and assembly costs. Finally, the processes by which we use “cold molding” materials enables us to manufacture extremely rugged, waterproof and corrosion-resistant products. |
Sales and Marketing
We sell our products both directly to security and rescue forces, military, and law enforcement units around the world, and indirectly, through a specialized network of distributors and agents.
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| ● | Direct sales. We sell directly to end users mostly in Israel and in the United States. Our direct sales are generally conducted through either official public/ government tender process or as “sole source” orders whereby the customer specifically requests our devices/technology. Our headquarters is in Israel and we have a representative office in the United States. Within the next twelve months, we plan to open representative sales offices in Korea and in Germany. |
| ● | Indirect sales through distributors and agents. We have developed, grown and operate a global network of distributors that are trained to independently promote and distribute our products to their customers. Our typical distributor is a well-established government supplier with a record of recent successful sales of personal protection equipment to rescue forces, military, and law enforcement bodies. The main benefits our distributors provide us are: |
| ● | Local knowledge and relationships with customers that provide us with critical knowledge about their current and future needs, |
| ● | Intimate involvement in the product customization for their market or customer, |
| ● | Better forecasting of new orders and improved supply chain management, and |
| ● | More efficient and de-risked use of time and capital expenditure. |
As of the date of this prospectus, we have engagements with distributors who specialize either in various territories and/or with certain customers from such territories as presented in the table below:
Distributors:
| Europe | 34 | |||
| Asia | 16 | |||
| Central and South America | 5 | |||
| Middle East | 3 | |||
| Africa | 1 | |||
| Oceania | 3 |
| ● | Collaborations with original equipment manufacturers of radios. Most manufacturers of tactical radio devices do not manufacture their own headset systems. We collaborate with a number of original equipment manufacturers of tactical radio devices who offer our products to their customers. We are working to expand these types of collaborations, as they increase our market presence and share, strengthen our brand and reputation and provide cost-efficient access to manufacturers marketing and sales channels. Our tactical radio devices, a new generation of data device, are light weight and enhance the communication ability and situational awareness of soldiers. |
| ● | Collaborations with original equipment manufacturers of headset systems. We also cooperate and co-sell our products on an OEM basis or as synergic products to industry strategic partners, such as radio device manufacturers, who offer our headset systems with their radios as a complete solution. Our strategic partners are typically communication device producers, defense contractors/system integrators, helmets producers, gas mask producers etc. The Converter & Reseller Agreement with Peltor is an example of such a collaboration with an OEM manufacturer. |
Our Sales Process and Customers
Direct sales of our products are normally conducted as result of either being chosen by the customer after successful tender process or through receipt of a purchase order from a customer. In both cases, receipt of the entire sale proceeds, or a substantial part thereof, is conditional upon receipt from the customer of confirmation of delivery and the receipt of our products and that all post-delivery acceptance tests and inspections have been completed to the satisfaction of the customer. The payment terms in direct sales situations are similar in nature to the payment terms of distributors.
Generally, in view of the nature of our customers, the sales process can range anywhere between several months to several years (in the case of multi-year contracts). When selling to military customers (either directly or indirectly), we are typically prohibited from disclosing the customer’s identity and/or the products that they purchased.
Our revenue stream is derived from end users of our products such as:
| ● | United States Navy Sea, Air, and Land Teams, more commonly known as the Navy Seals; |
| ● | United Kingdom’s Special Air Service; |
| ● | Israel Defense Forces; |
| ● | Israel Defense Forces General Staff Reconnaissance Unit, more commonly known as Sayeret Matkal; |
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| ● | United States Marine Corps; |
| ● | United States Federal Bureau of Investigations; |
| ● | United States Drug Enforcement Agency; |
| ● | Regional police and sheriff departments in the United States; |
| ● | Royal Netherlands Army; |
| ● | German Police; |
| ● | Austrian Armed Forces; and |
| ● | Republic of Korea Armed Forces and national police. |
As of the date of this prospectus, we have over three hundred active customers. We have two large customers (Customer A and Customer B), one of which serves as the agent for one of the end users listed above. Set forth below is a breakdown of our five major customers, the revenues arising from which constitute 5% or more of our total revenues in 2020 through 2022, none of whom are one of the end users listed above:
| 2022 - Audited | 2021 - Audited | 2020 - Unaudited | ||||||||||||||||||||||
| Major customers | Amount (in USD thousands) | % of our Company’s total revenue | Amount (in USD thousands) | % of our Company’s total revenue | Amount (in USD thousands) | % of our Company’s total revenue | ||||||||||||||||||
| Customer A | 3 | - | $ | 6,315 | 65.9 | % | - | - | ||||||||||||||||
| Customer B | $ | 4,016 | 55.3 | % | $ | 334 | 3.5 | % | $ | 773 | 22.3 | % | ||||||||||||
| Customer C | $ | 517 | 7.2 | % | $ | 448 | 4.7 | % | $ | 403 | 11.6 | % | ||||||||||||
| Customer D | $ | 477 | 6.6 | % | - | - | - | - | ||||||||||||||||
| Customer E | $ | 417 | 5.8 | % | $ | 13 | 0.14 | % | - | - | ||||||||||||||
In addition, our marketing budget is partially financed by the Israeli Ministry of Economy and Industry. As participants in the Israeli Government’s “Smart Money Program,” we have been awarded with a participation grant (for up to $392 thousand) to finance an orderly marketing plan in one of our key target markets. To date, we have not yet received any grant funds under the program. If such a grant is received, we will be required to repay it by paying the Ministry of Economy royalties in the amount of 3% (up to the amount of the grant) of any proceeds out of sales in this market.
Traction in Commercial and Industrial Use Cases
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Silynxcom’s agility, innovative technology, price, and technical performance have allowed us to gain early traction in commercial and industrial markets as well, including:
| ● | Gentex Corporation (NASDAQ: GNTX) |
Gentek manufactures their “pure flow” hooded respiratory suits used by fire fighters and hospitals where protective gear is required. Since 2021, we have been selling our headsets under the Silynxcom brand which have been integrated into Gentex’s “pure flow” suite of products.
| ● | Exelon Corporation (NASDAQ: EXE) |
Our In-Ear Headsets have been used by employees at Exelon Corporation’s nuclear power plants in the United States since 2021. Exelon Corporation, a utility services holding company, engages in the energy distribution and transmission businesses in the United States and Canada. Previously, employees at their nuclear power facilities, while covered in full body protective clothing, could not clearly hear and communicate with each other by using Over-the Ear Headsets or makeshift In-Ear pieces. With Silynxcom’s In-Hear Headsets, they can hear and communicate clearly while drowning out the corrosive and hazardous sounds of the nuclear power plant floor. We expect to receive further orders in the near term from Exelon and its broad range of utility holdings.
| ● | Nucor Corporation (NYSE: NUE) |
Nucor Corporation is one of the largest manufacturers and marketers of hot-rolled, cold-rolled, and galvanized sheet steel products in the United States. Nucor began purchasing Silynxcom’s In-Hear headsets in 2022 in order to replace their Over-the- Ear Headsets. In our understanding, Nucor was looking for a headset communication system that provided better situational awareness and communication for their employees on their steel mill floors.
| ● | Glencore Mining, Australia (LSE: GLEN) |
We are currently conducting a trial with the Australian arm of Glencore Plc (“Glencore”), one of the world’s leading producers, refiners, processors and marketers of commodities in the world. We have provided Glencore our In-Ear Headsets for use in one of their iron smelting facilities in Australia. We expect initial sales from this pilot project in the first quarter of 2024.
| ● | Road Bicycle Racing Team |
We recently began selling our In-Ear Headsets to a leading road bicycle racing team. Our headsets were chosen as the solution to be embedded into the team’s riding helmets which combine advanced AI-engineered biometric data and voice alerts through our In-Ear Headsets. In May 2023, our headsets were first used in a professional road race at the Giro d’Italia.
As of December 5, 2023 the number of requests for information we have responded to so far in 2023 is 72, up from 11, 32, and 40 in 2020, 2021 and 2022, respectively.
Key Business Strengths
Key components of our business strengths include:
| ● | Strong brand and market position in a growing niche market with high barriers to entry. Our market size is growing structurally as increasing numbers of personnel in defense and law enforcement are issued with personal communication equipment. Our many years of successful deliveries to military and law enforcement customers enables us to qualify for government-run tenders that typically require a high-level of field proven, tested and certified equipment. |
| ● | The order intake and sales process in our industry is characterized by fluctuation and can vary over time. Our close customer relationships enable us to better manage this volatility in order intake by working closely with our customers to forecast new orders, which, in turn, makes it possible to better adapt production timing starts with our contract manufacturers. |
| ● | Our headsets are uniquely manufactured with additive technologies to enable quick delivery cycle when necessary. |
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| ● | Our headsets are designed and manufactured in order to allow customers to configure and tailor headsets to their specific needs even for small size batches. |
| ● | Our In-Ear Headsets integrate well with third-party communication system manufacturers, which allows us to provide our customers with the flexibility to purchase our products separately and incorporate them with third party manufactured systems. |
| ● | We regularly work with other producers of tactical headset communication systems to sell our products as a bundle. Thus, our technology is embedded in the overall functionality and quality of the entire personal communication systems. We believe this is a strong barrier to entry while also providing us with the opportunity to bundle our various products to seamlessly integrate with the products of such producers. |
| ● | We regularly improve and upgrade our products, beyond what is typically required by third-party certification agencies, and we aim to set a higher benchmark that we believe will become the “gold standard” requirements to be used requests for proposals and other government run tenders. |
Key Growth Strategies
In order to increase our market share in the high-growth in-ear headset segment that we operate in, we rely on the following key growth strategies:
| ● | Continued joint product and business development with large military contractors and re-sellers where we can bundle together our headsets with the connectors and cables that we otherwise sell separately. |
| ● | Leverage our QDC solution that we currently sell to manufacturers of Over-the-Ear Headsets to cross-sell our In-Ear headsets and accessories |
| ● | Increasing cooperation with well-established global manufacturers of over-the-ear headset manufacturers through the licensing of elements of our In-Ear Headset technology to be applied to over-the-ear headsets. |
| ● | Continued development of benchmarks and incentive packages to our growing number of global distributors and agents in the territories in which we operate. |
| ● | Building out a portfolio of framework agreements through participation in structured multiyear frame programs that run for three to seven years, such as the U.S. Department of Defense’s Equipment Purchasing Program. |
| ● | We aim to reach new volume markets by addressing new user groups with a similar need to communicate in noisy and challenging environments while protecting hearing. Examples of such user groups include workers on construction sites, factory floors and mining operations all of which we have begun selling into. |
| ● | Continue our market growth in the hotter climate areas of Asia where we are seeing a growing awareness and demand for sound protective high quality communication radios systems and headsets at a cost-effective price point. |
| ● | Continuing sustainable and profitable growth by focusing on internal cost controls and collaborating closely with our manufacturing partners to safeguard volume gains and competitive production costs. |
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Recent Defense and Law Enforcement Related Customer Growth
Below are some recent examples of our defense and law enforcement related customer growth:
| ● | November 2021 – we signed a framework agreement with Elbit Systems Ltd., whereby 7 thousand soldier systems would incorporate Silynx headsets, for $3.6 million. |
| ● | October 2022 – we were awarded a four-year framework contract with the Rhineland-Pfalz State Police, whereby our In-Ear Headsets replaced the legacy Over-Ear Headsets. The order size amounted to $65 thousand and seventy systems. We expect additional sales orders, including an upsell totaling $300 thousand received in 2023, and into 2024. |
| ● | April 2023 – we were awarded the opportunity to supply our In-Ear Headsets to an Asian country’s military through what was a public tender process. The initial order was for an entire division. We are in discussions with this customer and believe that the next order could be worth over $100 million over a seven-year period. In June 2023, we were awarded a second contract to supply our In-Ear Headsets through a public tender process of a different division of that same Asian military customer. |
| ● | June 2023 - we were awarded a second contract with the Republic of Korea national police, whereby our “push to talk” systems combined with QDC converted Sordin Over-the-Ear Headset will replace their legacy Over-the Ear Headset systems. |
| ● | July 2023 – we were awarded a from a special forces unit of the Republic of Singapore Army to supply them with Silynxcom In-Ear and 3M Peltor headsets, upgraded with our technology. We expect to deliver these units by December 2023. |
| ● | July 2023 – we recognized revenue from the first follow-on order from the German police and a first trial order from the German secret services. We expect to deliver these units by December 2023. |
Major Milestones
Since our inception in 2005, we have had over $151 million in sales. We have also achieved several milestones in the last three years as detailed below.
Since 2020, we increased our international distributor network from eleven active distributors to 70 as of December 5, 2023.
In 2021, we received orders for Republic of Korea, Austrian and Dutch army projects, totaling over $9 million in sales. The order size for the Republic of Korea Armed Forces deal amounted to 17,000 systems for $6.3 million. We anticipate that we will receive repeat orders from the Republic of Korea Armed Forces.
In October 2021, we agreed to commence a non-binding collaboration with a large Israeli-based OEM of communication devices. This opportunity relates to modifying the Company’s standard headset for the large Israeli-based OEM for its radio family. We also agreed to collaborate with this large Israeli-based OEM on an opportunity in an Asian country. The first batch of the joint product prototype was supplied in August, 2023.
In each of the last three financial years, we received several orders of over NIS 1 million from Elbit Systems Ltd.
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In November 2022, we began a non-binding collaboration with one of the largest European-based OEM of communication devices, and the first orders are expected at the beginning of 2025.
In January 2023, we signed a “converter agreement” with 3M Israel, or 3M, a world leader in the field of sound protection and communication equipment. Per the agreement, we are appointed as the authorized non-exclusive convertor in Israel for the same of 3M products, allowing us to re-sell 3M products in Israel as well as sell modified Peltor headsets to our customers worldwide – expanding our product catalogue with unique over-the-ear headsets integrated with our QDC. The agreement is for a term of one (1) year, unless terminated earlier upon a 60-day written notice and may be renewed by written agreement between the parties for one (1) year thereafter.
In 2023, we achieved our two first army tenders in an Asian country.
We are currently engaged in pursuing the following future projects:
| ● | South Korean Army; follow-on Order - we are currently in bidding for a follow on order worth approximately $3.5 million. |
| ● | Leonardo SpA: - we are pursuing a joint development project to integrate Silynxcom’s sound protection technology into their existing communication systems. Leonardo is one of Europe’s largest defense and aerospace contractors. |
| ● | United States Army Special Forces Multi-Year Framework Agreements - the new tenders for these renewing framework agreements will be published in early 2024. We expect to qualify and receive a formal invitation to join the bidding process. |
| ● | Large European Military Tenders – we are currently bidding directly on multiple different tenders of European military units amounting to tens of thousands of headset units per year within multi-year framework agreements. |
| ● | We also plan to expand our presence in the family of products for the cycling and motorsports markets, respectively. |
Competition
As providers of tactical communication headsets, we face competition from both Over-the-Ear Headset producers and other In-Ear Headset producers.
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In the In-Ear headset segment of the overall headset market, we compete with Invisio AB (Nasdaq Stockholm: IVSO.ST), Savox Communications Ltd., Ops-Core (a Gentex Corporation company), and Nihon FalCom Corporation.
As defense, military and law enforcement bodies around the world become more familiar with the advantages of In-Ear Headsets, we believe that our position in this market will strengthen.
While we do not consider ourselves as competing directly with traditional Over-the Ear Headset manufacturers, we do compete with them as a solution concept. The market participants who compete in the over-the-ear headset market include Ops-Core, Otto Engineering Inc., Sordin AB, Racal and 3M’s PeltorTM.
Factors of competition include:
We believe the competitive factors customers are concerned with in the sound protection industry primarily include:
| ● | Comfort of continuous use; |
| ● | Quality, comfort and consistency of precise hearing and speaking; |
| ● | Flexibility of design and manufacturing customization per each customer’s needs; Ability to produce in small batches and with short lead times; and |
| ● | Price |
Manufacturing and Supply
We outsource certain off-the-shelf components of our products from third-party manufacturers and suppliers. Thereafter, we manufacture and assemble in facilities in Israel and other countries, including several countries in Asia, Germany, and the U.S. Finished product are mostly assembled and pass quality control at our facility in Israel.
We consistently monitor our inventory levels, our outsourced manufacturing and distribution capabilities, and maintain recovery plans to address potential disruptions that we may encounter. We do not have a written agreement with these manufacturers and suppliers and work with them on a statement-of-work and purchase order. We are ISO 9001 certified and follow production protocols accordingly.
Intellectual Property
As of the date of this prospectus, we have no registered intellectual property rights. We consider the processes that we have developed to manufacture our products to be proprietary as industry know-how. We require all employees, consultants and others who work for or with us to enter into confidentiality agreements. In addition, we have the exclusive right to use certain third-party intellectual property (except in relation to various commercial off-the-shelf components that are used in the manufacturing of our products under standard licenses from the owners of those components, the use of which is regulated by contract). We have registered a domain name for Silynxcom and a number of trademarks in the United States. We take reasonable measures as is generally accepted to protect our trade secrets.
Employees
As of the date of this prospectus we have 31 full-time employees, including some of the senior management. We have 14 part-time employees. In addition, we have several consultants and sub-contractors, some of whom are engaged on a part time basis. All of our employees are located in Israel and in the US.
None of our employees are represented by labor unions or covered by collective bargaining agreements. We believe that we maintain good relations with all of our employees. In Israel, we are subject to certain Israeli labor laws, regulations and national labor court precedent rulings, as well as certain provisions of collective bargaining agreements applicable to us by virtue of extension orders issued in accordance with relevant labor laws by the Israeli Ministry of Economy and Industry and which apply such agreement provisions to our employees even though they are not part of a union that has signed a collective bargaining agreement.
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Facilities
Our corporate headquarters and warehouse are located 19 Yad Ha’Harutzim St., Netanya, Israel. This facility comprises approximately 433 square meters of space. The total amount paid by us in rent in 2021 and 2022 was $75 thousand and $79 thousand, respectively.
In addition, we rent offices in California in the United States, for $2 thousand per month. The offices are leased on a month-to-month basis.
We consider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.
M&A and Organizational Structure
We were established in Israel on August 22, 2021 and have two wholly-owned subsidiaries, Silynx Communications Inc., or Silynx USA, which was incorporated in Delaware in September 2005, and Source of Sound Ltd., or SOS, which was incorporated in Israel in September 2005.
As a result of a structural reorganization which took place on August 26, 2021 pursuant to a share exchange agreement between us and Silynx USA, Silynx USA became our wholly owned subsidiary and we acquired all the outstanding shares of Silynx USA from its shareholders in exchange for a full distribution of our outstanding shares to Silynx USA’s shareholders in proportion with their holdings in Silynx USA. In addition, all of Silynx USA’s convertible securities were replaced with convertible securities conferring identical and equal rights in our Company.
Furthermore, on August 26, 2021, Silynx USA’s board of directors resolved to distribute to our Company all the shares Silynx USA holds in SOS as a dividend in kind, such that, as of the date of this prospectus, our Company directly holds all the issued and outstanding shares of SOS. In addition, following the structural reorganization, all options that were allocated to Silynx USA’s employees under option plans adopted by Silynx USA confer such grantees identical rights to shares of our Company and all other terms of the Silynx USA plans continue to apply under the ESOP.
Legal Matters
From time to time, we may be involved in various claims and legal proceedings relating to claims arising in the ordinary course of our business. We are not currently a party to any legal proceedings that, if determined adversely to us, could reasonably be expected, individually or taken together, to have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Government Regulation
We are subject to a number of laws and regulations that affect our business. These laws and regulations are often complex and evolve frequently. Regulations include, but are not limited to, those related to import and export controls, corruption, bribery, the protection of the environment, product safety, workplace health and safety, employment, labor and data privacy. In addition, as a government contractor and/or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and grants, which affect how we and our partners do business with government agencies. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. Ensuring compliance with government contracting laws, regulations, or contractual provisions may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements could lead to claims for damages, civil or criminal penalties, termination of contracts and/or suspension or debarment from obtaining government contracts and grants.
The following describes significant regulations in the countries in which we primarily operate that may impact our businesses.
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Israel
Some of our export activity outside Israel is supervised by DECA, within the Israeli Ministry of Defense, and is subject to the provisions of the Defense Export Act. The purpose of the Defense Export Act is to regulate, inter alia, export of defense equipment or services by government regulation. The Defense Export Act requires a defense marketing license to be obtained in advance of any defense marketing activity promoting export of defense equipment or services by a company or person, or Defense Marketing License. Once such defense marketing license, a company is also required to obtain in advance a defense export license to conduct such transactions related to the defense marketing license it has been granted, or a Defense Export License. Such defense export license is required for each export transaction. The Defense Export License is granted with such specificity to certain transfer of defense related information or equipment to and of a specific approved party and end user and end usage. For any changes in such information, DECA must provide another Defense Export License. Under the Defense Export Act a license holder must submit quarterly reports to DECA, to maintain and retain records as to the information and documents pertaining to defense export transactions. The Defense Export Act also provides the competent government agency various audit and supervision powers to ensure compliance with the Defense Export Act and sets up criminal and administrative rules and penalties for violations. Furthermore, according to the Defense Export Supervision Regulations (The Scope of Defense Export by Virtue of an Agreement Between the State of Israel and Another Country that will Brought for Approval by the National Security Ministerial Committee), 5768-2008, defense export by virtue of an agreement between the State of Israel and another country in excess of NIS 200 million must be brought for approval by a sub-committee of the National Security Ministerial Committee; headed by the Prime Minister, and its members to include the Minister of Defense, the Minister of Foreign Affairs, the Minister of Justice, and the Minister of Finance.
As mentioned above, DECA has the power to grant marketing and/or export licenses and to include in those licenses’ conditions for their receipt and cancellation. DECA is also the agency within the Ministry of Defense authorized to provide exports’ applications in cases where they are required to obtain other approvals from other countries, which set various export restrictions on follow-on export from Israel or on follow-on sales in Israel of products or know-how acquired from that country. In accordance with the Defense Export Supervision Regulations (Licensing), 5768-2008, or the Licensing Regulations, DECA’s decisions regarding the granting a marketing license in connection with defense equipment, defense knowhow, or defense services are given within up to 40 or up to 120 days from the day DECA has received the application, depending on if such defense equipment, defense knowhow, or defense services have been determined to be non-classified or classified, respectively. In addition, the Licensing Regulations stipulate that a decision regarding Defense Export License application will be issued no later than 30 days from the application receipt date by DECA (unless the application requires approval of the sub-committee of the sub-committee of the National Security Ministerial Committee, in which case decision will be issued by no later than 45 days from the application receipt date by DECA).
Based on our past experience with DECA, when the application is urgent or where there is any other justified reason for receiving licenses within shorter periods than those specified above, companies can ask for licenses to be issued within shorter periods, and in most cases DECA issues such license within a significantly shorter period. In addition, there are countries for which there are exemptions from the requirement of applying to Defense Marketing License or Defense Export License. As of the date of this prospectus, DECA supervision relates to certain products that in terms of overall sales volume, accumulate to less than 20% of our annual sales volume, in the last three years. Our most popular range of products that generate most of our sales volume – the Clarus In-Ear Headset system family of products – was excluded by DECA from the regulated products list in 2022. However, we have the appropriate licenses required to market and export our regulated products, where such licenses are needed. We have never been denied a Defense Export License; however, in a small number of transactions, we were refused Defense Marketing Licenses and DECA did not provide approval to execute a transaction in a certain country for reasons that unrelated to our Company but rather due to DECA’s considerations, since a Defense Marketing License is awarded at DECA’s sole discretion. Furthermore, there is no certainty that the above-mentioned licenses will be renewed or remain in effect. In addition, DECA may not renew such licenses when they expire and DECA may cancel them in accordance with the regulations and powers vested in DECA by law.
We also have been an authorized supplier of the Israeli Ministry of Defense since 2006. We maintain the relevant security clearances and accordingly are required to comply with preconditions, rules and other regulations that apply to our engagement with the Ministry of Defense and contracts with the Israeli government or its agencies.
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United States
Our products are or may in the future be subject to trade and export control laws and regulations in the United States. For example, our direct sales through our website, which are managed by our Company’s U.S. based sales office, are subject to restrictions under ITAR. These regulations control the manufacture, sale, and distribution of defense and space related products (including technical data) and services as defined in the USML and, accordingly, we are required to register with the Directorate of Defense Trade Controls. The Directorate of Defense Trade Controls is primarily a means to provide the U.S. Government with necessary information on who is involved in certain ITAR controlled activities and registration alone does not confer any export or temporary import rights or privileges. Registration is generally a precondition for the issuance of any license or other approval and use of certain exemptions.
We are also subject to the EAR, ITAR, trade and economic sanctions maintained by the Office of Foreign Asset Control as well as foreign direct investment rules and regulations, tariffs and quotas, and other related regulations. In particular, an export license may be required to export or re-export our products and technology to certain countries or end-users or for certain end-uses or may be prohibited. Additionally, we may be required to register with the Directorate of Defense Trade Controls in order to conduct some aspects of our future business activities and we may be required to obtain licenses in order to conduct development activities. Obtaining the necessary export license for a particular sale or offering or business activity may not be possible or may be time-consuming and may result in the delay or loss of sales opportunities. Any failure to adequately address these legal obligations could result in civil fines or suspension or loss of our export privileges.
Any such damages, penalties, disruption, or limitation in our ability to do business with a government could have a material adverse effect on our business, results of operations, financial condition, public perception and growth prospects.
The Foreign Corrupt Practices Act
The FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the companies to maintain books and records that accurately and fairly reflect all transactions of the companies, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-United States nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our presence outside of the United States, requires dedicating additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC may also suspend or bar issuers from trading securities on the United States exchanges for violations of the FCPA’s accounting provisions.
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Directors and Senior Management
The following table sets forth information regarding our executive officers, key employees, directors and director nominees as of December 19, 2023. Immediately following the completion of this offering, our board is expected to consist of seven directors.
| Name | Age | Position | Class | |||
| Executive Officers | ||||||
| Nir Klein | 55 | Chief Executive Officer and Director | N/A | |||
| Ilan Akselrod | 45 | Chief Financial Officer | N/A | |||
| Gal Nir Klein | 53 | Vice President of Marketing and Israel Sales and Director | N/A | |||
| Elihay Cohen | 61 | Vice President of Marketing and International Sales Officer | N/A | |||
| Ronen Hananis | 42 | Vice President of Operations and Development | N/A | |||
| Directors and Director Nominees | ||||||
| Ron Klein | 56 | Chairman of the Board of Directors | ||||
| Yossi Tisch (1)(2)(3)(4)(5) | 56 | Director Nominee | ||||
| Yafit Keret (2)(3)(4) | 51 | Director Nominee | ||||
| Adler Adrian (1)(3)(4) | 58 | Director Nominee | ||||
| Itiel Efrat (1)(2)(3)(4)(5) | 59 | Director Nominee |
| (1) | Member of the Compensation Committee |
| (2) | Member of the Audit Committee and Financial Statement Examination Committee |
| (3) | Independent Director (as defined under Israeli law) |
| (4) | Independent Director (as defined under NYSE American LLC Company Guide Manual Section 803(A)(2), or NYSE American Section 803(A)(2)) |
| (5) | Nominee for the position of external director, if required under the Companies law |
Nir Klein, Chief Executive Officer and Director
Mr. Nir Klein has served as our Chief Executive Officer since January 2011 and as a member of our board of directors since August 2021. Mr. Klein graduated from Tel Aviv University with a B.A. in accounting and economics. Mr. Klein has vast operational experience as Chief Executive Officer and director, about which the Board of Directors believes qualifies him to serve as a director.
Ilan Akselrod, Chief Financial Officer
Mr. Ilan Akselrod has served as our Chief Financial Officer since September 2014. Mr. Akselrod served as a controller in Mobile Technologies Ltd. from June 2010 to August 2014. Mr. Akselrod received his Bachelor of Arts in Economics and Accounting from Bar Ilan University and a Master’s degree in Economics from Bar Ilan University.
Gal Nir Klein, Vice President of Marketing and Israel Sales and Director
Ms. Gal Nir Klein has served as our Vice President of Marketing and Israel Sales since October 2005 and as a member of our board of directors since August 2021. Ms. Nir Klein received her Bachelor of Arts in Economics from Tel Aviv University.
Elihay Cohen, Vice President of Marketing and International Sales Officer
Mr. Elihay Cohen has served as our Vice President of Marketing and International Sales since July 2021. Mr. Cohen served as our Vice President of Marketing and International Sales from October 2017 to December 2020. Mr. Cohen previously served as vice president of marketing and international sales at a large tactical gear producer and has twenty years of prior management and sales experience in the Hi-Tech sector, Mr. Cohen received his Bachelor of Science in Industrial Engineering from Tel Aviv University.
Ronen Hananis, Vice President of Operations and Development
Mr. Ronen Hananis has served as our Vice President of Operations and Development since October 2016. Mr. Hananis has served in various positions in our Company since August 2006. From February 2014 through October 2016, Mr. Hananis served as our R&D and Engineering Manager. Prior to that, Mr. Hananis served as our Engineering Manager. Mr. Hananis received his Bachelor of Science in electronics from the Holon Institute of Technology.
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Ron Klein, Chairman of the Board of Directors
Mr. Ron Klein has served as the Chairman of our board of directors since August 2017. Mr. Klein has been the co-founder, Chief Operating Officer and Chief Financial Officer of Xinteza API Ltd. since January 2022. Mr. Klein has also served as a director at Vgarden since January 2022, Histour-Eltive Ltd. since October 2022, and the Israel Bar Publishing House Ltd. since September 2021. From June 2018 through December 2021, Mr. Klein served as the Chief Executive Officer of ChickP Protein Ltd. Mr. Klein received an executive MBA from Kellog Recanati (Northwestern University and Tel Aviv University) in 2006. He holds a B.A. in accounting and finance from Tel Aviv University.
Yossi Tisch, Director Nominee
Mr. Yossi Tisch will become our director immediately after the closing of this offering and will serve as an external director under the Companies Law subject to the ratification of his appointment at a general meeting of our shareholders to be held following the completion of this offering. Mr. Tisch has been vice president of operations and engineering at Shikun & Binui Energy since 2018. From 2009 through 2018, Mr. Tisch served as chief executive officer of two companies in the electricity production and energy sectors. Mr. Tisch also serves as a director at Orim Renewable Energies, Etgal Energy Ltd., Beit Hagadi Green Energies Ltd., Nevatim Renewable Energies Ltd., PSP Investments Ltd, Negev Energy Ashalim Thermo-Solar Ltd, and Ramat Hovav Power Plant Operation and Maintenance, LP. Mr. Tisch received his B.Sc. in industrial and management engineering and his MBA from the Ben-Gurion University of the Negev.
Yafit Keret, Director Nominee
Ms. Yafit Keret will become our director immediately after the closing of this offering. Ms. Keret has been the owner and chief executive officer of Proximo Ltd. since 2011. From 2000 through 2010, Ms. Keret was the chief financial officer of Titan Systems Engineering Ltd. Ms. Keret also serves as director at Matrix Ltd. and Migdalor Investments. Ms. Keret received her B.A. in accounting and business administration and her MBA from the College of Management in Tel Aviv.
Adler Adrian, Director Nominee
Mr. Adler Adrian will become our director immediately after the closing of this offering. Mr. Adrian has worked as a systems engineer at Israel Aerospace Industries since 2019, a project manager at TechMer Ltd. since 2016 and a project manager and engineer at Mistral Group since 2013. From 2014 through 2016, Mr. Adrian worked as a project manager at Motorola Solutions Ltd. Mr. Adrian received his MBA from the Ben-Gurion University of the Negev and his B.Sc. in electrical engineering from Tel Aviv University.
Itiel Efrat, Director Nominee
Mr. Itiel Efrat will become our director immediately after the closing of this offering and will serve as an external director under the Companies Law subject to the ratification of her appointment at a general meeting of our shareholders to be held following the completion of this offering. Mr. Efrat is CEO of ERB Financial Group (“ERB”), an entity he co-founded in 1995. Mr. Efrat has twenty-eight years of experience in controllership services with ERB acting as chief financial officer to approximately one thousand five hundred start-up companies, mainly in the technology sector. Mr. Efrat also serves as director of Matrix IT Ltd, a leading Israeli IT company. Mr. Efrat received his B.A. in accounting and finance from the College of Management in Tel Aviv and is a certified public accountant.
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Family Relationships
Nir Klein, our Chief Executive Officer and Director is a brother to Ron Klien, the Chairman of our board of directors, and husband to Gal Nir Klein, our Israel Marketing and Sales Officer and Director. See “Related Party Transactions” for additional information.
Compensation of Directors and Executive Officers
The following table presents in the aggregate all compensation we paid to all of our directors and senior management for the year ended December 31, 2022. All amounts reported in the tables below reflect the cost to our Company, in U.S. Dollars, for the year ended December 31, 2022.
| Salary, bonuses and Related Benefits | Pension, Retirement and Other Similar Benefits | Share- Based Compensation | Total | |||||||||||||
| All directors and senior management as a group, consisting of 6 persons | $ | 769,365 | $ | 144,070 | $ | 0 | $ | 913,435 | ||||||||
For so long as we qualify as a foreign private issuer, we will not be required to comply with the proxy rules applicable to U.S. domestic companies regarding disclosure of the compensation of certain executive officers on an individual basis. Pursuant to the Companies Law, we will be required, after we become a public company, to disclose the annual compensation of our five most highly compensated officers on an individual basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer. We intend to commence providing such disclosure, at the latest, in the annual proxy statement for our first annual meeting of shareholders following the closing of this offering, which will be filed under cover of a report on Form 6-K.
Employment and Service Agreements
We have entered into written service agreements with each of our executive officers and the majority of our key employees, as further detailed below. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and intellectual property and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance. For a description of the terms of our options and option plans, see “Management—Share Incentive Plan” below.
Employment Agreement with Mr. Nir Klein, CEO and Director
In 2005, SOS entered into an employment agreement with Mr. Nir Klein, as amended on August 29, 2013, by which Mr. Klein to serve as the Chief Executive Officer, or CEO, of SOS for a full-time position. As of the date of our Company’s establishment, Mr. Klein became CEO of our Company with continuous rights. Mr. Klein is entitled to a monthly salary (gross) of NIS 35 thousand (approximately $11 thousand) and accompanying benefits, including 23 annual vacation days (accumulation of vacation days is limited to an allotment of 24 months only), recreation days and sick days pursuant to the law, a company car, payment for fuel expenses, a mobile phone and laptop, executive insurance/pension insurance, contributions to an education fund up to the ceiling that is exempted from tax under Israeli laws, and reimbursement of reasonable expenses incurred in relationship of his position. The Company also intends to execute Section 14 of the Severance Pay Law – 1963, or the Severance Pay Law, with Mr. Klein, and this will be valid as of the execution date. In addition, Mr. Klein is entitled to an annual bonus pursuant to meeting certain targets as described in his employment agreement. The employment agreement is for an unlimited term, and each party is entitled to terminate the employment agreement by a two months’ prior written notice. Upon conclusion of his employment at our Company for a reason that does not establish cause for termination pursuant to the terms of the employment agreement, Mr. Klein will be entitled to a prior notice period of four additional months (beyond the two months period noted above).
Furthermore, during his tenure as CEO, Mr. Klein has been granted 13,301 options to purchase of 13,301 Ordinary Shares.
Periodically, Mr. Klein waived a variable amount of the monthly salary (gross) due to him pursuant to his employment agreement. This amounted to approximately $57 thousand, $106 thousand and $131 thousand, respectively, in each of the years 2019, 2020 and 2021. On December 31, 2022, Mr. Klein executed an absolute and irrevocable disclaimer for the total amount that he waived throughout the aforementioned period and beginning in 2017, which was approximately $699 thousand.
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Mr. Klein is not entitled to any compensation with respect to his membership on our board of directors.
Following the completion of this offering, Mr. Klein shall receive a monthly salary of NIS 60,000, will receive an annual discretionary bonus subject to our compensation policy that would be the higher of the equivalent of NIS 180 thousand or 25% of certain variable components subject to adoption by our board.
Employment Agreement with Mrs. Gal Nir Klein, VP Marketing and Israel Sales, and Director
In 2005, SOS entered into an employment agreement with Mrs. Gal Nir Klein, by which Mrs. Klein serves as the VP Marketing and Israel Sales, of SOS for a full-time position. Mrs. Klein is entitled to a monthly salary (gross) of NIS 22 thousand (approximately $7 thousand) and accompanying benefits, including 23 annual vacation days (accumulation of vacation days is limited to an allotment of 24 months only), recreation days and sick days pursuant to Israeli law, a company car, fuel expenses, a mobile phone and laptop, executive insurance/pension insurance, contributions to an advanced education fund for her full salary, and reimbursement of reasonable expenses incurred in relationship of her position. The Company also intends to execute Section 14 of the Severance Pay Law with Ms. Klein, and this will be valid as of the execution date. In addition, Mrs. Klein is entitled to an annual bonus pursuant to meeting certain targets as described in her employment agreement. The employment agreement is for an unlimited term, and each party is entitled to terminate the employment agreement by a two months’ prior written notice. Upon conclusion of his employment at our Company for a reason that does not establish cause for termination pursuant to the terms of the employment agreement, Mrs. Klein will be entitled to a prior notice period of four additional months (beyond the two months period noted above).
Furthermore, during her tenure, Mrs. Klein has been granted 998 options to purchase of 998 Ordinary Shares.
Periodically, Mrs. Klein waived a variable amount of the monthly salary (gross) due to her pursuant to her employment agreement. This amounted to approximately $52 thousand, $41 thousand and $54 thousand, respectively, in each of the years 2019, 2020 and 2021. On December 31, 2022, Mrs. Klein executed an absolute and irrevocable disclaimer for the total amount that she waived throughout the aforementioned period and beginning in 2017, which was approximately $301 thousand.
Mrs. Klein is not entitled to any compensation with respect to her membership on our board of directors.
Following the completion of this offering, Mrs. Klein shall receive a monthly salary of NIS 39,000, a discretionary annual bonus linked to the Company’s compensation policy, an annual leave quota of twenty-three days, and a notice period of sixty days.
Employment Agreement with Mr. Ilan Akselrod, Chief Financial Officer
In 2014, SOS entered into an employment agreement with Mr. Ilan Akselrod, pursuant to which Mr. Akselrod serves as Chief Financial Officer, or CFO, of our Company for a full-time position. As of the date of our Company’s establishment, Mr. Akselrod became CFO of our Company with continuous rights. In respect of his tenure, Mr. Akselrod is entitled to a monthly salary (gross) of NIS 26 thousand (approximately $7 thousand) and accompanying benefits, including 17 annual vacation days, recreation days and sick days pursuant to the law, a mobile phone and laptop, executive insurance/pension insurance, severance pay pursuant to the provisions of Section 14 of the Severance Pay Law, contributions to a advanced education fund up to the ceiling that is exempted from tax, and reimbursement of reasonable expenses incurred in relationship with his position. In addition, Mr. Akselrod is entitled to an annual bonus subject to our Company’s exclusive discretion. The employment agreement is for an unlimited term, and each party is entitled to terminate it with 30 days’ prior written notice.
Furthermore, during his tenure, Mr. Akselrod was granted 92,226 options to purchase 92,226 Ordinary Shares.
Following the completion of this offering, Mr. Akselrod shall receive a monthly salary of NIS 39,000, a bonus of NIS 236,000, an annual leave quota in accordance with Israeli law and a notice period of thirty days.
Employment Agreement with Mr. Elihay Cohen, Vice President of Marketing and International Sales
In August 2021, SOS entered into an employment agreement with Mr. Elihay Cohen, pursuant to which Mr. Cohen serves as the VP Marketing and International Sales of our Company in a full-time position. In respect of his tenure, Mr. Cohen is entitled to a monthly salary (gross) of NIS 35 thousand (approximately 10 thousand). Mr. Cohen is entitled to accompanying benefits, including 18 annual vacation days that may be accumulated up to an allotment of 36 days, recreation days and sick days pursuant to the law, a company car, fuel expenses and reimbursement for vehicle-related expenses, a mobile phone and laptop, executive insurance/pension insurance, severance pay pursuant to Section 14 of the Severance Pay Law, contributions to an advanced education fund up to the ceiling that is exempted from tax, and reimbursement of reasonable expenses incurred in relationship with his position, and as approved in advance and in writing by our Company. In addition, Mr. Cohen is entitled to a commission from sales based on targets established in the agreement. The employment agreement is for an unlimited term, and each party is entitled to terminate it with 90 days’ prior written notice.
Furthermore, during his tenure, Mr. Cohen was granted 507,237 options to purchase 507,237 Ordinary Shares.
Following the completion of this offering, Mr. Cohen shall receive a monthly salary of NIS 39,000 and all other employment terms shall remain the same as his current employment agreement.
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Employment Agreement with Mr. Ronen Hananis, Vice President of Operations and Development
In 2006, SOS entered into an employment agreement with Mr. Ronen Hananis (who was employed at our Company since 2003 in various positions), pursuant to which Mr. Hananis serves as the VP Operations and Development of our Company for a full-time position. Mr. Hananis is entitled to a monthly salary (gross) of NIS 30 thousand (approximately $10 thousand) and accompanying benefits, including 20 vacation days, recreation days and sick days pursuant to the law, a company car and expenses related to vehicle usage (without grossing), a mobile phone and laptop, executive insurance/pension insurance, contributions to an advanced education fund for his full salary. Mr. Hananis will bear the tax consequences for the amount in excess of the tax-exempt threshold. The Company also intends to execute Section 14 of the Severance Pay Law with Ms. Klein, and this will be valid as of the execution date. The employment agreement is for an unlimited term, and each party is entitled to terminate it with 30 days’ prior written notice. Furthermore, during his tenure, Mr. Hananis has been granted 131,936 options for the purchase of 131,936 Ordinary Shares subject to completion of this offering,
Following the completion of this offering, Mr. Hananis shall receive a monthly salary of NIS 39,000 and a discretionary annual bonus linked to our compensation policy. All other terms shall remain the same as his current employment agreement.
Directors’ Service Agreements
Ron Klein, brother of Mr. Nir Klein, serves as the Chairman of our board of directors at a position scope of at least 30%, in consideration for monthly management fees of NIS 25 thousand (approximately $7 thousand) and will receive an annual discretionary bonus subject to our compensation policy that would be the higher of the equivalent of NIS 75 thousand or 25% of certain variable components subject to adoption by our board See “Related Party Transactions” for additional information. Mr. Klein has been granted 115,830 options to purchase 115,380 Ordinary Shares, subject to completion of this offering.
Differences between the Companies Law and Requirements
The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with various corporate governance practices. In addition, following the listing of the securities on the NYSE American, we will be required to comply with the NYSE American rules. Under those rules, we may elect to follow certain corporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by the NYSE American rules for U.S. domestic issuers.
In accordance with Israeli law and practice and subject to the exemption set forth in NYSE American Section 110 we have elected to follow the provisions of the Companies Law, rather than the rules, with respect to the following requirements:
| ● | Quorum. While NYSE American Section 123 recommends a quorum of at least 33.33%, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our articles of association, to be effective upon the closing of this offering, provide that a quorum of two or more shareholders holding at least 25% of the voting rights in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our articles of association with respect to an adjourned meeting consists of at least one shareholder present in person or by proxy. |
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Nomination of our directors. With the exception of directors elected by our board of directors and external directors, our directors are elected by an annual meeting of our shareholders (i) to hold office until the next annual meeting following his or her election or (ii) for three-year term, as described below under “Management—Board Practices—External Directors.” The nominations for directors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions of our articles of association and the Companies Law. Nominations need not be made by a nominating committee of our board of directors consisting solely of independent directors, as required under NYSE American Section 804. |
| ● | Compensation of officers. Israeli law and our articles of association do not require that the independent members of our board of directors (or a compensation committee composed solely of independent members of our board of directors) determine an executive officer’s compensation, as is generally required under NYSE American Section 805 with respect to the chief executive officer and all other executive officers. Instead, compensation of executive officers is determined and approved by our compensation committee and our board of directors, and in certain circumstances by our shareholders, either in consistency with our office holder compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Companies Law. See “Management—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. |
| ● | Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined under NYSE American Section 803(A), and rather requires we have at least two external directors who meet the requirements of the Companies Law, as described above under “Management—Board Practices—External Directors”, as opposed to NYSE American Section 802(a) that prescribes that a majority of the directors sitting on the board of directors must be independent. We are required, however, to ensure that all members of our Audit Committee are “independent” under NYSE American Section 803(B)(1) and under the SEC criteria for independence and we must also ensure that a majority of the members of our Audit Committee are “independent directors” as defined in the Companies Law. |
| ● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporation actions in accordance with the NYSE American rules. In particular, under NYSE American Section 711, shareholder approval is required in accordance with respect to the establishment or material amendment to a stock option or purchase plan or other equity compensation arrangement pursuant to which options or stock may be acquired by officers, employees, or consultants, regardless of whether or not such authorization is required by law or by the company’s charter, with certain exceptions. |
| ● | Annual Shareholders Meeting. As opposed to the NYSE American Section 704, which mandates that a listed company hold its annual shareholders meeting within one year of the company’s fiscal year-end, we are required, under the Companies Law, to hold an annual shareholders’ meeting each calendar year and within 15 months of the last annual shareholders meeting. |
| ● | Board Structure. As opposed to NYSE American Section 802(d), which mandates that the board of directors may not classified into more than three classes of approximately equal size and tenure, with no individual director’s term exceeding three years, and with a majority of the directors standing for reelection within every consecutive two-year period, it is required, under the Companies Law and our articles of association, that each director, except external directors (if applicable), will hold office until the following annual general meeting of our shareholders following their appointment, or until they resign or are removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events. The directors are classified, with respect to the term for which they each severally hold office, into three classes, as equal in number as practicable, and designated as Class I, Class II and Class III. The board of directors may assign members of the board of directors already in office to such classes at the time such classification becomes effective. If the number of directors is changed, any newly created directors or decrease in directors must be apportioned by the board of directors among the classes to make them equal in number. |
| ● | Nominating Committee. As opposed to NYSE American Section 804(a) that mandates that the board of director nominations must be either selected, or recommended for the board’s selection, by either a Nominating Committee comprised solely of independent directors or by a majority of the independent directors and that a company must adopt a formal written charter or board resolution addressing the nominations process and such related matters, we are required, under the Companies Law and our articles of association, with the exception of directors elected by our board of directors and external directors, to elect directors in an annual meeting of our shareholders (i) to hold office until the next annual meeting following their election or (ii) for a three-year term. The nominations for directors, which are presented to our shareholders by our board of directors, are generally made by the board of directors. |
| ● | Written Notice. As opposed to NYSE American Section 703, that mandates each issuer to provide shareholders with written notice at least 10 days in advance of all shareholder meetings and to provide for such notice in its by-laws, we are required, under Companies Law and our articles of association, to provide either 14 or 21 days written notice. |
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Corporate Governance
Board Practices, Introduction
Our board of directors presently consists of three members. Immediately following the completion of this offering, director nominees Yossi Tisch, Yafit Keret, Adler Adrian, and Itiel Efrat shall be confirmed as directors. Based on information requested from and provided by each director concerning such director’s background, employment and affiliations, including family relationships, our board of directors determined that, four members of our directors following the completion of this offering, are “independent directors” as defined under the listing standards of the NYSE American. In addition, subject to the completion of this offering. Our articles of association provide that the number of board of directors’ members (including external directors, as applicable) shall be set by the general meeting of the shareholders provided that it will consist of not less than three and not more than twelve directors, who shall be classified with respect to the term for which they each severally hold office. 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 or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are appointed by our Chief Executive Officer. Their terms of employment are subject to the approval of the board of directors’ compensation committee and of the board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with them. Our board of directors intends to establish an audit committee, financial statement examination committee, and a compensation committee prior to the completion of this offering.
Each director, except external directors (if applicable), will hold office until the next annual general meeting of our shareholders following his or her appointment, or until he or she resigns or unless he or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles of association. The directors are classified, with respect to the term for which they each severally hold office, into three classes, as nearly equal in number as practicable, and designated as Class I, Class II and Class III. The Board may assign members of the Board already in office to such classes at the time such classification becomes effective. If the number of directors is changed, any newly created directors or decrease in directors must be apportioned by the board among the classes to make them equal in number.
In addition, under certain circumstances, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors or in addition to the acting directors (subject to the limitation on the number of directors), in one of the classes and until the next annual general meeting according to the appropriate class in which directors may be appointed or terminated. External directors may be elected for up to two additional three-year terms after their initial three-year term under the circumstances described below, with certain exceptions as described in “External Directors” below. External directors may be removed from office only under the limited circumstances set forth in the Companies Law. See “Management—Board Practices—External Directors” below.
Under the Companies Law, any shareholder holding at least one percent of our outstanding voting power may nominate a director. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our board of directors. Any such notice must include certain information, including the consent of the proposed director nominee to serve as our director if elected, and a declaration that the nominee signed declaring that he or she possesses the requisite skills and has the availability to carry out his or her duties. Additionally, the nominee must provide details of such skills, and demonstrate an absence of any limitation under the Companies Law that may prevent his or her election, and affirm that all of the required election-information is provided to us, pursuant to the Companies Law and our articles of association.
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Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is one.
The board of directors must elect one director to serve as the chairman of the board of directors to preside at the meetings of the board of directors, and may also remove that director as chairman. Pursuant to the Companies Law, neither the chief executive officer nor any of his or her relatives is permitted to serve as the chairman of the board of directors, and a company may not vest the chairman or any of his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman may not be vested with authorities of a person who reports, directly or indirectly, to the chief executive officer; and the chairman may not serve in any other position in the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, the Companies Law permits a company’s shareholders to determine, for a period not exceeding three years from each such determination, that the chairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities, and that the chief executive officer or his or her relative may serve as chairman or be vested with the chairman’s authorities. Such determination of a company’s shareholders requires either: (1) the approval of at least a majority of the shares of those shareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination) (shares held by abstaining shareholders shall not be considered); or (2) that the total number of shares opposing such determination does not exceed 2% of the total voting power in the company. Currently, we have a separate chairman and chief executive officer.
The board of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees of the board, and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations. Unless otherwise expressly provided by the board of directors, the committees shall not be empowered to further delegate such powers. The composition and duties of our audit committee, financial statement examination committee and compensation committee are described below.
The board of directors oversees how management monitors compliance with our risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by us. The board of directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to our audit committee.
External Directors
Under the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in or outside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards of independence.
According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,” unless another member of the audit committee, who is an independent director under the NYSE American rules, has “financial and accounting expertise,” and the other external director or directors are required to have “professional expertise.” An external director may not be appointed to an additional term unless: (1) such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there is another external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at least equal to the minimum number determined appropriate by the board of directors.
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A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses a high degree of proficiency in, and an understanding of, business – accounting matters and financial statements, such that he or she is able to understand the financial statements of the company in depth and initiate a discussion about the manner in which financial data is presented. A director is deemed to have “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.
External directors are elected by a majority vote at a shareholders’ meeting, as long as either:
| ● | At least a majority of the shares held by shareholders who are not controlling shareholders and do not have personal interest in the appointment (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder) have voted in favor of the proposal (shares held by abstaining shareholders shall not be considered); or |
| ● | The total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights of the company. |
The term “control” is defined in the Companies Law as the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder “holds” (within the meaning of the Companies Law) 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a 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, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.
The Companies Law provides for an initial three-year term for an external director. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to two additional three-year terms, provided that:
| (1) | his or her service for each such additional term is recommended by one or more shareholders holding at least one percent 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 two percent of the aggregate voting rights in the company and subject to additional restrictions set forth in the Companies Law with respect to the affiliation of the external director nominee as described below; |
| (2) | 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 disinterested majority required for the initial election of an external director (as described above); or |
| (3) | the external director offered his or her service for each such additional term and was approved in accordance with the provisions of section (1) above. |
The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NYSE American, may be extended indefinitely in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as described above). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.
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 or other disqualifying relationship with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as chairman of the board or chief executive officer, with a holder of 5% or more of the issued share capital or voting power in the company or with the most senior financial officer.
The term “relative” is defined under the Companies Law as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of the foregoing persons.
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Under the Companies Law, the term “affiliation” and the similar types of disqualifying relationships include (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. |
The term “office holder” is defined under the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager directly subordinate to the general manager.
In addition, no person may serve as an external director if that person’s position 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 from the company including amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage, other than for his or her service as an external director 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 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 office holder 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 the former external director. 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.
External directors may be removed only by a special general meeting of shareholders called by the board of directors after the board has determined the occurrence of 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 shareholder meeting as soon as possible to appoint such number of new external directors in order that the company thereafter has two external directors.
External directors may be compensated only in accordance with regulations adopted under the Companies Law.
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 a company may not be appointed as an external director of another company if at the same time a director of such other company is acting as an external director of the first company.
Under regulations promulgated pursuant to the Companies Law, a company with no controlling shareholder (as defined under the Companies Law) whose shares are listed for trading on specified exchanges outside of Israel, including the NYSE American, may adopt exemptions from various corporate governance requirements of the Companies Law, so long as such company satisfies the requirements of applicable foreign country laws and regulations, including applicable stock exchange rules, that apply to companies organized in that country and relating to the appointment of independent directors and the composition of audit and compensation committees. Such exemptions include an exemption from the requirement to appoint external directors and the requirement that an external director be a member of certain committees, as well as exemption from limitations on directors’ compensation. Following the closing of this offering, we expect that we will continue to be a “controlled company” as defined under the Companies Law, and, as such, subject to closing of this offering, we will not use this exemption from the requirement described herein. Notwithstanding the above, if following the offering the Board of Directors will decide that we are not a controlled company, then, it may use the described exemption.
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Independent Directors Under the Companies Law
An “independent director” is either an external director or a director who meets the same non-affiliation criteria as an external director (except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications), as determined by the audit committee, and who has not served as a director of the company for more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Regulations promulgated pursuant to the Companies Law provide that a director in a public company whose shares are listed for trading on specified exchanges outside of Israel, including the NYSE American, who qualifies as an independent director under the relevant non-Israeli rules and who meets certain non-affiliation criteria, which are less stringent than those applicable to independent directors as set forth above, would be deemed an “independent” director pursuant to the Companies Law provided: (i) he or she has not served as a director for more than nine consecutive years; (ii) he or she has been approved as such by the audit committee; and (iii) his or her remuneration shall be in accordance with the Companies Law and the regulations promulgated thereunder. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Furthermore, pursuant to these regulations, such company may reappoint a person as an independent director for additional terms, beyond nine years, which do not exceed three years each, if each of the audit committee and the board of directors determine, in that order, that in light of the independent director’s expertise and special contribution to the board of directors and its committees, the reappointment for an additional term is in the company’s best interest.
Alternate Directors
Our articles of association provides, as allowed by the Companies Law, that any director may, subject to the conditions set thereto including approval of the nominee by our board of directors, appoint a person as an alternate to act in his place, to remove the alternate and appoint another in his place and to appoint an alternate in place of an alternate whose office is vacated for any reason whatsoever. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is to replace an external director, he or she is required to be an external director and to have either “financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external director he or she is replacing. A person who does not have the requisite “financial and accounting experience” or the “professional expertise,” depending on the qualifications of the external director he or she is replacing, may not be appointed as an alternate director for an external director. A person who is not qualified to be appointed as an independent director, pursuant to the Companies Law, may not be appointed as an alternate director of an independent director qualified as such under the Companies Law. Unless the appointing director limits the time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment.
Status as a “Controlled Company” under the NYSE American Rules
We plan to list our Ordinary Shares on the NYSE American. Because our existing controlling shareholders, Mr. Nir Klein and Mr. Ron Klein, will own 52.11% of the total voting power of our issued and outstanding Ordinary Shares immediately after the consummation of this offering, assuming the sale of all of the Ordinary Shares we are offering, Mr. Nir Klein and Mr. Ron Klein will be able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendment of our amended and restated articles of association and approval of significant corporate transactions. Since Mr. Ron Klein and Mr. Nir Klein will continue to control a majority of our outstanding voting power upon the completion of this offering, we will be a “controlled company” under the applicable rules of the NYSE American. As a controlled company, we will be eligible for exemptions from some of the requirements of these rules, including the requirements that:
| ● | a majority of the board of directors consist of independent directors; |
| ● | the nominating committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| ● | the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. |
We have decided not to rely on or avail ourselves of the exemptions available for controlled companies under NYSE American rules. However, our decision not to rely on the “controlled company” exemption could change and we cannot assure that we will not rely on these exemptions in the future. If we make such an election, we would disclose such reliance in our next annual report on Form 20-F or annual meeting proxy statement and you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE American. In the event that we cease to be a controlled company within the meaning of the applicable rules of the NYSE American, and at such time we have availed ourselves of such corporate governance exemptions available to controlled companies, we will then be required to comply with these requirements after specified transition periods.
Committees of the Board of Directors
Our board of directors will establish three standing committees, the audit committee, the compensation committee and the Financial Statement Examination Committee.
Upon the completion of this offering, our board of directors will establish three standing committees, the audit committee, the compensation committee and the Financial Statement Examination Committee.
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Audit Committee
Under the Companies Law, we are 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 chair 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, a majority of the members of the audit committee of a publicly traded company must be independent directors under the Companies Law. Our audit committee will be comprised of Yossi Tisch, Itiel Efrat, and Yafit Keret.
Under the Companies Law, our audit committee will be responsible for:
| (i) | determining whether there are deficiencies in the business management practices of our company, and making recommendations to the board of directors to improve such practices; |
| (ii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) and establishing the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”); |
| (iii) | determining the approval process for transactions that are “non-negligible” (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee; |
| (iv) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
| (v) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; |
| (vi) | establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees; and |
| (vii) | where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto. |
Our audit committee may not conduct any discussions or approve any actions requiring its approval (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”), unless at the time of the approval a majority of the committee’s members are present, which majority consists of independent directors under the Companies Law, including at least one external director.
Our board of directors intends to adopt an audit committee charter to be effective upon the closing of this offering and the registration of our securities on the NYSE American setting forth, among others, the responsibilities of the audit committee consistent with the rules of the SEC and NYSE American (in addition to the requirements for such committee under the Companies Law), including, among others, the following:
| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; | |
| ● | recommending the engagement or termination of the person filling the office of our internal auditor, reviewing the services provided by our internal auditor and reviewing effectiveness of our system of internal control over financial reporting; | |
| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors; and | |
| ● | reviewing and monitoring, if applicable, legal matters with significant impact, finding of regulatory authorities’ findings, receive reports regarding irregularities and legal compliance, acting according to “whistleblower policy” and recommend to our board of directors if so required. |
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Requirements for Audit Committee
As noted above, the members of our audit committee will include Yossi Tisch and Itiel Efrat, who are both nominated for the position of external director, and Yafit Keret, who is an independent director, each of whom is “independent,” as such term is defined in under the NYSE American rules and Rule 10A-3 of the Exchange, or will serve as the chairman of our audit committee. All members of our audit committee meet the requirements for financial literacy under the NYSE American rules. Our board of directors has determined that each member of our audit committee is an audit committee ‘financial expert’ as defined by Item 407(d) of Regulation S-K under the Securities Act and has the requisite financial experience as defined by the NYSE American rules.
Financial Statement Examination Committee
Under the Companies Law, the board of directors of a public company in Israel 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 financial statement examination committee will be comprised of Yossi Tisch, Itiel Efrat, and Yafit Keret.
The function of a financial statements examination committee is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with the preparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financial statements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; and (5) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent registered public accounting firm and our internal auditor are invited to attend all meetings of our financial statements examination committee.
Compensation Committee
Under the Companies Law, the board of directors of any public company must establish a compensation committee. 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. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to: (a) who may not be a member of the committee; and (b) who may not be present during committee deliberations as described above.
Our compensation committee will be acting pursuant to a written charter, and will consist of Yossi Tisch, Itiel Efrat, and Adler Adrian.
Our compensation committee will comply with the provisions of the Companies Law, the regulations promulgated thereunder, and our articles of association, on all aspects referring to its independence, authorities and practice. Our compensation committee follows home country practice as opposed to complying with the compensation committee membership and charter requirements prescribed under the NYSE American rules.
Our compensation committee will review and recommend to our board of directors: with respect to our executive officers’ and directors’: (1) annual base compensation (2) annual incentive bonus, including the specific goals and amounts; (3) equity compensation; (4) employment agreements, severance arrangements, and change in control agreements and provisions; (5) retirement grants and/or retirement bonuses; and (6) any other benefits, compensation, compensation policies or arrangements.
The duties of the compensation committee will include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. Under the Companies Law, we are required to adopt an office holder compensation policy no later than nine (9) months from the consummation of this offering. Such policy will be adopted by our board of directors and approved by a special majority of our shareholders at the general meeting, for a period five (5) years following the completion of the offering (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”). Under the Companies Law, the board of directors may adopt the compensation policy if it is not approved by the shareholders, provided that after the shareholders oppose the approval of such policy, the compensation committee and the board of directors revisit the matter and determine that adopting the compensation policy would be in the best interests of the company.
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The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officers and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
| ● | the education, skills, expertise and accomplishments of the relevant director or executive; | |
| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her; | |
| ● | the relationship between the cost of the terms of service of an office holder and the average median compensation of the other employees of the company (including those employed through manpower companies), including 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 compensation; and | |
| ● | as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
The compensation policy must also include the following principles:
| ● | with the exception of office holders who report directly to the chief executive officer, the link between variable compensation and long-term performance and measurable criteria; | |
| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of its grant; | |
| ● | the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later 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. |
The compensation policy must also consider appropriate incentives from a long-term perspective.
The compensation committee is responsible for: (1) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by the shareholders); and (2) duties related to the compensation policy and to the compensation of a company’s office holders, including:
| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); | |
| ● | recommending to the board of directors periodic updates to the compensation policy; | |
| ● | assessing implementation of the compensation policy; | |
| ● | determining whether the terms of compensation of certain office holders of the company need not be brought to approval of the shareholders; and | |
| ● | determining whether to approve the terms of compensation of office holders that require the committee’s approval. |
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Our compensation policy will be designed to promote our long-term goals, work plan and policy, retain, motivate and incentivize our directors and executive officers, while considering the risks that our activities involve, our size, the nature and scope of our activities and the contribution of an officer to the achievement of our goals and maximization of profits, and align the interests of our directors and executive officers with our long-term performance. To that end, a portion of an executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy will include measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer and minimum vesting periods for equity-based compensation.
Our compensation policy will also address our executive officer’s individual characteristics (such as his or her respective position, education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation among our executive officers, and considers the internal ratios between compensation of our executive officers and directors and other employees. For example, the compensation that may be granted to an executive officer may include: base salary, annual bonuses, equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executive officer’s base salary. In addition, our compensation policy will provide for maximum permitted ratios between the total variable (cash bonuses and equity-based compensation) and non-variable (base salary) compensation components, in accordance with an officer’s respective position with the company.
An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to executive officers other than our chairman or Chief Executive Officer may be based entirely on a discretionary evaluation. Our Chief Executive Officer will be entitled to recommend performance objectives to such executive officers, and such performance objectives will be approved by our compensation committee (and, if required by law, by our board of directors).
The performance measurable objectives of our chairman and Chief Executive Officer will be determined annually by our compensation committee and board of directors. A less significant portion of the chairman’s and/or the Chief Executive Officer’s annual cash bonus may be based on a discretionary evaluation of the chairman’s or the Chief Executive Officer’s respective overall performance by the compensation committee and the board of directors based on quantitative and qualitative criteria.
The equity-based compensation under our compensation policy for our executive officers (including members of our board of directors) will be designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the executive officers’ interests with our long-term interests and those of our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation policy will provide for executive officer compensation in the form of share options or other equity-based awards, such as restricted shares, options, in accordance with our stock option plan then in place. Share options granted to executive officers shall be subject to vesting periods in order to promote long-term retention of the awarded executive officers. The equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.
In addition, our compensation policy will contain compensation recovery provisions which allows us under certain conditions to recover bonuses paid in excess, will enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer (provided that the changes of the terms of employment are in accordance our compensation policy) and allows us to exculpate, indemnify and insure our executive officers and directors subject to certain limitations set forth thereto.
Our compensation policy will also provide for compensation to the members of our board of directors either: (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may be amended from time to time; or (ii) in accordance with the amounts determined in our compensation policy.
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Requirements for Compensation Committee
As noted above, the members of our compensation committee will include Yossi Tisch, Itiel Efrat, and Adler Adrian each of whom is “independent,” as such term is defined in under the NYSE American rules.
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor nominated by the audit committee. We intend to appoint our internal auditor within 90 days following the consummation of this offering. The role of the internal auditor is to examine, among other things, whether a company’s actions comply with the law and proper business procedure. The audit committee is required to oversee the activities, and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. An internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the outstanding shares or voting rights of a company, any person or entity that has the right to appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. Our internal auditor will not be our employee, but partner of a firm which specializes in internal auditing.
Remuneration of Directors
Under the Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directors and thereafter, unless exempted under the regulations promulgated under the Companies Law, by the general meeting of the shareholders. In case the remuneration of the directors is in accordance with regulations applicable to remuneration of the external directors then such remuneration shall be exempt from the approval of the general meeting. Where the director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply.
Fiduciary Duties of Office Holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and | |
| ● | all other important information pertaining to these actions. |
The duty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:
| ● | refrain from any conflict of interest between the performance of his duties in the company and his performance of his other duties or personal affairs; | |
| ● | refrain from any action that is competitive with the company’s business; | |
| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and | |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder. |
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Insurance
Under the Companies Law, a company may obtain insurance for any of its office holders against the following liabilities incurred due to acts he or she performed as an office holder, if and to the extent provided for in the company’s articles of association:
| ● | breach of his or her duty of care to the company or to another person, to the extent such a breach arises out of the negligent conduct of the office holder; | |
| ● | a breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests; and | |
| ● | a financial liability imposed upon him or her in favor of another person. |
We are currently in the process of obtaining directors’ and officers’ liability insurance, which will be in place upon completion of this offering.
Indemnification
The Companies Law and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court; (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceeding of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and | |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and | |
| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
We have entered into indemnification agreements with all of our directors and with all members of our senior management. Each such indemnification agreement provides the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.
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Exculpation
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association provides that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.
Limitations
The Companies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our articles of association permits us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
The foregoing descriptions summarize the material aspects and practices of our board of directors. For additional details, we also refer you to the full text of the Companies Law as well as of our articles of association, which is an exhibit to this registration statement of which this prospectus forms a part and is incorporated herein by reference.
There are no service contracts between us or our Subsidiary, on the one hand, and our directors in their capacity as directors, on the other hand, providing for benefits upon termination of service.
Approval of Related Party Transactions under Israeli Law
General
Under the Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:
| ● | the office holder acts in good faith and the act or its approval does not cause harm to the company; and | |
| ● | the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter. |
Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
| ● | the office holder’s relatives; or | |
| ● | any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager. |
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An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is a transaction:
| ● | not in the ordinary course of business; | |
| ● | not on market terms; or | |
| ● | that is likely to have a material effect on the company’s profitability, assets or liabilities. |
The Companies Law does not specify to whom within us nor the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our board of directors.
Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is in the company’s interest. If the transaction is an extraordinary transaction in which an office holder has a personal interest, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. A director who has a personal interest in a transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majority of members of the board of directors or the audit committee, as the case may be, has a personal interest. If a majority of the board of directors has a personal interest, then shareholder approval is generally also required.
Disclosure of Personal Interests of a Controlling Shareholder
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of engagement and compensation of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee or the compensation committee, as the case may be, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements:
| ● | at least a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or | |
| ● | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.
The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
The term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated.
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Approval of the Compensation of Directors and Executive Officers
The compensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval of the company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify, insure or exculpate is inconsistent with the company’s stated compensation policy, or if the said office holder is the chief executive officer of the company (subject to a number of specific exceptions), then such arrangement is subject to the approval of our shareholders, subject to a special majority requirement.
Directors. Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the general meeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, shareholder approval by a special majority will be required.
Executive officers other than the chief executive officer. The Companies Law requires the approval of the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) only if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders by a special majority. However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
Chief executive officer. Under the Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders by a special majority. However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provides detailed reasons for their decision. In addition, the compensation committee may exempt the engagement terms of a candidate to serve as the chief executive officer from shareholders’ approval, if the compensation committee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjecting the approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s chief executive officer (and provide detailed reasons for the latter).
The approval of each of the compensation committee and the board of directors, with regard to the office holders and directors above, must be in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committee and the board of directors may approve compensation terms of a chief executive officer that are inconsistent with the company’s compensation policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained by a special majority requirement.
Duties of Shareholders
Under the Companies Law, a shareholder has a duty to refrain from abusing his power in the company and to act in good faith and in an acceptable manner in exercising his rights and performing his obligations toward the company and other shareholders, including, among other things, in voting at general meetings of shareholders (and at shareholder class meetings) on the following matters:
| ● | amendment of the articles of association; | |
| ● | increase in the company’s authorized share capital; | |
| ● | merger; and | |
| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |
A shareholder also has a general duty to refrain from oppressing other shareholders. The remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of oppression of other shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
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Equity Incentive Plan
Our ESOP was adopted by our board of directors, or the board, on January 9, 2023. The ESOP provides for the grant of options to our directors, officers, employees and/or non-employees or of any affiliate thereof (collectively, “optionees”). As of June 30, 2023, the total number of Ordinary Shares reserved for the exercise of options granted under our ESOP was 696,171.
Our ESOP is administered by our board, which may grant its authority to a committee, consisting of at least two of our directors. If so granted, such committee has the responsibility of construing and interpreting the ESOP. The committee has the power to recommend to the board and the board has the full power and authority to: (i) designate optionees; (ii) determine the terms and provisions of the respective option agreements (including the number of options granted, the number of Ordinary Shares to be covered by each option, provisions regarding exercise of the options, and the nature and duration of restrictions as to the transferability); (iii) determine the fair market value of the Ordinary Shares covered by each option; (iv) designate the type of options; and (v) cancel or suspend options, as necessary.
Eligible employees, officers and directors would qualify for provisions of Section 102 of the Tax Ordinance. Section 102 of the Tax Ordinance allows employees, directors and officers who are not controlling shareholders and are considered Israeli residents to receive favorable tax treatment for compensation in the form of shares or options. Section 102 includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, the most favorable tax treatment for the grantee, permits the issuance to a trustee under the “capital gain track.” However, under this track we are not allowed to deduct an expense with respect to the issuance of the options or shares. Non-employees may only be granted options under section 3(i) of the Tax Ordinance, which does not provide for similar tax benefits.
As a default, our ESOP provides that upon termination of a an optionee’s employment or service with us or any of our affiliates, other than in the event of death, disability or cause, all unvested options will terminate and the underlying Ordinary Shares will revert to our ESOP, and all vested options will generally be exercisable for 90 days following such termination, subject to the terms of the ESOP and the governing option agreement. Notwithstanding the foregoing, in the event the engagement is terminated for cause (including, inter alia, due to conviction of any felony involving moral turpitude, failure to carry out (as a result of gross negligence or willful misconduct) a reasonable directive, embezzlement or theft of fund from us or our affiliates, breach of the optionee’s fiduciary duties to us, and conduct determined to be materially detrimental to us) all options granted to such optionee, whether vested or unvested, will not be exercisable and will terminate on the date of the termination. Upon termination of a service agreement due to death or disability, all the options vested at the time of termination will generally be exercisable for 12 months.
In the event of a merger or consolidation with or into another corporation resulting in such other corporation being the surviving entity, an acquisition of all or substantially all of our outstanding capital stock, or the sale of substantially all of our assets, each outstanding option shall be assumed for an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation, and appropriate adjustments shall be made in the number of options in order to reflect such an action. In the event that the successor corporation refuses to assume or substitute for the option, the vesting periods defined in the option agreement may be fully accelerated.
In the event of any variation in our share capital, including a share dividend, share split, combination or exchange of shares, recapitalization, or any other like event, the number, class and kind of shares subject to the ESOP and outstanding options, and the exercise prices of the options, will be appropriately and equitably adjusted so as to maintain the proportionate number of shares without changing the aggregate exercise price of the options.
All awards granted under the ESOP are subject to lapse, forfeiture and/or recoupment under any clawback policy that we may adopt pursuant to the listing standards of the NYSE American or as is otherwise required by applicable law. Any recoupment under this policy may be conducted in conjunction with any other remedies or rights of recoupment available to the Company pursuant to the terms of any similar policy or under applicable law.
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BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of our Ordinary Shares as of December 19, 2023 by:
| ● | each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our outstanding Ordinary Shares; | |
| ● | each of our directors, director nominees and executive officers; and | |
| ● | all of our directors, director nominees and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to Ordinary Shares. Ordinary Shares issuable under share options that are exercisable within 60 days after December 19, 2023, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The percentage of shares beneficially owned before this offering is based on 3,161,779 shares outstanding on December 19, 2023. The number of Ordinary Shares deemed outstanding after this offering is based on 5,075,000 Ordinary Shares, which assumes the sale of 1,075,000 Ordinary Shares in this offering and no exercise of the over-allotment option or the Representative Warrants.
As of December 5, 2023, there were five holders of record of our Ordinary Shares. As of December 19, 2023, we had no record holders of our Ordinary Shares in the United States.
We are not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to us which would result in a change in control of our company at a subsequent date. Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each beneficial owner’s address is: c/o Silynxcom Ltd., 19 Yad Ha’Harutzim Street, Netanya, Israel.
| Ordinary Shares Beneficially Owned Prior to this Offering(1) |
Percentage Owned Prior to this Offering |
Ordinary
Shares Beneficially Owned After this Offering |
Percentage Owned After this Offering |
|||||||||||||
| Holders of more than 5% of our voting securities: | ||||||||||||||||
| Nir Klein* | 2,766,805 | 61.02 | % | 2,766,805 | 48.78 | % | ||||||||||
| Shlomi Amsallem(2) | 309,014 | 6.82 | % | 309,014 | 5.45 | %(3) | ||||||||||
| Ofer Amir(2) | 309,014 | 6.82 | % | 309,014 | 5.45 | %(3) | ||||||||||
| Elihay Cohen(4) | 261,468 | 5.77 | % | 324,704 | 5.72 | % | ||||||||||
| Directors, director nominees and senior management who are not 5% holders: | ||||||||||||||||
| Gal Nir Klein* | 1,062 | ** | % | 1,062 | ** | % | ||||||||||
| Ronen Hananis | 58,645 | 1.29 | % | 58,645 | ** | % | ||||||||||
| Ilan Akselrod | 41,269 | ** | % | 41,269 | ** | % | ||||||||||
| Ron Klein | 188,917 | 4.17 | % | 188,917 | 3.33 | % | ||||||||||
| Yossi Tisch* | 0 | ** | % | 0 | ** | % | ||||||||||
| Yafit Keret* | 0 | ** | % | 0 | ** | % | ||||||||||
| Adler Adrian* | 0 | ** | % | 0 | ** | % | ||||||||||
| Itiel Efrat* | 0 | ** | % | 0 | ** | % | ||||||||||
| All directors, director nominees and senior management as a group (6 persons) | 3,318,166 | 73.2 | % | |||||||||||||
| * | Indicates director or director nominee of our Company. |
| ** | Less than 1%. |
| (1) | Includes options to purchase 407,433 Ordinary Shares that are exercisable within 60 days, at exercise prices ranging from $1.27 to $14.44 per share. |
| (2) | Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement. |
| (3) | The Amendment to the Investors Agreement specifies that the Investors would hold a minimum of 13.48% of our issued and outstanding share capital following the offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities”. |
| (4) | Includes 252,686 Ordinary Shares and 8,783 options exercisable into 8,783 Ordinary Shares issuable upon the exercise of options that are exercisable immediately until December 31, 2023 and does not include 63,236 Ordinary Shares upon the exercise of 63,236 options that will vest and be immediately exercisable upon completion of this offering. Mr. Cohen alone has the voting and dispositive power over such Ordinary Shares. |
Record Holders
As of December 19, 2023, there were five shareholders of record of our Ordinary Shares, which were located in Israel. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these shares were held of record by brokers or other nominees.
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The following is a description of certain related party transactions in effect as of the date of this prospectus with any of our executive officers, directors or their affiliates and holders of more than 10% of any class of our voting securities in the aggregate, which we refer to as related parties, other than employment, compensation and indemnification arrangements which are described under “Management,” which are incorporated by reference herein.
Employment Agreements
We have entered into written employment agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information, and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance. Certain members of our senior management may be eligible for bonuses each year. To the extent a member of management is entitled to a bonus, such bonuses are payable upon meeting objectives and targets that are set by our Chief Executive Officer and approved annually by our board of directors that also set the bonus targets for our Chief Executive Officer.
Indemnification Agreements and Exculpation Letters
We will enter into indemnification agreements and exculpation letters with all of our directors and with all members of our senior management. Each such indemnification agreement provides the officeholder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officer’s insurance. Each such exculpation letter provides that we may exculpate, in whole or in part, the relevant director or member of senior management from liability to us for damages caused to our Company as a result of a breach of his or her duty of care.
Employment Agreement with Gal Nir Klein
In 2005, we entered into an employment agreement with Gal Nir Klein, our Vice President of Marketing and Israel Sales, and a member of the board of directors. Mrs. Klein is the wife of Mr. Nir Klein, our Chief Executive Officer and major shareholder. Mrs. Klein’s monthly base salary is NIS 22 thousand (approximately $7 thousand). In addition, Mrs. Klein is entitled to an annual bonus pursuant to meeting targets as well as a grant of company options. See “Management—Compensation of Directors and Executive Officers” for additional information.
Director Agreement with Ron Klein
Ron Klein, the brother of Mr. Nir Klein, serves as the Chairman of our board of directors at a position scope of at least 30%, in consideration for monthly management fees of NIS 25 thousand (approximately $7 thousand). See “Related Party Transactions” for additional information. Mr. Klein has been granted 115,830 options to purchase 650,000 Ordinary Shares, subject to completion of this offering.
Shareholders Loans
Mr. Nir Klein, our Chief Executive Officer and controlling shareholder, has provided certain loans to us, as disclosed below.
On September 8, 2016, Mr. Klein provided a loan to the subsidiary, SOS, in a total amount of $50 thousand, which was repaid in February 2023.
On July 9, 2017, Mr. Klein provided a loan to our Company of NIS 177 thousand (approximately $50 thousand). The loan was repaid on June 30, 2022.
In November 2021, we repaid a loan to Mr. Ron Klein for NIS 177 thousand (approximately $57 thousand) that did not incur interest, which was provided to us in 2017.
As of the date of this prospectus, there are no loan arrangements outstanding between us and any of our executive officers, directors or shareholders.
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The following descriptions of our share capital and provisions of our articles of association which will be effective upon the closing of this offering are summaries and do not purport to be complete. A form of our articles of association will be filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part. The description of the Ordinary Shares reflects changes to our capital structure that will occur upon the closing of this offering.
General
As of December 19, 2023, our authorized share capital consisted of 20,000,000 Ordinary Shares, no par value, subject to the closing of this offering, of which 3,161,779 shares were issued and outstanding as of such date. All of our outstanding Ordinary Shares have been validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and are not subject to any preemptive right.
There will be 1,075,000 Ordinary Shares outstanding immediately after this offering, which assumes the sale of Ordinary Shares in this offering and no exercise of the over-allotment option or the Representative Warrants, and is based on 3,161,779 Ordinary Shares outstanding as of June 30, 2023. This number excludes:
| ● | 454,105 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our share incentive plan, outstanding as of June 30, 2023, at a weighted average exercise price of $2.15, of which 454,105 were vested as of June 30, 2023; | |
| ● | 53,624 Ordinary Shares issuable upon exercise of warrants issued to an employee, at an exercise price of NIS 2.965; and |
| ● | 696,171 Ordinary Shares reserved for future issuance under the ESOP. |
Unless otherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the Representative’s Warrants; | |
| ● | no exercise of the underwriters’ over-allotment option; | |
| ● | no exercise of the outstanding options described above; | |
| ● | 102,346 Ordinary Shares issuable upon the conversion of SAFEs for aggregate proceeds of NIS 1.14 million (approximately $342 thousand), which will automatically convert upon the consummation of this offering, based on an offering price of $5.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and | |
| ● | 735,875 Ordinary Shares to be issued upon consummation of this offering based on the Investors Agreement. |
Ordinary Shares
In the last three years, we did not issue any Ordinary Shares.
Our registration number with the Israeli Registrar of Companies is 516454154.
Our Articles of Association
Purposes and Objects of our Company
Our purpose is set forth in Article 1 of our articles of association and includes every lawful purpose.
The Powers of the Directors
Our Board of Directors shall direct our policy and shall supervise the performance of our Chief Executive Officer and his actions. Our Board of Directors may exercise all powers that are not required under the Companies Law or under our articles of association to be exercised or taken by our shareholders.
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. |
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Election of Directors
Pursuant to our articles of association, our directors are elected at an annual general meeting of our shareholders and serve on the board of directors until the next annual general meeting (except for external directors) or until he or she resigns or unless he or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles of association. The directors are classified, with respect to the term for which they each severally hold office, into three classes, as nearly equal in number as practicable, and designated as Class I, Class II and Class III. The Board may assign members of the Board already in office to such classes at the time such classification becomes effective. If the number of directors is changed, any newly created directors or decrease in directors must be apportioned by the board among the classes to make them equal in number. Pursuant to our articles of association, other than the external directors, for whom special election requirements apply under the Companies Law, the vote required to appoint a director is a simple majority vote of holders of our voting shares, participating and voting at the relevant meeting. In addition, our articles of association allow our Board of Directors to appoint directors to fill vacancies and/or as an addition to the Board of Directors (subject to the maximum number of directors) to serve until the next annual general meeting. External directors are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See “Management—Board Practices—External Directors.”
Annual and Special Meetings
Under the Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year, at such time and place which shall be determined by our Board of Directors, that must be 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 as special general meetings. Our Board of Directors may call special meetings whenever it sees fit and upon the request of: (a) any two of our directors or such number of directors equal to one quarter of the directors then at office; and/or (b) one or more shareholders holding, in the aggregate, (i) 5% or more of our outstanding issued shares and 1% of our outstanding voting power or (ii) 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 may be between four and forty days prior to the date of the meeting. Resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our articles of association; | |
| ● | 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; | |
| ● | appointment or termination of our auditors; | |
| ● | appointment of directors, including external directors; | |
| ● | approval of acts and transactions requiring general meeting approval pursuant to the provisions of the Companies Law (mainly certain related party transactions) and any other applicable law; | |
| ● | increases or reductions of our authorized share capital; and | |
| ● | a merger (as such term is defined in the Companies Law). |
Notices
The Companies Law and our articles of association require that a notice of any annual or special shareholders meeting be provided at least 14 or 21 days prior to the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, approval of the company’s general manager to serve as the chairman of the board of directors or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
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Quorum
As permitted under the Companies Law, the quorum required for our general meetings consists of at least two shareholders present in person, by proxy, written ballot or voting by means of electronic voting system, who hold or represent between them at least 25% of the total outstanding voting rights. If within half an hour of the time set forth for the general meeting a quorum is not present, the general meeting shall stand adjourned the same day of the following week, at the same hour and in the same place, or to such other date, time and place as prescribed in the notice to the shareholders and in such adjourned meeting, if no quorum is present within half an hour of the time arranged, any number of shareholders participating in the meeting, shall constitute a quorum.
If a special general meeting was summoned following the request of a shareholder, and within half an hour a legal quorum shall not have been formed, the meeting shall be canceled.
Adoption of Resolutions
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required under the Companies Law or our articles of association. A shareholder may vote in a general meeting in person, by proxy, by a written ballot.
Changing Rights Attached to Shares
Unless otherwise provided by the terms of the shares and subject to any applicable law, any modification of rights attached to any class of shares must be adopted by the holders of a majority of the shares of that class present a general meeting of the affected class or by a written consent of all the shareholders of the affected class.
The enlargement of an existing class of shares or the issuance of additional shares thereof, shall not be deemed to modify the rights attached to the previously issued shares of such class or of any other class, unless otherwise provided by the terms of the shares.
Limitations on the Right to Own Securities in Our Company
There are no limitations on the right to own our securities in our articles of association.
Provisions Restricting Change in Control of Our Company
There are no specific provisions of our articles of association that would have an effect of delaying, deferring or preventing a change in control of our 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, unless certain requirements described under the Companies Law are met, a vote of the majority of shareholders, and, in the case of the target company, also a majority vote of each class 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 or group of persons acting in concert 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. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders. 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, and may further give instructions to secure the rights of creditors. If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court must find that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders. 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.
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The Companies Law also provides that, subject to certain exceptions, an acquisition of shares in an Israeli 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 holder of 25% or more of the voting rights in the company, unless there is already another holder of at least 25% or more of the voting rights in the company or (2) the purchaser would become a holder of 45% or more of the voting rights in the company, unless there is already a holder of more than 45% of the voting rights in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholders’ approval, subject to certain conditions, (2) was from a holder of 25% or more of the voting rights in the company which resulted in the acquirer becoming a holder of 25% or more of the voting rights in the company, or (3) was from a holder of more than 45% of the voting rights in the company which resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. A “special” tender offer must be extended to all shareholders. In general, a “special” tender offer may be consummated only if (1) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (2) the offer is accepted by a majority of the offerees who notified the company of their position in connection with such offer (excluding the offeror, controlling shareholders, holders of 25% or more of the voting rights in the company or anyone on their behalf, or any person having a personal interest in the acceptance of the tender offer). If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
If, as a result of an acquisition of shares, the acquirer will hold more than 90% of an Israeli company’s outstanding shares or of certain class of shares, the acquisition must be made by means of a tender offer for all of the outstanding shares, or for all of the outstanding shares of such class, as applicable. In general, if less than 5% of the outstanding shares, or of applicable class, 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 by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares. Any shareholders that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may request, by petition to an Israeli court, (i) appraisal rights in connection with a full tender offer, and (ii) that the fair value should be paid as determined by the court, for a period of six months following the acceptance thereof. However, the acquirer is entitled to stipulate, under certain conditions, 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
The general meeting may, by a simple majority vote of the shareholders attending the general meeting:
| ● | increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting; | |
| ● | cancel any registered share capital which have not been taken or agreed to be taken by any person; | |
| ● | consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares; | |
| ● | subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed; and | |
| ● | reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consent required, by the Companies Law. |
Anti-Takeover Measures
As disclosed under “Description of Share Capital—Election of Directors,” we will have a classified board structure upon the closing of this offering, which will effectively limit the ability of any investor or potential investor or group of investors or potential investors to gain control of our board of directors.
Exclusive Forum
Our articles of association provide that unless our Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, and that any person or entity purchasing or otherwise acquiring any interest in any security of our Company, shall be deemed to have notice of and consented to this exclusive forum provision.
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SHARES ELIGIBLE FOR FUTURE SALE
In connection with this offering, we have applied to list our Ordinary Shares on the NYSE American, under the symbol “SYNX”. No assurance can be given that the application will be approved or that a liquid trading market will develop for the Ordinary Shares. Sales of substantial amounts of the Ordinary Shares in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices of our Ordinary Shares. Upon completion of this offering, we will have 5,075,000 outstanding Ordinary Shares, assuming there is no exercise of the underwriters’ over-allotment option or the Representative’s Warrants. All of the Ordinary Shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than by our affiliates.
Lock-up Agreements
We and our executive officers, directors, and certain shareholders have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any securities or any other securities convertible into or exchangeable for securities except for the securities offered in this offering without the prior written consent of the underwriter for a period of 180 days after the consummation of this offering. After the expiration of such 180 day period, the securities held by our directors, executive officers or certain of our other existing shareholders may be sold outside of the United States subject to the restrictions under applicable Israeli securities laws or by means of registered public offerings.
Rule 144
In general, under Rule 144 of the Securities Act as in effect on the date hereof, beginning 90 days after the date hereof, a person who holds restricted securities and is not one of our affiliates (as defined in Rule 405 under the Securities Act) at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least six months, would be entitled to sell an unlimited number of our securities, provided current public information about us is available. In addition, under Rule 144, a person who holds restricted shares in us and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least one year, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the date hereof, our affiliates who have beneficially owned our securities for at least six months will be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
| ● | 1% of the number of securities then outstanding; or | |
| ● | the average weekly trading volume of our or securities on the NYSE American during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; provided that current public information about us is available and the affiliate complies with the manner of sale requirements imposed by Rule 144. |
Affiliates are also subject to additional restrictions on the manner of sales under Rule 144 and notice filing requirements. We cannot estimate the number of our securities that our existing shareholders will elect to sell.
Regulation S
Regulation S under the Securities Act provides that securities owned by any person may be sold without registration in the United States, provided that the sale is effected in an offshore transaction and no directed selling efforts are made in the United States (as these terms are defined in Regulation S), subject to certain other conditions. In general, this means that our securities may be sold in some manner outside the United States without requiring registration in the United States.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our securities from us in connection with a compensatory share plan or other written agreement executed prior to the completion of this offering is eligible to resell such securities in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
Form S-8
Following the date of this prospectus, we intend to file a registration statement on Form S-8 under the Securities Act to register Ordinary Shares reserved for issuance under our equity incentive plans. The registration statement on Form S-8 will become effective automatically upon filing.
Ordinary shares issued upon exercise of a share option and registered under the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the Lock-Up Period expires, subject to certain exceptions and certain early release provisions. See “Management — Share Option Plans.”
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL SHARE TRANSFER RESTRICTION MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN LEGAL ADVISOR REGARDING THE PARTICULAR SECURITIES LAWS AND TRANSFER RESTRICTION CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF THE ORDINARY SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our securities. 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, including Israeli, or other taxing jurisdiction.
ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS
The following is a description of the material Israeli income tax consequences of the ownership of our securities. The following also contains a description of material relevant provisions of the current Israeli income tax structure applicable to companies in Israel, with reference to its effect on us. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the tax authorities will accept the views expressed in the discussion in question. The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our securities. Shareholders should consult their own tax advisors concerning the tax consequences of their particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax. As of January 2016, the corporate tax rate was 25%. As of January 1, 2017, the corporate tax rate was reduced to 24% and as of January 1, 2018, the corporate tax rate is 23%. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing corporate tax rate.
Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.
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.”
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 defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
| ● | amortization of the cost of purchased a patent, rights to use a patent, and know-how, which are used for the development or advancement of the company, 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 related Israeli Industrial Companies; and |
| ● | expenses related to a public offering are deductible in equal amounts over three years. |
Eligibility for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
Tax Benefits 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. |
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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 income Tax Ordinance, 1961. Expenditures not so approved are deductible in equal amounts over three years.
From time to time we may apply the Office of the Chief Scientist for approval to allow a tax deduction for all 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).
Tax Benefits
The Investment Law grants tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) 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. A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 9%.
Dividends paid out of income attributed to a Preferred Enterprise 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. However, if such dividends are paid to an Israeli company, no tax is required to be withheld.
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 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 of 25% or more 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.
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, or 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, or 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 securities, 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.
Taxation of Non-Israeli Shareholders on Receipt of Dividends. Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our securities 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. However, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. 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 securities 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, 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 a 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 condition related to our gross income for the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from a 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.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the securities. For this purpose, a “U.S. Holder” is a holder of securities that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; or (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.
This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase our securities. This summary generally considers only U.S. Holders that will own our securities as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, (including with respect to the Tax Cuts and Jobs Act of 2017), and the U.S.-Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our securities by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder based on such holder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local, excise or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity;” (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our securities in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that holds our securities as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts or grantor trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, securities representing 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of partnerships (or other pass-through entities) or persons who hold securities through a partnership or other pass-through entity are not addressed.
Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our securities, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
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Taxation of Dividends Paid on securities
We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “Passive Foreign Investment Companies” below and the discussion of “qualified dividend income” below, a U.S. Holder, other than certain U.S. Holder’s that are U.S. corporations, will be required to include in gross income as ordinary income the amount of any distribution paid on securities (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the securities to the extent thereof, and then capital gain. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.
In general, preferential tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holders that are individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the U.S.- Israel Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
In addition, our dividends will be qualified dividend income if our securities are readily tradable on the NYSE American or another established securities market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies.” A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our securities for at least 61 days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss on our securities are not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our securities will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS into U.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.
Taxation of the Disposition of securities
Except as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of our securities, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis for the securities in U.S. dollars and the amount realized on the disposition in U.S. dollar (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale, exchange or other disposition of securities will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition. Individuals who recognize long-term capital gains may be taxed on such gains at reduced rates of tax. The deduction of capital losses is subject to various limitations.
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Passive Foreign Investment Companies
Special U.S. federal income tax laws apply to U.S. taxpayers who own shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal income tax purposes for any taxable year that either:
| ● | 75% or more of our gross income (including our pro rata share of gross income for any company, in which we are considered to own 25% or more of the shares by value), in a taxable year is passive; or | |
| ● | At least 50% of our assets, averaged over the year and generally determined based upon fair market value (including our pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value) are held for the production of, or produce, passive income. |
For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and from notional principal contracts. Cash is treated as generating passive income.
Based on the composition of our income and valuation of our assets, we were not a PFIC for 2022 and we do not expect to become a PFIC in the future. The tests for determining PFIC status are applied annually, however, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our securities. Accordingly, there can be no assurance that we currently are not or will not become a PFIC.
If we currently are or become a PFIC, each U.S. Holder who has not elected to mark the shares to market (as discussed below), would, upon receipt of certain distributions by us and upon disposition of our securities at a gain: (1) have such distribution or gain allocated ratably over the U.S. Holder’s holding period for the securities, as the case may be; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.
The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the securities while we are a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such a QEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary income and such U.S. Holder’s pro rata share of our net capital gains as long-term capital gain, regardless of whether we make any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder basis and generally may be revoked only with the consent of the IRS. We do not intend to notify U.S. Holders if we believe we will be treated as a PFIC for any tax year. In addition, we do not intend to furnish U.S. Holders annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. Therefore, the QEF election will not be available with respect to our securities.
In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a mark-to-market election. A U.S. Holder of our securities which are regularly traded on a qualifying exchange, including the NYSE American, can elect to mark the securities to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the securities and the U.S. Holder’s adjusted tax basis in the securities. Losses are allowed only to the extent of net mark-to-market gain previously included income by the U.S. Holder under the election for prior taxable years.
U.S. Holders who hold our securities during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules.
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Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends on and gains from the sale or other disposition of our securities), or in the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Tax Consequences for Non-U.S. Holders of Securities
Except as provided below, an individual, corporation, estate or trust that is not a U.S. Holder referred to below as a non-U.S. Holder, generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our securities.
A non-U.S. Holder may be subject to U.S. federal income tax on a dividend paid on our securities or gain from the disposition of our securities if: (1) such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States and, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of a disposition of our securities, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition and other specified conditions are met.
In general, non-U.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our securities if payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder provides an applicable IRS Form W-8 (or a substantially similar form) certifying its foreign status, or otherwise establishes an exemption.
The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding at a rate of 24% with respect to cash dividends and proceeds from a disposition of securities. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.
Pursuant to recently enacted legislation, a U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our securities, unless such securities are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRS if the aggregate value of all such assets exceeds $50 thousand on the last day of the taxable year or $75 thousand at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance); and may be required to file a Report of Foreign Bank and Financial Accounts, or FBAR, if the aggregate value of the foreign financial accounts exceeds $10 thousand at any time during the calendar year. You should consult your own tax advisor as to the possible obligation to file such information report.
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ThinkEquity is acting as representative of the underwriters, or the Representative. On , 2023, we entered into an underwriting agreement with the Representative, or the Underwriting Agreement. Subject to the terms and conditions of the Underwriting Agreement, we have agreed to sell, and each underwriter named below has severally agreed to purchase, the number of Ordinary Shares listed next to each underwriter’s name in the following table, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus.
| Underwriters | Number of Shares | |||
| ThinkEquity LLC | ||||
| Total | ||||
The underwriters have committed to purchase all of the Ordinary Shares offered by us in this offering, other than those covered by the over-allotment option described below. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the Underwriting Agreement. Furthermore, pursuant to the Underwriting Agreement, the underwriters’ obligations are subject to customary conditions, representations, and warranties, such as receipt by the underwriters of officers’ certificates and legal opinions.
The underwriters are offering the Ordinary Shares subject to prior sale when, as, and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions. The underwriters reserve the right to withdraw, cancel, or modify offers to the public and to reject orders in whole or in part.
The underwriters propose to offer the Ordinary Shares to the public at the public offering price set forth on the cover of the prospectus. After the Ordinary Shares are released for sale to the public, the underwriters may from time to time change the offering price and other selling terms.
Over-Allotment Option
We have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 161,250 additional Ordinary Shares (15% of the shares sold in this offering) at the initial public offering price, less the underwriting discounts and commissions. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent that the option is exercised, each underwriter must purchase additional shares of our Ordinary Shares in an amount that is approximately proportionate to that underwriter’s initial purchase commitment (set forth in the table above). Any of our Ordinary Shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares of our Ordinary Shares that are the subject of this offering. If this option is exercised in full, the total gross offering proceeds will be $6.18 million and the total net proceeds to us, before expenses, will be $5.68 million.
Discounts and Commissions
The Representative has advised that the underwriters propose to offer the Ordinary Shares to the public at the public offering price per share set forth on the cover page of this prospectus. The underwriters may offer the shares to securities dealers at that price less a concession of not more than $ per share, of which up to may be re-allowed to other dealers.
The following table summarizes the public offering price, underwriting discounts and commissions, and proceeds to us before expenses, assuming both no exercise and full exercise by the underwriters of the over-allotment option.
| Total | ||||||||||||
| Per Share | Without Over- Allotment | With
Over- Allotment | ||||||||||
| Public offering price | $ | |||||||||||
| Underwriting discount (7%) (1) | $ | |||||||||||
| Proceeds, before expenses, to us | $ | |||||||||||
| (1) | We have agreed to pay a non-accountable expense allowance to the Representative equal to 1% of the gross proceeds received in this offering (excluding proceeds received from exercise of the underwriters’ over-allotment option) which is not included in the underwriting discounts and commission. |
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We have paid an expense deposit of $50,000 to the Representative, which will be applied against the Representative’s accountable out-of-pocket expenses (in compliance with FINRA Rule 5110(g)(4)) that are payable by us in connection with this offering. We have agreed to reimburse the Representative for the fees and expenses of its legal counsel in connection with the offering in an amount not to exceed $125,000, the fees and expenses related to the use of Ipero’s book building, prospectus tracking and compliance software for the offering in the amount of $29,500, up to $15,000 for background checks of our officers and directors, the costs associated with bound volumes of the offering materials as well as commemorative mementos and lucite tombstones in an amount not to exceed $3,000, data services and communications expenses up to $10,000, the actual accountable “road show” expenses up to $10,000 and up to $30,000 of the Representative’s market making and trading, and clearing firm settlement expenses for this offering, provided that the aggregate accountable expense reimbursement for which we are responsible will not exceed $175,000 (inclusive of the $50,000 expense deposit referenced above).
We expect that the expenses of this offering payable by us, not including underwriting discounts and commissions, will be approximately $___.
Representative’s Warrants
We have agreed to issue to the Representative, upon the closing of this offering, warrants to purchase up to an aggregate of 53,750 of our Ordinary Shares (or 61,812 Ordinary Shares if the underwriters exercise their over-allotment option in full), representing 5% of the Ordinary Shares sold in this offering, or the Representative’s Warrants. The Representative’s Warrants are exercisable at a per share price equal to 125% of the public offering price per share in this offering. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, commencing on the six-month anniversary of the commencement of sales under the registration statement of which this prospectus forms a part and expire on the date that is five years following the commencement of sales of Ordinary Shares in this offering.
The Representative’s Warrants are deemed underwriter compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). The Representative (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the commencement of sales under the registration statement of which this prospectus forms a part. In addition, the Representative’s Warrants provide for registration rights upon request, in certain cases, including piggyback registration rights and one demand registration right. The demand registration right provided will not be greater than five years from the effective date of this offering in compliance with FINRA Rule 5110(g)(8)(c). The piggyback registration rights provided thereby will not be greater than seven years from the effective date of this offering in compliance with FINRA Rule 5110(g)(8)(D). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the Representative’s Warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the Representative’s Warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger, or consolidation. However, neither the Representative Warrant exercise price, nor the number of Ordinary Shares underlying such warrants, will be adjusted for issuances of Ordinary Shares by us at a price below the exercise price of the Representative’s Warrants.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, we and our executive officers, directors and certain holders of 1% or more of the outstanding Ordinary Shares as of the date of this prospectus have agreed, for a period of 180 days from the date of this prospectus, not to engage in any of the following, whether directly or indirectly, without the Representative’s consent: offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, our Ordinary Shares or any securities convertible into or exercisable or exchangeable for our Ordinary Shares, or the Lock-Up Securities; enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities, subject to customary exceptions; or publicly disclose the intention to do any of the foregoing.
Right of First Refusal
For 24 months from the closing date of this offering, the Representative will have an irrevocable right of first refusal to act as sole investment banker, sole book-runner, and/or sole placement agent, at the Representative’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings, during such 24 month period, for us, or any successor to or any subsidiary of us, on terms customary for the Representative. The Representative will have the sole right to determine whether any other broker-dealer shall have the right to participate in any such offering and the economic terms of any such participation. The right of first refusal granted to the Representative will not have a duration of more than three years from the commencement of sales under this offering.
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Pricing of the Offering
Prior to this offering, there was no established public market for our Ordinary Shares. The public offering price was negotiated between us and the underwriters. In determining the price, we considered our history and prospects, our business potential and earnings prospects, an assessment of our management, general securities market conditions at the time of the offering, and such other factors that we deemed relevant.
An active trading market for the shares of our Ordinary Shares may not develop. It is also possible that the Ordinary Shares will not trade in the public market or above the initial public offering price following the closing of this offering.
Indemnification
We have agreed to indemnify the underwriters against liabilities relating to this offering that may arise under the Securities Act and from any breach of the representations and warranties contained in the Underwriting Agreement. We have further agreed to contribute to payments that the underwriters may be required to make for these liabilities.
Electronic Offer, Sale and Distribution of Shares
This prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Offer Restrictions Outside of the United States
Other than in the United States, no action has been taken that would permit a public offering of our Ordinary Shares in any jurisdiction where action for the purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that country or jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
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Canada
The Ordinary Shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area—Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities. An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
| ● | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
| ● | to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43 thousand (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50 thousand (as shown on its last annual unconsolidated or consolidated financial statements); | |
| ● | to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the company or any underwriter for any such offer; or | |
| ● | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive. |
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code Monétaire et Financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1;and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
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Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, or “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
| ● | to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and | |
| ● | in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. | |
| ● | Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be: | |
| ● | made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and | |
| ● | in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws. |
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
99
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
100
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids, and purchases to cover positions created by short sales. Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares that the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that the underwriters purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares that the underwriters purchase in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our Ordinary Shares or preventing or retarding a decline in the market price of our Ordinary Shares. As a result, the price of our Ordinary Shares in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our Ordinary Shares. These transactions may be affected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Other Relationships
The underwriters and their affiliates may in the future provide various advisory, investment and commercial banking and other services for us in the ordinary course of business, for which they may receive customary fees and commissions. However, we have not yet had, and have no present arrangements with any of the underwriters for any further services.
101
Set forth below is an itemization of the total expenses, excluding underwriting discounts, expected to be incurred in connection with the offer and sale of our securities by us. With the exception of the SEC registration fee and the FINRA filing fee, all amounts are estimates:
| SEC registration fee | $ | 1,803.49 | ||
| NYSE American listing fee | $ | 5,000.00 | ||
| FINRA filing fee | $ | 750.00 | ||
| Transfer agent fees and expenses | $ | 5,000.00 | ||
| Printer fees and expenses | $ | 4,000.00 | ||
| Legal fees and expenses | $ | 500,000.00 | ||
| Accounting fees and expenses | $ | 360,000.00 | ||
| Miscellaneous | $ | 150,000.00 | ||
| Total | $ | 1,026,553.49 |
102
Certain legal matters concerning this offering will be passed upon for us by Sullivan & Worcester LLP, New York, New York. Certain legal matters with respect to the legality of the issuance of the securities offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Sullivan & Worcester Tel Aviv (Har-Even & Co.), Tel Aviv, Israel. Certain legal matters related to the offering will be passed upon for the underwriters by Greenberg Traurig, P.A.
103
The consolidated financial statements as of December 31, 2022 and 2021 and for each of the two years in the period ended December 31, 2022 included in this prospectus and the registration statement have been so included in reliance on the report of Ziv Haft, Certified Public Accountants (Isr.), a BDO Member Firm, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of the said firm as experts in auditing and accounting. The report on the consolidated financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern as described in Note 1c to the consolidated financial statements.
104
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in the registration statement of which this prospectus forms a part, a substantial majority of whom reside outside of the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and a substantial of our directors and officers are located outside of the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.
We have been informed by our legal counsel in Israel, Sullivan & Worcester Tel Aviv (Har-Even & Co.), that it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not 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.
Subject to specified time limitations and legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that among other things:
| ● | the judgment is obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment is given and the rules of private international law currently prevailing in Israel; | |
| ● | the judgment is final and is not subject to any right of appeal; | |
| ● | the prevailing law of the foreign state in which the judgment was rendered allows for the enforcement of judgments of Israeli courts; | |
| ● | adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence; | |
| ● | the liabilities under the judgment are enforceable according to the laws of the State of Israel and the judgment and the enforcement of the civil liabilities set forth in the judgment is not contrary to the law or public policy in Israel nor likely to impair the security or sovereignty of Israel; |
| ● | the judgment was not obtained by fraud and does not conflict with any other valid judgments in the same matter between the same parties; | |
| ● | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and | |
| ● | the judgment is enforceable according to the laws of Israel and according to the law of the foreign state in which the relief was granted. |
If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli CPI plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
105
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our securities. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.
The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at www.sec.gov.
Following the completion of this offering, we will be subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements are filing reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and intend to submit to the SEC, on Form 6-K, unaudited semi-annual financial information.
We maintain a corporate website at https://www.silynxcom.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference. We will post on our website any materials required to be so posted on such website under applicable corporate or securities laws and regulations, including, posting any XBRL interactive financial data required to be filed with the SEC and any notices of general meetings of our shareholders.
106
| Page | |
| Audited Consolidated Financial Statements | |
| Report of Independent registered public accounting firm (Ziv Haft; Tel-Aviv, Israel; PCAOB ID#1185) | F-2 |
| Financial Statements: | |
| Consolidated Statements of Financial Position | F-3 - F-4 |
| Consolidated Statements of Comprehensive Income (loss) | F-5 |
| Consolidated Statements of Changes in Shareholders’ Equity (deficit) | F-6 |
| Consolidated Statements of Cash Flows | F-7 |
| Notes to the Consolidated Financial Statements | F-8 - F-66 |
| Unaudited Interim Condensed Consolidated Financial Statements | |
|
Unaudited Interim Condensed Consolidated Statements of Financial Position |
F-69 - F-70 |
| Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss | F-71 |
| Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity | F-72 - F-73 |
| Unaudited Interim Condensed Consolidated Statements of Cash Flows | F-74 - F-75 |
| Notes to the Unaudited Interim Condensed Consolidated Financial Statements | F-76 - F-86 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of Silynxcom Ltd.
Natanya, Israel
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Silynxcom LTD. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive loss, changes in the shareholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and Interpretations (IASB) and IFRS Interpretations committee (IFRIC).
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1.c. to the consolidated financial statements, the Company’s resources as of the approval date of the consolidated financial statements may not be sufficient to continue the Company’s activity in its present form in the foreseeable future.
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 1.c. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 audit, 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 consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated Financial Statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditor since September 2022
Tel Aviv, Israel
June 12, 2023, except for note 23.4 as to which the date is December 4, 2023.
/s/ Ziv Haft
Certified Public Accountants (Isr.)
BDO Member Firm
F-2
U.S. Dollars in Thousands
Consolidated Statements of Financial Position
| As of December 31 | ||||||||||
| Note | 2022 | 2021 | ||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 4 | 69 | 1,561 | |||||||
| Deposits with banking corporations | 20 | 17 | ||||||||
| Trade receivables, net | 5 | 2,774 | 1,356 | |||||||
| Other current assets | 6 | 214 | 189 | |||||||
| Inventory | 7 | 2,433 | 1,747 | |||||||
| 5,510 | 4,870 | |||||||||
| Non-current assets | ||||||||||
| Property, plant & equipment, net | 8 | 147 | 186 | |||||||
| Long-term deposits | 18 | 9 | ||||||||
| Right of use assets | 9 | 132 | 69 | |||||||
| 297 | 264 | |||||||||
| Total assets | 5,807 | 5,134 | ||||||||
The notes to the consolidated financial statements form an integral part thereof.
F-3
U.S. Dollars in Thousands
Silynxcom Ltd.
Consolidated Statements of Financial Position (cont.)
| As of December 31 | ||||||||||
| Note | 2022 | 2021 | ||||||||
| Current liabilities | ||||||||||
| Current maturities of Loans from banking corporations | 13.A. | 70 | 78 | |||||||
| Lease liabilities - current | 9 | 60 | 38 | |||||||
| Loans from related parties | 10 | 50 | 1,015 | |||||||
| Trade payable | 11 | 2,221 | 2,418 | |||||||
| Warrants at fair value | 13.B. | 157 | - | |||||||
| SAFE | 15 | 365 | - | |||||||
| Other accounts payables | 12 | 1,885 | 1,931 | |||||||
| 4,808 | 5,480 | |||||||||
| Non-current liabilities | ||||||||||
| Loans from banking corporations | 13.A. | 101 | 192 | |||||||
| Warrants at fair value | 13.B. | - | 1,394 | |||||||
| Lease liabilities | 9 | 68 | 36 | |||||||
| Liabilities for employee benefits, net | 14 | 32 | 49 | |||||||
| 201 | 1,671 | |||||||||
| Shareholders’ equity (deficit) | 16 | |||||||||
| Share capital | 52 | 52 | ||||||||
| Premium and other capital reserves | 16,658 | 16,642 | ||||||||
| Capital reserve for transactions with controlling shareholders | 1,542 | 541 | ||||||||
| Accumulated loss | (17,454 | ) | (19,252 | ) | ||||||
| 798 | (2,017 | ) | ||||||||
| Total liabilities and shareholders’ equity | 5,807 | 5,134 | ||||||||
The notes to the consolidated financial statements form an integral part thereof.
F-4
U.S. Dollars in Thousands
Consolidated Statements of Comprehensive Income (loss)
| For the year ended December 31, | ||||||||||
| Note | 2022 | 2021 | ||||||||
| Revenue | 18.A. | 7,264 | 9,581 | |||||||
| Cost of revenue | 18.B. | 4,836 | 6,379 | |||||||
| Gross profit | 2,428 | 3,202 | ||||||||
| Research and development expenses | 18.C. | 439 | 448 | |||||||
| Selling and marketing expenses | 18.D. | 672 | 852 | |||||||
| General and administrative expenses | 18.E. | 837 | 1,255 | |||||||
| Other income | 18.F. | - | (166 | ) | ||||||
| Operating profit | 480 | 813 | ||||||||
| Finance expenses | 18.G. | 123 | 964 | |||||||
| Finance income | 18.H. | 1,443 | -- | |||||||
| Income (loss) before income tax | 1,800 | (151 | ) | |||||||
| Income tax expenses | 19 | 2 | 2 | |||||||
| Net income (loss) | 1,798 | (153 | ) | |||||||
| Other comprehensive income (loss): | ||||||||||
| Amounts that shall not be subsequently reclassified to profit and loss: | ||||||||||
| Gain (loss) from remeasurement of defined benefit plans | 14 | 16 | (5 | ) | ||||||
| Total comprehensive income (loss) attributed to the shareholders of the company | 1,814 | (158 | ) | |||||||
| Basic earnings (loss) per share (in $) (*) | 20 | 0.568 | (0.048 | ) | ||||||
| Weighted average of the number of ordinary shares used to calculate basic earnings per share (*) | 3,161,779 | 3,161,779 | ||||||||
| Diluted earnings (loss) per share (in $) (*) | 20 | 0.542 | (0.048 | ) | ||||||
| Weighted average of the number of ordinary shares used to calculate diluted earnings per share (*) | 3,317,185 | 3,161,779 | ||||||||
| (*) | Restated based on Reverse Stock Split according to subsequent events note – see note 23.4. |
The notes to the consolidated financial statements form an integral part thereof.
F-5
U.S. Dollars in Thousands
Consolidated Statements of Changes in Shareholders’ Equity (deficit)
| Share capital | Premium and other capital reserves | Capital reserve for transactions with controlling shareholders | Accumulated loss | Total Shareholders’ equity (deficit) | ||||||||||||||||
| Balance as at December 31, 2020 | -- | 16,502 | 368 | (19,099 | ) | (2,229 | ) | |||||||||||||
| Net loss for the year | -- | -- | -- | (153 | ) | (153 | ) | |||||||||||||
| Other comprehensive loss | -- | (5 | ) | -- | -- | (5 | ) | |||||||||||||
| Total comprehensive loss | -- | (5 | ) | -- | (153 | ) | (158 | ) | ||||||||||||
| reorganization Issuance of share capital (see note 1.B.) | 52 | -- | -- | -- | 52 | |||||||||||||||
| Warrants reclassification (see note 15.C.) | -- | 144 | -- | -- | 144 | |||||||||||||||
| Equity benefit for transactions with controlling shareholders (See note 10.B.) | -- | -- | 173 | -- | 173 | |||||||||||||||
| Share-based payment | -- | 1 | -- | -- | 1 | |||||||||||||||
| Balance as at December 31, 2021 | 52 | 16,642 | 541 | (19,252 | ) | (2,017 | ) | |||||||||||||
| Net income for the year | -- | -- | -- | 1,798 | 1,798 | |||||||||||||||
| Other comprehensive income | -- | 16 | -- | -- | 16 | |||||||||||||||
| Total comprehensive income | -- | 16 | -- | 1,798 | 1,814 | |||||||||||||||
| Debt forgiveness from controlling shareholders (See note 10.B.) | -- | -- | 1,001 | -- | 1,001 | |||||||||||||||
| Balance as at December 31, 2022 | 52 | 16,658 | 1,542 | (17,454 | ) | 798 | ||||||||||||||
The notes to the consolidated financial statements form an integral part thereof.
F-6
U.S. Dollars in Thousands
Consolidated Statements of Cash Flows
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | 1,798 | (153 | ) | |||||
| Adjustments Required to Present Cash Flows from Operating Activities | ||||||||
| Income and expenses not involving cash flows | ||||||||
| Depreciation and amortization | 97 | 118 | ||||||
| Increase (decrease) in liability for employee benefits, net | (1 | ) | 1 | |||||
| Revaluation of derivatives measured at fair value through profit and loss | (1,215 | ) | 433 | |||||
| Benefit component in respect of related party transactions | -- | 173 | ||||||
| Other finance expenses | (46 | ) | 81 | |||||
| Share-based payment | -- | 1 | ||||||
| (1,165 | ) | 807 | ||||||
| Changes in asset and liability line items: | ||||||||
| Decrease (increase) in trade receivable | (1,418 | ) | (1,112 | ) | ||||
| Decrease (increase) in other current assets | (25 | ) | 56 | |||||
| Decrease (increase) in inventory | (686 | ) | (529 | ) | ||||
| Increase (Decrease) in trade payables | (197 | ) | 1,671 | |||||
| Increase (Decrease) in other accounts payables | (46 | ) | 879 | |||||
| (2,372 | ) | 965 | ||||||
| Net cash provided by (used in) operating activities | (1,739 | ) | 1,619 | |||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant and equipment | (8 | ) | (116 | ) | ||||
| Increase in deposits | (12 | ) | (9 | ) | ||||
| Net cash used in investing activities | (20 | ) | (125 | ) | ||||
| Cash flows from financing activities | ||||||||
| Short term credit from banking corporations, net | -- | (8 | ) | |||||
| Repayment of loans from banking corporations | (71 | ) | (175 | ) | ||||
| Receipt of loans from related parties | 42 | 190 | ||||||
| SAFE | 343 | -- | ||||||
| Repayment of lease liabilities | (59 | ) | (81 | ) | ||||
| Net cash provided by (used in) financing activities | 255 | (74 | ) | |||||
| Exchange rate differentials for cash and cash equivalent balances | 12 | (25 | ) | |||||
| Increase (decrease) in cash and cash equivalents | (1,492 | ) | 1,395 | |||||
| Balance of cash and cash equivalents at beginning of year | 1,561 | 166 | ||||||
| Balance of cash and cash equivalents as at end of period | 69 | 1,561 | ||||||
| Appendix A - Additional information in connection with cash flows from operating activities | ||||||||
| Interest paid | 63 | 221 | ||||||
| Appendix B - Material activities not involving cash flows | ||||||||
| Recognition of right-of-use asset against a lease liability | 113 | 77 | ||||||
| Issuance of share capital | -- | 52 | ||||||
| Warrants reclassification | -- | 144 | ||||||
| Debt forgiveness from controlling shareholders | 1,001 | -- | ||||||
The notes to the consolidated financial statements form an integral part thereof.
F-7
U.S. Dollars in Thousands
Notes to the Financial Statements
NOTE 1 – GENERAL
| A. | General |
Silynxcom Ltd. (hereinafter - the Company) was incorporated in Israel on August 22, 2021, as a privately-held company as part of a restructuring carried out by the Former Company as set out in subsection B below. The Company’s registered offices are located at 19 Yad Harutzim St., Netanya.
The Company is engaged - through Silynx Communications Inc. (hereinafter - “Silynx”) and Source of Sound Ltd. (hereinafter - “SOS”) in a single area of activity: development, production, marketing and sale of ruggedized noise protection and communication accessories for tactical uses (including: radios used by security forces, law enforcement, rescue forces, etc.). As part of its activity, the Company manufactures and develops speech and audio systems that include single and dual-sided communication systems integrated into headsets and intended for personal use of those serving in armies, security and rescue forces, and law enforcement forces in Israel and across the world.
| B. | Silynx Communications, Inc. (hereinafter: the “Former Company” or “Silynx”) was incorporated in Delaware, USA on September 19, 2005 and commenced operations in October 2005. |
On August 26, 2021, the Board of Directors of the Former Company decided to make a structural change (hereinafter “the Reorganization”). For the reorganization, Silynxcom Ltd. (hereinafter: the “Company”) was incorporated on August 22, 2021, as a private limited company, in accordance with the provisions of the Israeli Companies Law while maintaining the same capital structure as the Former Company. On August 26, 2021, the Former Company transferred to the Company all its holdings directly and indirectly in the subsidiary (hereinafter “the transferred company” or “SOS”, see also Note 1.A). The reorganization was completed on March 15, 2022, after receiving an approval from the Israeli Tax Authorities for tax exemption in accordance with the provisions of section 104B (f) of the Income Tax Ordinance.
The Company accounted for the reorganization using the pooling of interest method, and the consolidation of the financial statements reflects the reorganization using the “As Pooling” method accordingly (See Note 2C).
F-8
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 1 – GENERAL (cont.)
| C. | Going Concern |
As of December 31, 2022 and 2021, the Company has total shareholders’ equity (deficit) of $798 and $(2,017) respectively, and a working capital (working capital deficit) of $702 and $(610).
In 2022, the Company entered into a number of investment agreements (hereinafter - the “SAFE”) in exchange for a total of $300 (NIS 1,200) (see Note 15.A).
However, in the opinion of Company’s management, the Company’s resources as of the approval date of the financial statements may not be sufficient to continue the Company’s activity in its present form in the foreseeable future, therefore, the Company’s ability to consummate its plans, is dependent on its ability to continue to finance its activities by raising additional funds.
Company’s management works to obtain the aforesaid financing sources, through, among other things, an initial public offering. However, as of the approval date of the consolidated financial statements, there is uncertainty as to the plans of the Company’s management.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| D. | Impact of the coronavirus crisis |
During the years 2020, 2021 and 2022 the COVID-19 pandemic had an adverse effect on the Company’s industry and the markets in which it operates. The COVID-19 outbreak has impacted on prices of components used in the production of Company’s products, the availability of such components, an increase in freight costs and longer supply times. Additionally, recent cost inflation stemming from the pandemic may lead to higher material and labor costs. As of the date of approval of the financial statement, the Company has not encountered any discernible disruption to its operations, nor harm to its financial health as a direct consequence of the COVID-19 pandemic.
| E. | The effect of the war between Russia and Ukraine |
Since the Company does not have activities in the above-listed countries, as of the approval date of the consolidated financial statements, the war and/or the sanctions imposed in response thereto did not directly affect the Company’s financial position and/or its activity. However, since the war has indirect effects, including a global economic crisis. However, the prolongation of the war, its escalation, the imposition of further sanctions by the different countries and/or the involvement of other countries in the war might have an adverse effect on the Company’s activity, including with respect to its ability to acquire components and raw materials on a regular basis, and in accordance with what is required for its activity.
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies consistently applied in the preparation of the financial statements, are as follows:
| A. | Presentation of the financial statements |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereinafter - “IFRS”) as issued by the International accounting standard board (IASB) and Interpretations.
The Company’s consolidated financial statements have been prepared under the historical cost convention, except for warrants and SAFE, classified as liabilities and measured at fair value through profit and loss, share based payments measured at the grant date fair value and liabilities in respect of post-retirement employee benefits presented based on their value.
The Company has elected to present the consolidated statement of comprehensive income (loss) using the function of expense method.
| B. | Significant considerations, estimates and assumptions used in the preparation of the financial statements |
| (1) | Critical accounting judgments |
In applying the significant accounting policies to its financial statements, the Company made judgments regarding the following issues, which have had material impact on amounts recognized in the financial statements:
| - | Revenue recognition |
As set out in Subsection P below, for each type of sale transaction the Company is required to determine whether it is a principal or an agent. In order to make this decision, the Company assesses, among other things, whether it controls the goods prior to their delivery to the customer, and whether it is the primary obligor in the transaction.
| - | Provision for damaged or slow moving inventory |
As set out in Subsection H below, the Company periodically examines the condition and age of its inventory and makes provisions for damaged or slow moving inventory accordingly.
| - | Provision for loss in respect to financial instruments |
As set out in Subsection I below, the Company periodically reviews the provision for loss in respect to financial instruments measured at amortized cost.
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| B. | Significant considerations, estimates and assumptions used in the preparation of the financial statements (cont.) |
| (2) | Main estimates and assumptions |
Preparation of the financial statements requires management to use estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The underlying estimates and assumptions are reviewed on an ongoing basis. Changes in the accounting estimates are charged in the period in which the change in estimate is made.
Set forth below are the key assumptions made and critical estimates calculated in the preparation of the financial statements:
| - | Non-marketable fair value of financial instruments |
The fair value of non-marketable financial instruments (SAFE and Warrants) classified into Level 3 in the fair value hierarchy was determined using valuation methods generally accepted in the measurement of such financial instruments, and based on assessments and assumptions, a change in which may affect the fair value of the measured financial instruments (including: volatility in Silynxcom Ltd share price, expected dividend yield, etc.).
| - | Post-employment employee benefits |
The liability in respect of defined benefit plans for post-employment employee benefits is determined using actuarial valuation techniques. The calculation of the liability involves making assumptions regarding, among other things, discount rates, expected rates of pay rise rates, and the rates of employee turnover. The liability’s balance may be significantly impacted by changes in those estimates.
| - | Loans and collaterals from interested parties |
The company received loans from interested parties (see Note 10.B.(1) and (2)). Furthermore, the interested parties provided to the Company - without consideration - personal deposits to secure its undertakings. The loans received and the collaterals provided as stated above were accounted for as transactions with controlling shareholders involving an equity benefit. Therefore, the Company was required to estimate the value of the interest it would have been required to pay had the loans been received from third parties that are not related to the Company, and the value of the collaterals provided to it by the interested parties had they been provided by an unrelated third party. In each reporting period, the value of interest and the value of the fee arising from the provision of the collaterals as stated above was recognized in the finance expenses line item in profit and loss against a corresponding amount recognized in equity.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| C. | Business combinations under common control |
Business combinations, in which all entities included in the business combination are under common control, both before and after the business combination, are measured using a method that is similar to the “pooling-of-interests” method, whose principles are set out below:
| - | The assets and liabilities of the acquired company are initially recognized in the Company’s consolidated financial statements at their carrying amounts as per the controlling shareholder’s financial statements immediately prior to the business combination. | |
| - | The difference between the consideration set in the transaction and the carrying amount of the acquired company’s net assets is recognized directly in equity. | |
| - | The Company’s equity components are restated from the date on which control in the Company was assumed, such that the equity components of the acquired company are added to the same equity components the Company has. |
Accordingly, the consolidated financial statements reflect the financial position and operating results of the Company and the entities included in the business combination, as if the business combination has already taken place on the earliest date on which the entities were controlled by the Company’s controlling shareholder.
| D. | Consolidated Financial Statements |
The consolidated financial statements include the statements of companies that are controlled by the Company. Control exists when a company has the power to influence the investee, exposure, or rights, to variable returns from its involvement with the investee, as well as the ability to use its power to affect the amounts of its return from the investee. When testing for control, potential voting rights are taken into account only if they are substantive. The financial statements are consolidated from the date on which control is gained until the date on which control ceases.
Material intra-group balances and transactions were eliminated in full in the consolidated financial statements.
When control in a consolidated company is lost, the Company recognizes in profit or loss an amount equal to the difference between the aggregate amount of the consideration received and the fair value of any remaining investment in the former consolidated company, and the carrying amounts of the assets, liabilities and non-controlling interests of the former consolidated company.
The dates of the financial statements of the consolidated companies are identical to that of the Company’s financial statements. The accounting policies in the financial statements of the consolidated companies were applied uniformly and consistently with those applied in the Company’s financial statements.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| E. | Functional currency and foreign currency |
| (1) | Functional currency and presentation currency |
The consolidated financial statements are presented in US dollars (hereinafter - “$”), the functional currency of the Company and its consolidated companies, which is the currency that best reflects the economic environment in which they operate, and their transactions.
| (2) | Foreign currency transactions |
Transactions denominated in foreign currency (a currency other than the functional currency) are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the exchange rate at the reporting date. Exchange differences, other than those capitalized to qualifying assets or directly carried to equity as part of hedges, are carried to profit and loss. Non-monetary assets and liabilities denominated in foreign currency which are presented at cost are translated into the functional currency according to the exchange rate at the transaction date. Non-monetary assets and liabilities denominated in foreign currency and presented at fair value are translated into the functional currency at the exchange rate prevailing on the date on which the fair value was determined.
| F. | Cash and cash equivalents |
Cash and cash equivalents include highly liquid investments, including short-term bank deposits with original maturities of at least three months from the investment date, and which are not restricted by a pledge.
| G. | Short-term deposits |
Short-term bank deposits with original maturities of three months from the investment date, with banking corporations, and which do not meet the definition of cash equivalents. The deposits are presented according to the terms of their deposit.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| H. | Inventory |
Inventory is measured at the lower of cost or net realizable value. Inventory costs include expenditures for the purchase of inventory and bringing it to its present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated selling costs. The company periodically examines the condition and age of its inventory and makes provisions for damaged or slow moving inventory accordingly. As of December 31, 2022, and 2021, the provision for slow-moving inventory is immaterial.
The cost of inventory is determined on a “first in-first out” basis.
| I. | Financial instruments |
| (1) | Financial assets |
| A. | Financial assets measured at amortized cost |
Financial assets measured at amortized cost include loans and receivables that comply with both of the following conditions:
| - | The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows arising therefrom. |
| - | According to the contractual terms and conditions of the financial asset, the Company is entitled, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
Loans and receivables are initially recognized at fair value plus directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost, using the effective interest method.
The financial assets of the Company are cash and cash equivalent, deposits with banking corporations, trade receivables, net, other current assets and long-term deposits.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| I. | Financial instruments (cont.) |
| (1) | Financial assets (cont.) |
| A. | Financial assets measured at amortized cost (cont.) |
On each reporting date, the Company reviews the provision for loss in respect to financial instruments measured at amortized cost. The Company distinguishes between two situations of recognition of the provision for impairment:
| - | Debt instruments that have not undergone a significant deterioration in credit quality since their initial recognition, or where the credit risk is low - the impairment provision that will be recognized in respect to this debt instrument will take into account expected credit losses within a period of 12 months after the reporting date, or: |
| - | Debt instruments that have undergone a significant deterioration in credit quality since their initial recognition and the credit risk of which is low - the impairment provision that will be recognized will take into account the expected credit losses - throughout the remaining life of the instrument. |
The impairment of the debt instruments measured at amortized cost is charged to profit or loss against the provision. The Company has financial assets with short credit periods, to which it may apply the expedient set forth in the model, i.e., the Company measures the impairment provision at an amount equal to expected credit losses throughout the entire life of the instrument. The Company opted to apply the expedient available in respect of these financial assets.
Impairment provisions for trade receivables are recognized based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non payment of trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| I. | Financial instruments (cont.) |
| (1) | Financial assets (cont.) |
| B. | Derecognition of financial assets |
A financial asset is derecognized when the contractual rights to the cash flows from the asset have expired, or when the Company has transferred to a third party substantially all risks and rewards associated with ownership.
Factoring transactions between the Company and a banking corporation are accounted for as a derecognition, such that the total amounts factored are offset against the trade receivables balance, since on the execution date of each transaction the Company assigns the customer’s debt to the banking corporation by way of sale, such that as from that date the Company’s rights to the cash flows from the asset expire and all risks and rewards associated with the customer’s debt that was assigned are transferred to the banking corporation.
| (2) | Financial liabilities |
| A. | Financial liabilities measured at amortized cost |
Financial liabilities measured at amortized cost include interest-bearing loans and credit, suppliers’ credit and other payables. Upon initial recognition, these financial liabilities are measured at fair value net of directly attributable transaction costs. Subsequent to initial recognition, the above loans and credit are measured at amortized cost, using the effective interest method.
| B. | Financial liabilities measured at fair value |
Financial liabilities measured at fair value include held-for-trading financial liabilities (such as financial derivatives) and financial liabilities designated by the Company as liabilities at fair value through profit or loss upon initial recognition.
| C. | Derecognition of financial liabilities |
A financial liability is derecognized when if it is settled - i.e., when the obligation established in a contract is repaid or canceled or expires.
| (3) | Offsetting of financial instruments |
Financial assets and liabilities are offset, and the net amount is presented in the statement of financial position if the Company has a legally enforceable right to set off the amounts and intends either to settle them on a net basis or to dispose of the asset and settle the liability simultaneously.
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| J. | Research and development costs |
Research costs are recognized in profit or loss as incurred. Costs incurred for a development project or from internal-use are recognized as an intangible asset only if the technical feasibility of completing the intangible asset so that it will be available for use or sale can be demonstrated; the Company intends to complete the intangible asset and use or sell it; the Company is able to use or sell the intangible asset; the Company is able to demonstrate how the intangible asset will generate future economic benefits; there are available adequate technical, financial and other resources to complete the intangible asset; and the costs attributable to the intangible asset during its development can be reliably measured.
The asset is measured at cost and presented net of accumulated amortization and impairment. The amortization of the asset commences when the development is completed, and the asset is available for use. The asset is amortized over its useful life. The asset is tested for impairment once a year and over the development period.
When it is impossible to recognize an internally-generated intangible asset, development costs are recognized in profit or loss as incurred. Development costs previously recognized as an expense are not recognized as an asset in a later period.
The conditions for recognizing as intangible assets costs in respect of internal development were not fulfilled in all reporting periods, due to, among other things, the lack of economic and other resources required to complete the development, and since some of the development activity in the reporting periods constitutes current maintenance work and upgrades to existing technology aimed at retaining the projected economic benefits. In view of the above, internal development costs were recognized in full in profit and loss.
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| K. | Leases |
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of an asset for a period of time in exchange for a consideration.
According to IFRS 16 – Leases, the transactions in which the Company is the lessee, it recognizes at commencement date a right-of-use asset against a lease liability, excluding transactions for periods of up to 12 months and transactions in which the underlying asset is of low value, in which the Company opted to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term.
Transactions where a Company employee is entitled to a car as part of his/her employment terms are accounted for as employee benefits in accordance with the provisions of IAS 19 – Employee Benefits, rather than as a sublease transaction.
On commencement date, the lease liability includes all unpaid lease payments, capitalized at the lease’s implicit interest rate, when it can be readily determined, or at the Company’s incremental interest rate. After commencement date, the Company measures the lease liability using the effective interest method.
At commencement date, the right-of-use asset is recognized at the amount of the lease liability plus lease payments paid on or before commencement date, plus transaction costs incurred. A right-of-use asset is measured using the cost model and depreciated over the shorter of its useful life or the lease term.
Set forth below are data regarding the depreciation periods of the relevant right-of-use assets by groups of right-of-use assets:
Years
Office space 2 - 5
Vehicles 3
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| L. | Property, plant and equipment |
Property, plant & equipment items are presented at cost, including directly attributable acquisition costs, net of accumulated depreciation and accumulated impairment losses. Improvements and enhancements are recognized in the cost of the assets, whereas maintenance and repair expenses are recognized in profit and loss as incurred.
Depreciation is calculated at equal annual rates over the asset’s useful life, as follows:
| % | ||||
| Furniture and office equipment | 7 | |||
| Computers and electronic equipment | 33 - 15 | |||
| Molds and production equipment | 33 | |||
| Leasehold improvements (see below) | 5 - 10 | |||
Leasehold improvements are amortized on a straight-line basis over the lease term, (including the period of an extension option the Company intends to exercise) or the useful life of the improvements, the shorter of the two.
Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. An asset is derecognized from the books on date of sale or when no future economic benefits are expected from its use. A profit or loss arising from the derecognition of the asset is calculated as the difference between the proceeds from the sale of the asset and its carrying amount on the date of derecognition, and recognized in profit and loss.
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| M. | Impairment of non-financial assets |
The Company assesses the need to record impairment of non-financial assets when events or changes in circumstances indicate that their carrying amounts are not recoverable. Where the book value of non-financial assets exceeds the irrecoverable amount, the assets are written down to their recoverable amount. The recoverable amount is the higher of the asset’s fair value net of costs to sell and its value in use, which is determined in accordance with the present value of the estimated cash flow expected to be generated from the use of the asset and its disposal at the end of its useful life. In the case of an asset that does not generate independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit and loss. An impairment loss that was recognized may be reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount when the impairment loss was recognized.
| N. | Provisions |
A provision in accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, is recognized when the Company has a present (legal or constructive) obligation as a result of a past event and it is probable that economic resources shall be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects that some or all of the expense will be reimbursed to it, such as in an insurance contract, the repayment will be recognized as a separate asset, only when it is highly likely that the asset will be received. The expense will be recognized in profit and loss net of the portion reimbursed.
Warranty provision
The Company provides for its customers a standard warranty of 12 months.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| O. | Liabilities for employee benefits |
| (1) | Short-term employee benefits |
Short-term employee benefits are benefits which are expected to be fully paid within up to one year after the end of the annual reporting period in which employees provide the services. These benefits mainly include wages and generally accepted social benefits. Liabilities for short-term employee benefits are measured on an undiscounted basis, and the expenses in respect thereof are recognized in profit and loss in the period during which the services were rendered by the employees. The liability in respect of bonuses is recognized when the Company has a legal or constructive obligation to pay the bonuses in respect of a service previously rendered by the employee, and the amount payable may be measured reliably.
| (2) | Post-employment employee benefits |
The Company has defined contribution plans in accordance with Section 14 of the Israeli Severance Pay Law. According to these plans, the Company pays fixed contributions without having a legal or constructive obligation to pay further contributions even if the fund does not have sufficient amounts to pay all employee benefits related to the employee’s service in the current and prior periods. Contributions to a defined contribution plan are recognized as an expense when they are deposited with the plan simultaneously with the receipt of work services from the employee, and no further provision is required in the financial statements.
In addition, the Company has a defined benefit plan in respect of payment of severance pay in accordance with the Severance Pay Law. According to the law, employees are entitled to severance pay when they are dismissed or retiring from their employment. Severance pay is calculated based on the employee’s latest monthly salary on employment termination date multiplied by the number of years of employment. The liability for termination of employment is measured using the projected unit credit method for calculating actuarial value.
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| O. | Liabilities for employee benefits (cont.) |
| (2) | Post-employment employee benefits (cont.) |
The actuarial calculation takes into account future pay rises and rates of employee turnover based on the estimated timing of payment. The amounts are presented as of balance sheet date based on discounted expected future cash flows using interest rates of high-quality Israeli corporate bonds with a term that is consistent with the estimated term of the relevant severance pay obligations. In addition, some of the Company’s employees are entitled to adaptation grants, which are accounted for as other long-term benefits and are also measured based on an actuarial valuation.
The Company deposits funds on a regular basis with pension funds and insurance companies (hereinafter - the “Plan Assets”) in respect of its severance pay obligations for some its employees. The Plan Assets are assets held with a long-term employee benefit funds or with qualifying insurance policies. The Plan Assets are not available for the use of the Company’s creditors, and they cannot be paid directly to the Company. The Plan Assets are measured at fair value on each balance sheet date.
The liability for employee benefits, net, presented in the balance sheet represents the present value of the liability for defined benefit plans, net of the fair value of Plan Assets. Actuarial gains and losses are carried to other comprehensive income (loss) in the period in which they are incurred.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| P. | Revenue recognition |
Revenues from sale of goods are recognized in profit or loss at a point in time, upon the transfer of control of the goods sold to the customer. Control is normally transferred on the date on which the goods are received by the customer. Revenue is measured and recognized at the fair value of the consideration expected to be received according to the contract’s terms, net of amounts collected in favor of third parties (such as taxes). Revenue is recognized in profit or loss to the extent that it is probable that the economic benefits will flow to the Company and the revenue and costs, if relevant, can be measured reliably.
The company generate its revenue through final sales of products to either distributers or end clients (usually security and military entities), revenues are recognized upon acceptance of shipment by the customers. In case where the agreement involves both the distributer and the end client the Company assesses whether it acts as a principal or an agent. The Company is a principal if it controls the specified good before that good is transferred to a customer. In assessing whether an entity controls the specified good prior to transfer to the customer, the Company considers whether it has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. In cases where the Company acts as a principal the Company recognizes revenue at the gross consideration amount. In cases where the Company acts as an agent, the Company recognizes the revenue at a net amount, after deducting the amounts due to the principal supplier.
Income which includes warranty services
Under its contracts, the Company provides warranty services to its customers, in accordance with the provisions of law or industry practice. In all of the Company’s contracts, it provides the warranty services to ensure the quality of the sold product, rather than as an additional service rendered to the customer. Accordingly, the warranty does not constitute a separate performance obligation, and therefore the Company records in its financial statements a provision for warranty in accordance with the provisions of IAS 37.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| Q. | Income tax |
The tax results in respect of current or deferred taxes are carried to profit or loss, unless they relate to items carried to other comprehensive income or directly to equity.
| (1) | Current taxes |
The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted as of the reporting date, as well as adjustments to the tax liability payable in respect of prior years.
| (2) | Deferred taxes |
Deferred taxes are calculated for temporary differences between the amounts in the financial statements and the amounts taken into account for tax purposes.
Balances of deferred taxes are calculated at the tax rate that is expected to apply when the asset is disposed of or the liability settled, based on tax laws that have been enacted or substantively enacted as of the reporting date.
The Company assesses its deferred tax assets on each reporting date, and where it is not expected that they will be utilized they are written-down. Concurrently, temporary differences (such as carryforward losses for tax purposes), in respect of which deferred tax assets were not recognized, are assessed on each reporting date, and where it is expected that they will be utilized an appropriate deferred tax asset is recognized.
As of the reporting dates, and since it is not expected that the carryforward losses for tax purposes will be utilized, the Company did not recognize deferred tax assets.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| R. | Earnings (loss) per share |
Basic earnings (loss) per share are calculated by dividing the net income (loss) attributed to the Company’s shareholders by the weighted average number of the outstanding ordinary shares during the period, with retrospective adjustment in respect of bonus shares, share consolidation and share splits.
When calculating the diluted earnings (loss) per share, the basic earnings (loss) per share will be adjusted to reflect the effect of potential ordinary shares (convertible securities such as warrants), so long as their effect is dilutive (i.e., they reduce the earnings per share). Potential ordinary shares that were converted into shares during the reporting period are included in the calculation of the diluted earnings (loss) per share only until the conversion date; as from that date, they are included in the calculation of the basic earnings (loss) per share.
| T. | Fair value measurement |
Fair value is the price that would be received when selling an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value measurement assumes a transaction taking place in the principal market for the asset or liability, or in the absence of a principal market - in the most advantageous market. The fair value of an asset or liability is based on assumptions to be used by market participants to price the asset or liability, assuming that market participants act in their economic interests.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| T. | Fair value measurement (cont.) |
The Company uses valuation techniques that are appropriate to the circumstances and for which sufficient information is available to measure fair value, while maximizing the use of relevant observable data and minimizing the use of unobservable inputs.
The Company measure the warrants and the SAFE at fair value through profit and loss
| U. | Disclosure of the new IFRSs in the period prior to their application |
| (1) | Amendment to IAS 1 - “Presentation of Financial Statements” |
The amendment to IAS 1 clarifies the guidance regarding the classification of liabilities as current or non-current in the statement of financial position. Among other things, the amendment clarifies that:
| - | The liability will be classified as non-current if the entity has the right to defer the settlement of the liability for at least 12 months after the end of the reporting period. |
| - | The right to defer the settlement of the liability as stated above is established only if the entity complies with the relevant conditions as of the reporting date. |
| - | The settlement of the liability includes settlement with cash, other economic resources or the entity’s equity instruments. |
| (2) | Amendment to IAS 12 - “Taxes on Income” |
The amendment to IAS 12 clarifies that the exemption from creating deferred taxes arising from initial recognition of an asset or a liability in a transaction which is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss (initial recognition exemption) does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition.
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Notes to the Financial Statements
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
| U. | Disclosure of the new IFRS in the period prior to their application (cont.) |
| (2) | Amendment to IAS 12 - “Taxes on Income” (cont.) |
Such transactions include, for example, lease transactions, upon initial recognition of which the lessee recognizes a right-of-use asset at an amount equal to the balance of the lease liability; as well as recognition of decommissioning, dismantling and restoration liability against the cost of the property, plant & equipment.
The Company believes that the first-time application of the amendment to IAS 12 is not expected to have a material effect on the financial statements, if any.
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Notes to the Financial Statements
NOTE 3 – THE COMPANY’S SUBSIDIARIES
A. Set forth below are details regarding the Company’s subsidiaries:
| Rights to | Additional information | |||||||||
| Investee | Country of incorporation | equity/ voting rights | See Subsection # | |||||||
| Silynx Communications Inc. (hereinafter – “Silynx”) | USA | 100% | B(1) | |||||||
| Source of Sound Ltd. (hereinafter - “SOS”) | Israel | 100% | B(2) | |||||||
| B. | Additional information |
| (1) | Silynx is a privately-held company that was incorporated in Delaware, USA in September 2005; through the completion date of the restructuring completed by the Company on August 26, 2021 (see Note 1.B), Silynx held the entire issued and paid-up share capital of SOS. |
| (2) | SOS is a privately-held company that was incorporated in Israel in September 2005; SOS is engaged in the development, production, marketing and sale of personal speech and audio accessories for tactical uses (i.e., radios used by security forces, law enforcement and rescue forces, etc.). |
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Notes to the Financial Statements
NOTE 4 – CASH AND CASH EQUIVALENTS
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Cash available for immediate withdrawal - in $ | 55 | 1,251 | ||||||
| Cash available for immediate withdrawal - in NIS | -- | 305 | ||||||
| Cash available for immediate withdrawal - in EUR | 14 | 5 | ||||||
| 69 | 1,561 | |||||||
NOTE 5 – TRADE RECEIVABLES, NET
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| A. Composition: | ||||||||
| Trade receivables | 2,790 | 1,369 | ||||||
| Less provision for doubtful debts (see Note C below) | 16 | 13 | ||||||
| Trade receivables, net | 2,774 | 1,356 | ||||||
| B. | From time to time the Company enters into agreements with a banking corporation for the factoring of specific customers’ debts; under those agreements, the Company receives immediately up to 85% of the invoice amount (as agreed by the parties), and the remaining balance is paid to the Company when payment is received from the customer, against the payment of a credit allocation fee and interest at a variable rate (of Prime plus a margin); |
As of December 31, 2022 and 2021, the open factoring transactions with the banking corporation are amounted to $357 and 0; a review conducted by the Company indicates that such factoring agreements meet the criteria for classification as assignment by way of sale, and therefore, when there are open factoring transactions, those transactions are presented net of the balance of the customer debt in respect of which it was entered into.
In 2021 and 2022, the Company sold customer debts in a total amount of $504 and $2,440, respectively.
In 2021 and 2022, the factoring expenses recorded under finance amounted to $4 and $27, respectively.
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Notes to the Financial Statements
NOTE 5 – TRADE RECEIVABLES, NET (cont.)
| C. | The Company operates to mitigate its credit risk by securing substantial part of the payment in advance for customers classified as other customers, as well as factoring substantial part of the balance for customers. |
For the remaining balance for trade receivables, impairment provisions are recognized based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses.
The Company is sorting its trade receivables into three groups:
| 1. | Key customers IL - each of which is responsible for 10% or more of the total revenues. |
| 2. | Key customers rest of world - each of which is responsible for 10% or more of the total revenues. |
| 3. | Other customers. |
Write-off policy
The Company writes off its financial assets if any of the following occur:
| ● | Inability to locate the debtor. |
| ● | Discharge of the debt in bankruptcy. |
| ● | It is determined that the efforts to collect the debt are no longer cost-effective given the size of receivable. |
The collections department must comply with the collection efforts outlined in the policy to collect on delinquent customer accounts before any write-offs are made.
At every reporting date, the historically observed default rates are updated and changes in the forward-looking estimates are analyzed. The Company estimated the following provision matrix:
Three-level provision matrix
| Default rate | As
of December 31, 2022 | ECL | Default rate | As
of December 31, 2021 | ECL | |||||||||||||||||||
| Key customers IL | 0.1 | % | 2,098 | 2 | 0.1 | % | 9 | - | ||||||||||||||||
| Key customers rest of world | 0.9 | % | - | - | 0.65 | % | 1,248 | 8 | ||||||||||||||||
| Other customers | 2.1 | % | 676 | 14 | 5.2 | % | 99 | 5 | ||||||||||||||||
| Total | 2,774 | 16 | 1,356 | 13 | ||||||||||||||||||||
The Company periodically estimates the financial stability of its customers. The company believes that the financial stability of its key customers is high.
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Notes to the Financial Statements
NOTE 6 – OTHER CURRENT ASSETS
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Institutions | 2 | 61 | ||||||
| Prepaid expenses | 91 | 66 | ||||||
| Advances to suppliers | 60 | 5 | ||||||
| Other | 61 | 57 | ||||||
| 214 | 189 | |||||||
NOTE 7 – INVENTORY
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Raw materials | 1,169 | 954 | ||||||
| Products in process | 1,029 | 672 | ||||||
| Finished goods | 235 | 121 | ||||||
| 2,433 | 1,747 | |||||||
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
| Furniture and office equipment | Computers and electronic equipment | Leasehold improvements | Molds and production equipment | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| As at January 1, 2021 | 448 | 279 | 70 | 1,044 | 1,841 | |||||||||||||||
| Additions | 1 | 10 | -- | 105 | 116 | |||||||||||||||
| As of December 31, 2021 | 449 | 289 | 70 | 1,149 | 1,957 | |||||||||||||||
| Additions | 2 | -- | -- | 6 | 8 | |||||||||||||||
| As at December 31, 2022 | 451 | 289 | 70 | 1,155 | 1,965 | |||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||
| As at January 1, 2021 | 434 | 271 | 53 | 965 | 1,723 | |||||||||||||||
| Additions | 6 | 5 | 4 | 33 | 48 | |||||||||||||||
| As of December 31, 2021 | 440 | 276 | 57 | 998 | 1,771 | |||||||||||||||
| Additions | 3 | 4 | 2 | 38 | 47 | |||||||||||||||
| As of December 31, 2022 | 443 | 280 | 59 | 1,036 | 1,818 | |||||||||||||||
| Amortized cost | ||||||||||||||||||||
| As of December 31, 2022 | 8 | 9 | 11 | 119 | 147 | |||||||||||||||
| As of December 31, 2021 | 9 | 13 | 13 | 151 | 186 | |||||||||||||||
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 9 – LEASES
| A. | Set forth below are details regarding the lease agreements in which the Company is (or was) engaged in the reporting periods: |
| (1) | In November 2016, the Company entered into agreement with a third party (hereinafter - the “Lessor”), where under the Company will lease from the Lessor offices in Virginia, USA (hereinafter - the “Leased Property”), in consideration for monthly lease fees of approx. $3 and for a period of 5 years (hereinafter - the “Lease Term”). |
In July 2017, the Company stopped using the Leased Property, and in April 2018 the Company entered into an agreement with another third party (hereinafter - the “Lessee”), where under the Lessee will sub-lease the Leased Property from the Company for the remaining Lease Term in consideration for monthly lease fees of $2. The Lease Term and the sublease term ended in 2021.
In accordance with what is stated above, on January 1, 2019, the Company recognized a lease liability of $94; the Company estimated this liability using a discount rate of 10.56%, as estimated by an independent external appraiser to be the Company’s incremental interest rate as of that date.
| (2) | In May 2019, the Company entered into agreement with a third party (hereinafter - the “Lessor”), where under the Company will lease from the Lessor offices in California, USA in consideration for monthly lease fees of approx. $2 and for a period of 6 months; in practice, as of the approval date of the financial statements, the Company still leases the offices from the Lessor, but without a valid lease agreement. |
After the term of the agreement, which is shorter than one year, the above lease was accounted for as an operating lease in the financial statements, and consequently the lease expenses in respect of the lease were recognized directly in profit and loss as incurred.
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Notes to the Financial Statements
NOTE 9 – LEASES (cont.)
| A. | Set forth below are details regarding the lease agreements in which the Company is (or was) engaged in the reporting periods (cont.): |
| (3) | In January 2019, SOS entered into agreement with a third party (hereinafter - the “Lessor”), where under SOS will lease from the Lessor offices in Netanya, in consideration for monthly lease fees of approx. $6 (NIS 21) and for a period of one year, and an option to extend the lease term by one further year (hereinafter - the “the Agreement”). |
On the Agreement’s inception date, SOS’s management believed that SOS will exercise the extension option; therefore, the option period was included in the lease term.
Accordingly, on January 1, 2019, the Company recognized a lease liability of $124 (NIS 464); the Company estimated this liability using a discount rate of 10.56%, as estimated by an independent external appraiser to be the SOS’s incremental interest rate as of that date. On the other hand, SOS recognized a right-of-use asset of identical amount as of that date.
The lease term as set in the New Agreement ended in December 2021; however, in practice, SOS continues using the leased property for the same amount of monthly lease fees.
| (4) | The Company is a party to lease agreements, under which it leases vehicles for a period of 3 years. |
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Notes to the Financial Statements
NOTE 9 – LEASES (cont.)
| B. | Set forth below are the changes in the right-of-use assets attributed to offices and vehicles: |
| Office space | Vehicles | Total | ||||||||||
| Cost | ||||||||||||
| As at January 1, 2021 | 218 | 112 | 330 | |||||||||
| Additions | -- | 77 | 77 | |||||||||
| Derecognitions | (218 | ) | -- | (218 | ) | |||||||
| As of December 31, 2021 | -- | 189 | 189 | |||||||||
| Additions | -- | 113 | 113 | |||||||||
| As of December 31, 2022 | -- | 302 | 302 | |||||||||
| Accumulated depreciation | ||||||||||||
| As at January 1, 2021 | 188 | 80 | 268 | |||||||||
| Additions | 30 | 40 | 70 | |||||||||
| Derecognitions | (218 | ) | -- | (218 | ) | |||||||
| As of December 31, 2021 | -- | 120 | 120 | |||||||||
| Additions | -- | 50 | 50 | |||||||||
| As at December 31, 2022 | -- | 170 | 170 | |||||||||
| Amortized cost | ||||||||||||
| As of December 31, 2022 | -- | 132 | 132 | |||||||||
| As of December 31, 2021 | -- | 69 | 69 | |||||||||
| C. | Lease liabilities |
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Lease liabilities in respect of lease of vehicles | 128 | 74 | ||||||
| 128 | 74 | |||||||
| Less current maturities | 60 | 38 | ||||||
| 68 | 36 | |||||||
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 9 – LEASES (cont.)
| C. | Lease liabilities (cont.) |
The contractual repayment dates of the lease liabilities subsequent December 31, 2022:
| First year - current maturities | 60 | |||
| Second year | 51 | |||
| Third year | 17 |
| D. | Additional details regarding lease transactions |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Finance expenses for lease liabilities | 10 | 8 | ||||||
| Expenses short-term leases (*) | 101 | 19 | ||||||
| Cash flow used in lease transactions | 59 | 89 | ||||||
| (*) | The Company has expenses in respect of the lease of offices for a period shorter than 12 months. The Company applied to this lease the expedient made available in the standard, and recognized the lease costs on a straight-line basis over the lease term. |
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 10 – LOANS FROM RELATED PARTIES
| A. | Composition: |
| See subsection # | December 31 | |||||||||
| below | 2022 | 2021 | ||||||||
| Loans from related parties | B | 50 | 107 | |||||||
| Loans from related parties in respect of salaries | B | -- | 908 | |||||||
| 50 | 1,015 | |||||||||
| B. | Additional information |
The loans are unlinked, do not bear interest, and have no fixed repayment date. In view of the fact that the said loans do not bear interest and their terms do not reflect market terms, the Company accounted for the loans as transactions with controlling shareholders that involve an equity benefit. Therefore, the Company was required to estimate the rate of the interest it would have been required to pay had the loans been received from third parties that are not related to the Company. In 2021 and 2022 The said interest rate, used by the Company in the reporting periods for the purpose of recognizing finance expenses in respect of the said loans (against a corresponding amount recognized in equity), was estimated by the Company with the assistance of an independent external appraiser, at 17%.
On June 28, 2022 the related parties informed the Company that they waive the above-mentioned debt, which amounted to $908.
On December 31, 2022 the related parties informed the Company that they waive $93.
NOTE 11 – TRADE PAYABLES
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Trade payables | 2,210 | 2,047 | ||||||
| Accrued expenses | -- | 12 | ||||||
| Checks payable | 11 | 359 | ||||||
| 2,221 | 2,418 | |||||||
NOTE 12 – OTHER ACCOUNTS PAYABLES
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Composition: | ||||||||
| Employees and liabilities in respect thereof | 434 | 461 | ||||||
| Accrued expenses | 337 | 973 | ||||||
| Loan from former shareholder (*) | 263 | 263 | ||||||
| Advance payments from customers | 479 | 145 | ||||||
| Institutions | 336 | 50 | ||||||
| Warranty provision | 35 | 35 | ||||||
| Other | 1 | 4 | ||||||
| 1,885 | 1,931 | |||||||
| (*) | A loan received from former Company interested parties; the loan is unlinked, bears no interest, and will be repaid immediately after the repayment of a loan taken by the Company from banking corporations; if the loan is not paid on the said date, the loan balance will bear an annual interest rate of 10% as from that date. |
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 13 – LOANS FROM BANKING CORPORATIONS
| A. | Composition: |
| Interest | December 31 | |||||||||
| rate (*) % | 2022 | 2021 | ||||||||
| Loan denominated in shekels | 3.1 | 171 | 270 | |||||||
| 171 | 270 | |||||||||
| Less current maturities | 70 | 78 | ||||||||
| 101 | 192 | |||||||||
| (*) | As at the balance sheet date. |
| B. | Additional information |
In connection with a loan from Bank Mizrachi, which was repaid in full in 2021, as part of a loan agreement between the Company and the banking corporation of May 2015, and the amendment thereto, the latest of which is dated July 2017, the Company issued to the banking corporation 1,885,291 options that are exercisable into 1,885,291 ordinary Company shares of $0.01 in consideration for a variable exercise price, which was set as the lower of $0.159 per share and the lowest share price as reflected upon the occurrence of various events set out in the agreement; those events include, among other things, a private placement (including to a related party), an IPO, sale of control, etc. The options will expire on June 2023.
On August 26, 2021, as part of the restructuring executed by the Company (see Note 1.B. above), the aforesaid options were replaced with options exercisable into Company shares in accordance with their original terms and the original agreement with the banking corporation, which stipulated that such replacement shall be carried out in the event of a restructuring.
On September 22, 2022, the Company signed a warrant buyback agreement with Bank Mizrachi, canceling the bank’s warrants for a one-time fee of $170 (NIS 600). The cancellation of the option is conditional on the Company becoming public until May 30, 2023.
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 13 – LOANS FROM BANKING CORPORATIONS (cont.)
| B. | Additional information (cont.) |
In view of the fact that the options’ exercise price is not fixed, the options were classified in the statement of financial position as a financial liability measured at fair value through profit and loss on each reporting date.
As of December 31, 2022 and 2021, the Company estimated the value of the aforesaid warrants with the assistance of an independent external appraiser at $157 and $1,394 respectively, under management’s assessments in connection with the different scenarios, in accordance with the following parameters and using the Black-Scholes model:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
The Company share price ($) (*) | 0.04 | 0.9 | ||||||
| Exercise price (in $) | 0.159 | 0.159 | ||||||
| Expected volatility in the Company’s share price | 45.6 | % | 36.8 | % | ||||
| Expected life of the warrants (in years) | 0.5 | 4.5 | ||||||
| Risk-free interest | 4.14 | % | 0.56 | % | ||||
| Expected dividend yield | -- | -- | ||||||
| (*) | The Company’s share price is determined based on the Company’s value (that reflects a company value as a consequence of the restructuring executed by the Company, as set out in Note 1.B. above) as appraised by the appraiser as of each date, while using the discounted cash flow method, and at discount rates of 17% to 18%. |
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Notes to the Financial Statements
NOTE 14 – LIABILITIES FOR EMPLOYEE BENEFITS, NET
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| A. Composition: | ||||||||
| Present value of defined benefit liabilities | 226 | 288 | ||||||
| Less - fair value of plans’ assets | 194 | 239 | ||||||
| 32 | 49 | |||||||
| B. Changes in the present value of defined benefit liabilities | ||||||||
| 2022 | 2021 | |||||||
| Balance at beginning of year | 288 | 292 | ||||||
| Current service cost | 8 | 7 | ||||||
| Interest cost | 8 | 6 | ||||||
| Benefits paid | (9 | ) | (42 | ) | ||||
| Expenses in respect of exchange rate differences | (33 | ) | 11 | |||||
| Net actuarial loss | (36 | ) | 14 | |||||
| Balance at end of year | 226 | 288 | ||||||
C. Plans’ assets
The plans’ assets include severance pay funds, and the severance pay component in executive insurance policies and in pension funds.
| Changes in the fair value of plan assets | ||||||||
| 2022 | 2021 | |||||||
| Balance at beginning of year | 239 | 248 | ||||||
| Expected return on plan assets | 7 | 6 | ||||||
| Employer contributions | 7 | 7 | ||||||
| Benefits paid | (9 | ) | (42 | ) | ||||
| Income from exchange rate differences | (30 | ) | 11 | |||||
| Net actuarial gain (loss) | (20 | ) | 9 | |||||
| Balance at end of year | 194 | 239 | ||||||
| Actual return on plan assets | (14 | ) | 15 | |||||
F-40
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 14 – LIABILITIES FOR EMPLOYEE BENEFITS, NET (cont.)
| D. | Expenses in respect of defined benefit plans |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Current service cost | 8 | 7 | ||||||
| Interest cost | 8 | 6 | ||||||
| Expected return on plans’ assets | 7 | 6 | ||||||
| Exchange rate differentials, net | (3 | ) | -- | |||||
| 20 | 19 | |||||||
| Presentation in profit and loss: | ||||||||
| Cost of revenue | 8 | 7 | ||||||
| Finance expenses | 12 | 12 | ||||||
| 20 | 19 | |||||||
| Presentation in other comprehensive income (loss) | 16 | (5 | ) | |||||
| E. | Key actuarial assumptions |
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Discount rate | 5.5 | % | 3.1 | % | ||||
| The expected weighted average cost of capital on plans’ assets | 3.1 | % | 2.4 | % | ||||
| Expected pay rise rate | 2.8 | % | 2.6 | % | ||||
F-41
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Notes to the Financial Statements
NOTE 14 – LIABILITIES FOR EMPLOYEE BENEFITS, NET (cont.)
| F. | Expenses in respect of defined contribution plans |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Expenses in respect of employee benefits | 81 | 69 | ||||||
| Presentation in profit and loss: | ||||||||
| Cost of revenue | 31 | 29 | ||||||
| Research and development expenses | 13 | 13 | ||||||
| Selling and marketing expenses | 16 | 10 | ||||||
| General and administrative expenses | 21 | 17 | ||||||
| 81 | 69 | |||||||
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 15 – COMMITMENTS AND PLEDGES
| A. | Commitments |
In December 2021, the Company and third parties (hereinafter - the “Investors”) entered into an investment and IPO collaboration agreement, which focuses mainly on the raising of $225 (hereinafter - the “Investment Agreement” and the “Investment Amount”, respectively), either directly by the Investors and/or by way of raising capital from other investors that will be introduced by the Investors (hereinafter - the “Additional Investors”). The Investment Amount was set based on the Investors’ assessment of the costs that the Company will accrue in order to execute the IPO; under the Investment Agreement, the Investors have undertaken to provide to the Company with additional funds as required (directly or through anyone acting on their behalf, including the Additional Investors) if the IPO costs exceed the investment amount. In accordance with the Investment Agreement, in exchange for the Investment Amount and full collaboration on behalf of the Company and the Investors in the execution of an IPO, the Company shall allocate to the Investors, immediately after an IPO on the TASE or any other stock exchange (hereinafter - the “IPO”), and subject to the completion of the IPO and for the raising of the entire Investment Amount, ordinary Company shares, such that subsequent to the allocation of the shares to the Investors and the Additional Investors, the Investors and the Additional Investors shall hold a certain percentage of the Company’s issued and paid up share capital that will depend on the Company’s value as set in the aforesaid IPO; the Investors and the Additional Investors will be subject to dilution of up to 40% of the Company’s issued and paid-up share capital as a result of the IPO and as set out in the agreement; should the amount raised as part of the IPO exceed $5,145, then in respect of the Investment share exceeding the said amount, the stake of the Investors, the Additional Investors, the existing shareholders, a Company officer and a third party that served as a mediator in the engagement in the Investment Agreement will be diluted, on a pro rata basis, in accordance with their stake in the Company’s shares, but only if the amount raised as part of the IPO exceeds $5,145 (NIS 16,000).
The Investment Agreement was amended October 26, 2022, or the Amendment, to include any initial public offering on Nasdaq or the NYSE (and, in such event, cease promoting any public offering on the TASE). Further, the Amendment specified that, among other things, in the event of an initial public offering on a U.S. stock exchange: (1) existing shareholders will hold 50% of the Company’s issued and outstanding share capital following the offering (including 442,118 options to be assigned to the Company’s vice president); (2) the Investors would hold a minimum of 13.48% of the Company’s issued and outstanding share capital following the offering; (3) following the completion of the offering, the Company may allocate 12% of its share capital to its option plan; and (4) the Company will list the Investors’ shares for trading up to six months following the completion of the offering. The Investors also agreed to transfer to the Company an amount of $200 thousand in connection with any expenses associated with the Company’s initial public offering.
Subject to completion of the initial public offering, the Company and the Investors (the Investors will be considered as one party) will transfer to the Mediator Ordinary Shares representing 1% of the Company’s issued and paid-up share capital immediately prior to completion of the Issuance, in equal parts (i.e.: each party will transfer 0.5% of the Company’s issued share capital as aforesaid), and the Mediator will bear the tax consequences for this transfer.
F-43
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 15 – COMMITMENTS AND PLEDGES (cont.)
| A. | Commitments (cont.) |
It was also agreed that if the IPO shall not be executed by the date set for that purpose, the Investment Amount shall be retained by the Company until such date when the Company will execute the first capital raising round through which (including as part of that first capital raising round) the Company will have raised a total of $3,007; as part of the first capital raising round, ordinary Company shares will be issued to the Investors and/or the Additional Investors against the Investment Amount, at a price reflecting a discount of 30% of the share price as derived from that latest capital raising round that will be executed.
In accordance with the Investment Agreement, a total of $10 (NIS 31) shall be given to the Company immediately after the signing of the Investment Agreement, and the remaining amount - $215 (NIS 670) - shall be given to the Company as part of the IPO.
The agreement also sets other mechanisms for compensating the Investors or anyone acting on their behalf in the event that an IPO will not be completed. Investors or anyone acting on their behalf were also given the right to make further investments in the Company in the event that an IPO shall not be completed as stated above.
In June 2022, the Company entered into a number of investment agreements (hereinafter - the “SAFE”) with the Additional Investors, which were introduced by the Investors; under those agreements, in exchange for a total of NIS 1,140 (hereinafter - the “Additional Investment Amount”), the Company shall allocate to the Additional Investors - subject to an IPO or change of control in the Company - ordinary Company shares at a price reflecting a discount of 33% of the share price as derived from such event; if the IPO or change of control as stated above will not take place, the Company shall allocate to the additional investors ordinary Company shares in accordance with the conversion terms agreed upon in the Investment Agreement as described above.
During 2022, the Company received a total of $342 (NIS 1,140) on account of the Investment Amount.
With regard to the Investment Agreement, the Company reached the conclusion that on the one hand this is an agreement where under the Investors shall render the Company support services as part of the IPO (hereinafter - the “Services Component”), and on the other hand the agreement includes a monetary investment that will be converted into Company shares as stated above.
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 15 – COMMITMENTS AND PLEDGES (cont.)
| A. | Commitments (cont.) |
The consideration in respect of the Services Component, which constitutes, as stated above, a share-based payment, that was awarded when the parties entered into the Investment Agreement, was estimated at $137; this amount is based on the Investors’ assessment of the value of the services they render to the Company.
The Investment Amount and the SAFE Amount were recognized as a financial liability since the number of shares that will be issued to the Investors and the Additional Investors is not fixed. The above-mentioned liabilities were recognized initially at their fair value, which reflects the investment amounts paid to the Company. After initial recognition, the said financial liabilities are measured at fair value through profit or loss since the investment amounts include various conversion alternatives as stated above.
| B. | Pledges |
To secure SOS’s undertakings to a banking corporation, a floating charge was placed on all its assets and rights. Furthermore, first ranking fixed charges were placed on SOS’s share capital and goodwill, intellectual property rights, the rights to receive funds, and deposits with banks.
| C. | Convertible loan |
In 2017, the Company signed a loan agreement with one of its employees according to which the employee will grant the Company a convertible loan of $30 in exchange for receiving an option to purchase 282,667 shares of the Company.
The employee can exercise the option in one of two ways:
| 1. | Waiver of loan repayment in exchange for exercising the option at an exercise price of $0.11 per share. |
| 2. | Receiving the loan amount back and receiving the option to exercise 282,667 options in exchange for an exercise price of $0.16 per share for 4 years from the repayment date. |
The Company classified the loan as a financial liability measured at fair value through profit and loss. On January 31, 2021, the Company repaid the loan amount to the employee and accordingly reclassified the option to equity.
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 16 – EQUITY
| A. | Composition of share capital |
| Authorized | Issued and paid-up | |||||||
| No. of shares | No. of shares | |||||||
| Ordinary shares of NIS 0.01 par value each as of As at December 31, 2022 | 25,000,000 | 16,666,666 | ||||||
| Ordinary shares of NIS 0.01 par value each As at December 31, 2021 | 25,000,000 | 16,666,666 | ||||||
On August 22, 2021 (the Company’s incorporation date), the Company issued to its shareholders 16,666,666 ordinary shares of NIS 0.01 p.v., as part of a restructuring executed by the Company; as part of the restructuring, Silynx’s entire issued and paid-up share capital, which has been held through that date by its shareholders, was transferred by the shareholders to the Company, and SOS’s entire share capital, that has been held through that date by Silynx, was transferred to the Company by way of dividend in kind (see Note 1.B. above). The shares confer upon their holders’ rights to vote in the General Meeting, right to dividends and rights upon the liquidation of the Company.
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 17 – SHARE-BASED PAYMENT IN A CONSOLIDATED SUBSIDIARY
| A. | In March 2011, the Company’s Board of Directors approved the award - to Mr. Nir Klein, the Company’s CEO - of 25,000 options exercisable into 25,000 ordinary Company shares of $0.01 p.v.; 15,000 options out of the said 25,000 options may be exercised in consideration for an exercise price of $5.416 per share, and the remaining amount may be exercised in exchange for an exercise price of $11.28 per share. In March 2021, all of the aforesaid options expired without being exercised. |
Furthermore, in 2015, the Company’s Board of Directors approved the award of options exercisable into ordinary Company shares of $0.01 p.v. in exchange for an exercise price of $2.74 per share (of which 74,640 options were awarded to Mr. Nir Klein, who serves as the Company’s CEO, 5,598 options were awarded to Ms. Gal Nir Klein, who serves as SOS’s VP Marketing and Sales Israel, 5,598 options were awarded to Mr. Ilan Akselrod, who serves as the Company’s CFO, and 12,316 options were awarded to Mr. Ronen Hananis, who serves as SOS’s VP Development and Operations); as of January 1, 2019, 109,348 of the awarded options have vested in full and were exercisable, and the remaining options awarded in 2015 expired and/or forfeited. The options are exercisable over a period of 10 years from their award date.
| B. | In March 2018, the Company’s Board of Directors approved the award of 1,324,003 non-marketable options to Company employees and officers; the options will be exercisable into 1,324,003 ordinary Company shares of $0.01 p.v. over a 10-year period from their award date, as described below: |
| - | 585,000 of the options (of which 110,000 options and 150,000 options were awarded to Mr. Ilan Akselrod who serves as the Company’s CFO and to Mr. Ronen Hananis, who serves as SOS’s VP Development and Operations, respectively) will be exercisable into Company shares in consideration for an exercise price of $0.24 per share; 25% of the options shall vest immediately, and the remaining options shall vest in 3 equal annual tranches starting a year after their award date. |
| - | 47,019 of the options (of which 1,945 options and 3,068 options were awarded to Mr. Ilan Akselrod and to Mr. Ronen Hananis, respectively) will be exercisable into Company shares in consideration for an exercise price of $1.14 per share; a third of the options shall vest immediately, and the remaining options shall vest in 2 equal annual tranches starting a year after their award date. |
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U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 17 – SHARE-BASED PAYMENT IN A CONSOLIDATED SUBSIDIARY (cont.)
| B. | (cont.) |
| - | 100,000 of the options will be exercisable into Company shares in consideration for an exercise price of $2.74 per share; two thirds of the options shall vest immediately, and the remaining options shall vest on December 31, 2018. |
| - | 150,000 of the options will be exercisable into Company shares in consideration for an exercise price of $0.24 per share; the options shall vest over a period of 3 years, subject to the employee’s meeting sales targets. As from the award date of the aforesaid options, and as of December 31, 2019 and 2020, the Company’s management was of the opinion that the employee will not meet the targets set in the agreement that was signed with him; in practice, in view of the termination of the employee’s employ by the Company during the reporting year, the aforesaid options expired without vesting. |
| - | 441,984 of the options will be exercisable into Company shares in consideration for an exercise price of $0.24 per share; a third of the options shall vest 3 years after their award date, and the remaining options shall vest in 2 equal tranches at the end of each 3 subsequent years, subject to the employee’s meeting sales targets. As from the award date of the aforesaid options, and as of December 31, 2019 and 2020, the Company’s management was of the opinion that the employee will not meet the targets set in the agreement that was signed with him; in practice, in view of the termination of the employee’s employ by the Company during the reporting year, the aforesaid options expired without vesting. |
The fair value of the aforesaid options was estimated on their award date at $129, with the assistance of an independent external appraiser, using the Black-Scholes model. Set forth below are the parameters used in determining the fair value of the options:
| Company share price ($) (*) | 0.27 | ||||
| Exercise price (in $) | 2.74 - 0.24 | See above. | |||
| Expected volatility in Silynx’s share price | 36.43% - 29.92% | ||||
| Expected life of the warrants (in years) | 9.5 - 5 | ||||
| Risk-free interest | 2.94% - 2.65% | ||||
| Expected dividend yield | -- |
| (*) | The Company’s share price is determined based on the Company’s value as appraised by the appraiser as of the award date, while using the discounted cash flow method, and at a discount rate of 18%. |
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Notes to the Financial Statements
NOTE 17 – SHARE-BASED PAYMENT IN A CONSOLIDATED SUBSIDIARY (cont.)
| C. | Set forth below are the movements in options awarded to Company employees and officers in the reporting years: |
| For the year ended December 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| No. of options | Weighted Average Exercise Price | No. of options | Weighted Average Exercise Price | |||||||||||||
| Outstanding at beginning of year | 655,791 | 0.67 | 1,387,775 | 0.77 | ||||||||||||
| Expired and/or forfeited during the year | (51,461 | ) | 0.27 | (731,984 | ) | 0.86 | ||||||||||
| Outstanding at ending of year | 604,330 | 0.71 | 655,791 | 0.67 | ||||||||||||
| Exercisable at the end of the year | 604,330 | 0.71 | 655,791 | 0.67 | ||||||||||||
| D. | On August 26, 2021, as part of the restructuring executed by the Company (see Note 1.B. above), the aforesaid options, which were exercisable into Company shares, were replaced with options exercisable into Company shares in accordance with their original terms (exercise price, vesting terms and exercise period). In view of the fact that the value of the Company’s shares is identical to the value of the share of the Company (which has no independent business activity), the replacement of the said options did not affect the Company’s financial statements. |
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 18 – ADDITIONAL INFORMATION REGARDING PROFIT OR LOSS ITEMS
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| A. Revenue | ||||||||
| Breakdown of revenue by geography | ||||||||
| Israel | 5,423 | 1,010 | ||||||
| Europe | 146 | 89 | ||||||
| Asia | 127 | 6,324 | ||||||
| USA | 1,477 | 2,064 | ||||||
| Other | 91 | 94 | ||||||
| 7,264 | 9,581 | |||||||
| Revenues from key customers, each of which is responsible for 10% or more of the total revenues reported in the financial statements: | ||||||||
| Customer 1 | 3 | 6,315 | ||||||
| Customer 2 | 4,016 | 334 | ||||||
| 4,019 | 6,649 | |||||||
| Trade receivables balance from key customers: | ||||||||
| Customer 1 | (103 | ) | 1,248 | |||||
| Customer 2 | 2,098 | 9 | ||||||
| Revenue by product group: | ||||||||
| In-Ear Headset systems | 6,038 | 8,697 | ||||||
| SST Headset systems | 749 | 840 | ||||||
| Other | 477 | 44 | ||||||
| 7,264 | 9,581 | |||||||
The Company operates in one operation segment. The Company’s chief operating decision-maker (CEO of the Company) evaluates performance, makes operating decisions and allocates resources based on financial data, consistent with the presentation in the accompanying financial statements. CODM reviews revenue, gross profit and operating income.
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U.S. Dollars in Thousands
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Notes to the Financial Statements
NOTE 18 – ADDITIONAL INFORMATION REGARDING PROFIT OR LOSS ITEMS (cont.)
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| B. Cost of revenue | ||||||||
| Salaries and related expenses | 648 | 673 | ||||||
| Purchases | 4,667 | 6,067 | ||||||
| Depreciation and amortization | 55 | 74 | ||||||
| Decrease (increase) in inventory | (686 | ) | (529 | ) | ||||
| Other | 152 | 94 | ||||||
| 4,836 | 6,379 | |||||||
| C. Research and development expenses | ||||||||
| Salaries and related expenses | 311 | 381 | ||||||
| Purchases | 6 | 7 | ||||||
| Professional consulting | 91 | 32 | ||||||
| Depreciation and amortization | 9 | -- | ||||||
| Other | 22 | 28 | ||||||
| 439 | 448 | |||||||
| D. Selling and marketing expenses | ||||||||
| Salaries and related expenses | 537 | 679 | ||||||
| Exhibitions and advertising | 38 | 43 | ||||||
| Depreciation and amortization | 23 | 3 | ||||||
| Other | 74 | 127 | ||||||
| 672 | 852 | |||||||
| E. General and administrative expenses | ||||||||
| Salaries and related expenses | 529 | 444 | ||||||
| Professional services | 102 | 279 | ||||||
| Rent and maintenance | 60 | 110 | ||||||
| Depreciation and amortization | 10 | 41 | ||||||
| Other | 136 | 381 | ||||||
| 837 | 1,255 | |||||||
F-51
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 18 – ADDITIONAL INFORMATION REGARDING PROFIT OR LOSS ITEMS (cont.)
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| F. Other income | ||||||||
| Support grants in respect of the Covid-19 crisis (see Note 1.E.) | -- | 159 | ||||||
| Revenues from sublease (see Note 9.A.(1)) | -- | 7 | ||||||
| -- | 166 | |||||||
| G. Finance expenses | ||||||||
| Exchange rate differentials | -- | 69 | ||||||
| In respect of lease liabilities | 10 | 8 | ||||||
| In respect of credit from related parties | -- | 173 | ||||||
| In respect of credit from banking corporations | 34 | 27 | ||||||
| In respect of credit from others | -- | 212 | ||||||
| Revaluation of a SAFE | 22 | -- | ||||||
| Revaluation of a liability in respect of a warrants | -- | 433 | ||||||
| Other | 57 | 42 | ||||||
| 123 | 964 | |||||||
| H. Finance income | ||||||||
| Exchange rate differentials | 206 | -- | ||||||
| Revaluation of a liability in respect of an Warrants | 1,237 | -- | ||||||
| 1,443 | -- | |||||||
F-52
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 19 – INCOME TAXES
| A. | The tax rates applicable to Company’s income |
| (1) | In the reporting periods, the income of the Company and its consolidated company SOS are subject to corporate tax at the rate of 23% in Israel. |
| (2) | The income of the consolidated company Silynx - a company incorporated in Delaware USA - is subject to state tax of 8.84%, that reflects Silynx’s activity in California, and to federal tax of 21%. |
| B. | Tax assessments |
The Company has not yet been issued with final tax assessments since incorporation, including due to the end of limitation periods.
| C. | Carryforward tax losses |
As of the reporting date, SOS has business losses carried forward for tax purposes at the total amount of $8,500. The company did not recognize deferred tax assets in respect of the aforesaid losses, since it is not expected that they will be utilized in the foreseeable future.
| D. | On March 15, 2022, the Company received the Israel Tax Authority’s approval for the execution of a restructuring (hereinafter - the “Tax Ruling”) on August 26, 2021; as part of the restructuring, the entire issued and paid up share capital of Silynx was transferred to the Company, against the allotment of the Company’s shares to Silynx’s shareholders as they were through that date, and SOS’s shares, which were held in through that date by Silynx, were transferred to the Company by way of a dividend in kind (see Note 1.B.). The tax ruling stipulated, among other things, that the transfer of SOS and Silynx’s shares to the Company will be carried out in accordance with Sections 104B and 104C to the Income Tax Ordinance (hereinafter - the “Ordinance”), and subject to the provisions of Part E2 to the Ordinance and other conditions as set out in the Tax Ruling. |
F-53
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 20 – EARNINGS (LOSS) PER SHARE
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Weighted average of the number of ordinary shares used to calculate basic earnings per share (in thousands) (**) | 3,162 | 3,162 | ||||||
| Weighted average of the number of ordinary shares used to calculate diluted earnings per share (in thousands) (**) | 3,317 | 3,162 | ||||||
| The income (loss) used in calculation (in $) | 1,798 | (153 | ) | |||||
| (*) | The loss per share was calculated based on the Company’s issued and paid-up share capital on its incorporation date, and despite the fact that in the said years the Company has not yet been incorporated. |
| (**) | Number of shares restated based on reverse stock split – see note 23.4. |
F-54
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS
| A. | Risk management policy |
The Company’s activities expose it to various financial risks such as market risks (including currency risk, fair value risk in respect of interest rate and price risk), credit risk, liquidity risk and cash flow risk in respect of interest rate. The Company’s comprehensive risk management plan focuses on activities aimed to mitigate any potential adverse effects on the Company’s financial performance. The company does not use derivative financial instruments to hedge exposures Company’s risk management is conducted by Company’s management.
| B. | Credit risks |
Concentrations of credit risks may arise from exposures to a single trade receivable or groups of trade receivables with shared characteristics, such that their ability to meet their obligations is expected to be similarly affected by changes in economic or other conditions. As of the reporting dates, the Company has a significant concentration of credit risks.
The Company’s cash and cash equivalents and deposits are held in highly-rated financial institutions. In the opinion of the Company, the exposure to credit risk in respect of these financial instruments is low.
The company regularly assesses the credit worthiness of its customers. In the Company’s opinion, based on past experience and/or the customers’ credit worthiness, there is no significant credit risk in respect of the trade receivable balance; therefore, the general provision in respect of the trade receivable balance was found to be negligible, and a specific provision in respect of credit losses was also recognized at a negligible amount.
F-55
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| C. | Classification of financial instruments |
| As of December 31 | ||||||||
| 2022 | 2021 | |||||||
| Financial assets | ||||||||
| Cash and cash equivalents (including deposits with banks) | 89 | 1,578 | ||||||
| Loans and receivables | 2,853 | 1,422 | ||||||
| 2,942 | 3,000 | |||||||
| Financial liabilities | ||||||||
| Financial liabilities measured at amortized cost | 3,672 | 5,562 | ||||||
| Financial liabilities measured at fair value through profit and loss | 522 | 1,394 | ||||||
| 4,194 | 6,956 | |||||||
| D. | Fair value of financial instruments |
| (1) | Classification of financial instruments within the fair value hierarchy |
The financial instruments, that are presented in the statement of financial position at fair value, are classified into groups with similar characteristics, within a fair value hierarchy that is determined based on the source of the data used to measure the fair value, as follows:
| Level 1: | Quoted prices (unadjusted) in an active market for identical assets or liabilities. |
| Level 2: | Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. |
| Level 3: | Inputs that are not based on observable market data (assessment techniques not using observable market input). |
F-56
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| D. | Fair value of financial instruments (cont.) |
| (2) | Set forth below is the classification of the Company’s financial instruments, that are measured at fair value through profit and loss, in accordance with the above hierarchy as of the reporting dates: |
| Level 1 | Level 3 | Total | ||||||||||
| As at December 31, 2022 | ||||||||||||
| Financial liabilities | -- | 522 | 522 | |||||||||
| As of December 31, 2021 | ||||||||||||
| Financial liabilities | -- | 1,394 | 1,394 | |||||||||
| (3) | Set forth below are the movements in the Company’s Level 3 financial liabilities measured at fair value through profit and loss in the reporting periods: |
| For the year ended December 31, 2022: | ||||
| Balance as at January 1, 2022 | 1,394 | |||
| SAFE | 343 | |||
| Total profit (loss) recognized in profit and loss | (1,215 | ) | ||
| Balance as at December 31, 2022 | 522 | |||
| For the year ended December 31, 2021: | ||||
| Balance as at January 1, 2021 | 961 | |||
| Total loss recognized in profit and loss | 433 | |||
| Balance as at December 31, 2021 | 1,394 | |||
In the reported years there were no transfers between Level 1 and Level 2 and Level 3.
F-57
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| D. | Fair value of financial instruments (cont.) |
| (4) | In the opinion of the Company, the fair value of the remaining financial instruments included in the statement of financial position as of the reporting date is equal to or approximates their carrying amount, except for lease liabilities, which are measured in accordance with IFRS 16. |
| E. | Currency risk |
Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the exchange rate of a foreign currency (other than the Company’s functional currency). Set forth below are the linkage terms of the Company’s financial instruments (in USD thousand) as of the reporting date:
As of December 31, 2022:
| NIS | Unlinked | Other | Total | |||||||||||||
| Cash and cash equivalents (including deposits with banks) | 20 | 55 | 14 | 89 | ||||||||||||
| Loans and receivables | 279 | 2,254 | 320 | 2,853 | ||||||||||||
| Total financial assets | 299 | 2,309 | 334 | 2,942 | ||||||||||||
| Loans from interested parties and others | -- | 50 | -- | 50 | ||||||||||||
| Warrants | 157 | -- | -- | 157 | ||||||||||||
| Trade payable | 300 | 1,816 | 105 | 2,221 | ||||||||||||
| Other accounts payables | 434 | 636 | -- | 1,070 | ||||||||||||
| SAFE | 365 | -- | -- | 365 | ||||||||||||
| Loans from banks | 171 | -- | -- | 171 | ||||||||||||
| Liabilities for employee benefits, net | 32 | -- | -- | 32 | ||||||||||||
| Lease liabilities | 128 | -- | -- | 128 | ||||||||||||
| Total financial liabilities | 1,587 | 2,502 | 105 | 4,194 | ||||||||||||
| Total financial liabilities, net | (1,288 | ) | (193 | ) | 229 | (1,252 | ) | |||||||||
F-58
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| E. | Currency risk (cont.) |
As of December 31, 2021:
| NIS | Unlinked | Other | Total | |||||||||||||
| Cash and cash equivalents (including deposits with banks) | 322 | 1,251 | 5 | 1,578 | ||||||||||||
| Loans and receivables | 92 | 1,330 | -- | 1,422 | ||||||||||||
| Total financial assets | 414 | 2,581 | 5 | 3,000 | ||||||||||||
| Loans from interested parties and others | 965 | 50 | -- | 1,015 | ||||||||||||
| Warrants | 1,394 | -- | -- | 1,394 | ||||||||||||
| Accounts payable | 658 | 1,720 | 40 | 2,418 | ||||||||||||
| Other accounts payables | 759 | 977 | -- | 1,736 | ||||||||||||
| Loans from banks | 270 | -- | -- | 270 | ||||||||||||
| Liabilities for employee benefits, net | 49 | -- | -- | 49 | ||||||||||||
| Lease liabilities | 74 | -- | -- | 74 | ||||||||||||
| Total financial liabilities | 4,169 | 2,747 | 40 | 6,956 | ||||||||||||
| Total financial liabilities, net | (3,755 | ) | (166 | ) | (35 | ) | (3,956 | ) | ||||||||
As of the reporting date, the Company has net financial liabilities linked to the shekel at the total amount of $1,591. A 10% increase in the exchange rate of the shekel against the dollar shall lead to a $159 decrease in the Company’s net income and to an equal amount increase in capital deficiency. A 10% decrease in the exchange rate of the shekel against the dollar shall lead to a $159 increase in the Company’s net income and to an equal amount decrease in capital deficiency.
F-59
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| F. | Risk in respect of interest rate |
Fair value risk in respect of interest rate is the risk that the value of a financial instrument will fluctuate as a result of changes in the market interest rate. The Company’s risk in respect of interest rate stems mainly from loans from others, at the total amount of $263 (principal) as of the reporting date; the loans bear interest at a fixed rate (see Note 12).
Cash flow risk in respect of interest rate is the risk that the value of the future cash flows of a financial instrument will fluctuate as a result of changes in the market interest rates. The Company’s cash flow risk in respect of interest rate stems mainly from bank credit, at the total amount of $171 as of the reporting date; the credit bears variable interest based on the Prime rate (see Note 14).
| G. | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its obligations arising from its financial liabilities settled in cash or other financial assets. The Company mitigates the liquidity risk by regularly monitoring its actual and expected cash flows.
F-60
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 21 – FINANCIAL INSTRUMENTS (cont.)
| G. | Liquidity risk (cont.) |
As to the Company’s financial position and significant doubts about the Company’s ability to continue as a going concern - see Note 1.C. above. Set forth below are the repayment dates of the Company’s financial liabilities (other than financial liabilities measured at fair value through profit and loss) in accordance with their contractual terms and at undiscounted amounts (including interest payments) as of the reporting dates:
As of December 31, 2022:
Up
to one | One to two years | From two years to three years | Total | |||||||||||||
| Trade payable | 2,221 | -- | -- | 2,221 | ||||||||||||
| Other accounts payables | 1,070 | -- | -- | 1,070 | ||||||||||||
| Lease liability | 74 | 54 | 20 | 148 | ||||||||||||
| Credit from banking corporations | 86 | 114 | -- | 200 | ||||||||||||
| 3,451 | 168 | 20 | 3,639 | |||||||||||||
As of December 31, 2021:
Up
to one | One to two years | From two years to three years |
Total | |||||||||||||
| Trade payable | 2,418 | -- | -- | 2,418 | ||||||||||||
| Payables and credit balances | 1,736 | -- | -- | 1,736 | ||||||||||||
| Lease liability | 41 | 44 | -- | 85 | ||||||||||||
| Credit from banking corporations | 86 | 86 | 114 | 286 | ||||||||||||
| 4,281 | 130 | 114 | 4,525 | |||||||||||||
F-61
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 22 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES
| A. | Balances with interested parties |
| December 31 | ||||||||
| 2022 | 2021 | |||||||
| Accounts payable and accruals (included in employees and liabilities in respect thereof) | 131 | 135 | ||||||
| Loans from interested parties (see Note 11) | 50 | 1,015 | ||||||
| B. | Benefits to related parties |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Payroll and related expenses in respect of employed interested parties (*) | 443 | 476 | ||||||
| Number of interested parties | 3 | 3 | ||||||
| C. | Benefits to senior officers |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Short-term benefits (*) | 471 | 425 | ||||||
| No. of recipients | 3 | 3 | ||||||
| (*) | Including $1 in share-based payment in 2021. |
F-62
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Silynxcom Ltd.
Notes to the Financial Statements
NOTE 22 – BALANCES AND TRANSACTIONS RELATED PARTIES (cont.)
| D. | Profit and loss data (*) |
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of revenue | 107 | 125 | ||||||
| Research and development expenses | 182 | 216 | ||||||
| Selling and marketing expenses | 330 | 279 | ||||||
| General and administrative expenses | 295 | 281 | ||||||
| (*) | Including benefits to interested parties, related parties and officers, included in subsections b and c above. |
| E. | Employment terms of related parties |
| (1) | In 2005, SOS entered into an employment agreement with Mr. Nir Klein (as amended on August 29, 2013); under the agreement, Mr. Klein serves as SOS’s CEO on a full-time basis, in consideration for a gross monthly salary of $11 (NIS 35) (CPI-linked), plus social benefits, car maintenance, mobile phone and a laptop, and reimbursement of reasonable expenses expensed as part of doing his job. The agreement is for an unlimited term, and each party is entitled to conclude it by prior notice in writing, two months in advance. It was also set in out in the agreement, that upon conclusion of his employment with SOS for a reason that does not establish cause for termination pursuant to the terms of the agreement, Mr. Klein will be entitled to an advance notice period of 4 additional months. Furthermore, Mr. Klein will also be entitled to an annual bonus subject to meeting targets as defined by SOS’s Board of Directors; in the reporting periods, such targets were not defined, and therefore Mr. Klein was not entitled to a bonus. |
With regard to the award of options to Mr. Klein in respect of his service as SOS’s CEO - see Note 17.A. above.
With regard to Mr. Klein’s announcement to the effect that he waives the Company’s debt to him in respect of salary that has not yet been paid to him - see Note 11.B.(2).
F-63
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 22 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES (cont.)
| E. | Employment terms of related parties (cont.) |
| (2) | In 2005, SOS entered into an employment agreement with Ms. Gal Nir Klein, the wife of Mr. Nir Klein, who serves as the Company’s CEO. Under the agreement, Ms. Klein serves as SOS’s VP Marketing and Sales Israel on a full-time basis, in consideration for a gross monthly salary of $7 (NIS 22) (CPI-linked), plus social benefits, car maintenance, mobile phone and a laptop, and reimbursement of reasonable expenses expensed as part of doing her job. The agreement is for an unlimited term, and each party is entitled to conclude it by prior notice in writing, two months in advance. It was also set in out in the agreement, that upon conclusion of her employment with SOS for a reason that does not establish cause for termination pursuant to the terms of the agreement, Ms. Klein will be entitled to an advance notice period of 4 additional months. Furthermore, Ms. Klein will also be entitled to an annual bonus subject to meeting targets as defined by SOS’s Board of Directors; in the reporting periods, such targets were not defined, and therefore Ms. Klein was not entitled to a bonus. |
With regard to the award of options to Ms. Klein in respect of her service in SOS as stated above - see Note 17.A. above.
| (3) | During the reporting periods, Ms. Ofir Klein and Mr. Roey Klein, the children of Mr. Nir Klein, who serve as the Company’s CEO, were employed by SOS in consideration for monthly salaries that are immaterial to the Company. |
| (4) | In 2014, SOS entered into an employment agreement (as amended from time to time) with Mr. Ilan Akselrod. Under the agreement, Mr. Akselrod serves as SOS’s CFO on a full-time basis, in consideration for a gross monthly salary of $7 (NIS 21) in the reporting periods, plus social benefits, mobile phone and a laptop, and reimbursement of reasonable expenses expensed as part of doing his job. The agreement is for an unlimited term, and each party is entitled to conclude it by prior notice, 30 days in advance. |
With regard to options awarded to Mr. Akselrod in respect of his service as stated above - see Notes 17.A. and 17.B. above.
F-64
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 22 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES (cont.)
| E. | Employment terms of related parties (cont.) |
| (5) | In August 2021, SOS entered into an employment agreement with Mr. Elihai (Elik) Cohen; under the agreement, starting July 1, 2021 Mr. Cohen has been serving as the Company’s VP International Marketing and Sales on a full-time basis, in consideration for a gross monthly salary of $9 (NIS 28); on July 1, 2022 and July 1, 2023, Mr. Cohen’s salary will be increased to $9 (NIS 32.5) and $10 (NIS 35), respectively. Mr. Cohen will also be entitled to social benefits, car maintenance, mobile phone, and reimbursement of reasonable expenses expensed as part of doing his job. The agreement is for an unlimited term, and each party is entitled to conclude it by prior notice, 90 days in advance. In addition, Mr. Cohen will be entitled to commissions in respect of sales, based on targets set out in the agreement; in the reporting year, Mr. Cohen was entitled to such a commission at an immaterial amount. |
With regard to options awarded to Mr. Cohen in respect of his service as stated above - see Notes 17.A. and 17.B. above.
| (6) | In 2006, SOS entered into an employment agreement (as amended from time to time) with Mr. Ronen Hananis. Under the agreement, Mr. Hananis serves as SOS’s VP Development and Operations on a full-time basis, in consideration for a gross monthly salary of $10 (NIS 30), plus social benefits, car maintenance, mobile phone, and reimbursement of reasonable expenses expensed as part of doing his job. The agreement is for an unlimited term, and each party is entitled to conclude it by prior notice, 30 days in advance. |
With regard to options awarded to Mr. Hananis in respect of his service as stated above - see Notes 17.A. and 17.B. above.
| F. | On the Company’s incorporation date (August 22, 2021) Mr. Ron Klein, Mr. Nir Klein and Mr. Ilan Akselrod were appointed as Chairman of the Company’s Board of Directors, Company’s CEO and Director, and Company’s CFO, respectively. |
It should be clarified that until the completion of an IPO by the Company, the employment terms of Mr. Ron Klein, Mr. Nir Klein and Mr. Ilan Akselrod shall remain unchanged by virtue of their employment agreements with Silynx and/or SOS.
F-65
U.S. Dollars in Thousands
Silynxcom Ltd.
Notes to the Financial Statements
NOTE 22 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES (cont.)
| G. | With regard to loans provided to the Company by interested parties thereof, and the waiver of some of the aforesaid loans subject to the completion of the IPO - see Note 10. |
NOTE 23 – SUBSEQUENT EVENTS
| 1. | On January 1, 2023, the Company granted 5,046,445 options to its employees and officers with an exercise price of $0.24- $0.53 per option. The options are exercisable to shares in a 1:1 ratio. The option will vest over a period of 3 years. |
| 2. | On January 9, 2023, the Company granted 130,000 options to its employees with an exercise price of $0.26 per option. The options are exercisable to shares in a 1:1 ratio. The option will vest over a period of 3 years. |
| 3. | On April 19, 2023, the Company and the bank corporation amended the warrant cancellation agreement (hereafter: the amendment). According to the amendment, the warrant is canceled in return of $172 (NIS 600) unless there were will not be IPO by November 30, 2023. The warrant cancellation agreement was extended through December 31, 2023. | |
| 4. |
Change in authorized share capital and reverse stock split.
On August 6, 2023, the Company's shareholders approved in the general shareholders meeting that:
All shares (issued and unissued) be consolidated on the basis that every 5.612 Ordinary Shares of par value NIS 0.01 will be consolidated into 1 ordinary share with no par value, such that the authorized ordinary share of the Company following the reverse stock split and the cancellation of par value per shar will be in the amount of 4,455,000 ordinary shares of no par value. In addition, the Company approved to increase its authorized shar capital to 20,000,000 ordinary shares.
On November 28, 2023, the Company's shareholders approved in the general shareholders meeting that:
All shares (issued and unissued) are consolidated on the basis that every 1 Ordinary Share par is consolidated into 1.064572054 ordinary share with no par value, such that the authorized ordinary shares of the Company following the stock split will be in the amount of 21,291,441 ordinary shares of no par value. In addition, the Company approved to decrease its authorized share capital to 20,000,000 ordinary shares, and the Company’s current issued and outstanding Ordinary Shares will be in the aggregate amount of 3,161,779 Ordinary Shares, of no par value each, and the Company’s options will be in the amount of 1,150,275 options to purchase Ordinary Shares (in such case the exercise price will be adjusted accordingly).
|
F-66
U.S. Dollars in Thousands
SILYNXCOM LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2023
U.S. Dollars in Thousands
SILYNXCOM LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2023
TABLE OF CONTENTS
| Unaudited Interim Condensed Consolidated Financial Statements | |
|
Unaudited Interim Condensed Consolidated Statements of Financial Position |
F-69 - F-70 |
| Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss | F-71 |
| Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity | F-72 - F-73 |
| Unaudited Interim Condensed Consolidated Statements of Cash Flows | F-74 - F-75 |
| Notes to the Unaudited Interim Condensed Consolidated Financial Statements | F-76 - F-86 |
The amounts are stated in thousands of USD
F-68
U.S. Dollars in Thousands
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of USD)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | 351 | 69 | ||||||
| Deposits with banking corporations | 25 | 20 | ||||||
| Trade receivables, net | 781 | 2,774 | ||||||
| Other current assets | 441 | 214 | ||||||
| Inventory | 2,664 | 2,433 | ||||||
| Total current assets | 4,262 | 5,510 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Property, plant & equipment, net | 121 | 147 | ||||||
| Long-term deposits | 24 | 18 | ||||||
| Right of use assets | 134 | 132 | ||||||
| Total non-current assets | 279 | 297 | ||||||
| TOTAL ASSETS | 4,541 | 5,807 | ||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-69
U.S. Dollars in Thousands
SILYNXCOM LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of USD)
| June 30, | December 31, | |||||||||||
| Note | 2023 | 2022 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Current maturities of loans from banking corporations | 69 | 70 | ||||||||||
| Lease liabilities – current | 67 | 60 | ||||||||||
| Loans from related parties | 6 | 33 | 50 | |||||||||
| Trade payables | 1,200 | 2,221 | ||||||||||
| Warrants at fair value | 4 | 146 | 157 | |||||||||
| SAFE | 4 | 345 | 365 | |||||||||
| Other accounts payables | 1,250 | 1,885 | ||||||||||
| Total current liabilities | 3,110 | 4,808 | ||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Loans from banking corporations | 61 | 101 | ||||||||||
| Lease liabilities | 63 | 68 | ||||||||||
| Liabilities for employee benefits, net | 31 | 32 | ||||||||||
| Total non-current liabilities | 155 | 201 | ||||||||||
| SHAREHOLDERS’ Equity: | ||||||||||||
| Share capital | 52 | 52 | ||||||||||
| Premium and other capital reserves | 19,462 | 16,658 | ||||||||||
| Capital reserve for transactions with controlling shareholders | 1,542 | 1,542 | ||||||||||
| Accumulated loss | (19,780 | ) | (17,454 | ) | ||||||||
| Total shareholders’ equity | 1,276 | 798 | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 4,541 | 5,807 | ||||||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-70
U.S. Dollars in Thousands
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands of USD – except for earnings per share)
| For the six-month period ended June 30 (except for earnings per share) | ||||||||||||
| Note | 2023 | 2022 | ||||||||||
| Revenue | 5 | 3,096 | 1,980 | |||||||||
| Cost of Revenue | 1,901 | 1,318 | ||||||||||
| Gross profit | 1,195 | 662 | ||||||||||
| Research and development expenses | 569 | 200 | ||||||||||
| Selling and marketing expenses | 1,989 | 348 | ||||||||||
| General and administrative expenses | 965 | 392 | ||||||||||
| Operating Profit (loss) | (2,328 | ) | (278 | ) | ||||||||
| Finance Expenses | 35 | 69 | ||||||||||
| Finance Income | 37 | 1,356 | ||||||||||
| Income (loss) before income taxes | (2,326 | ) | 1,009 | |||||||||
| Income taxes expenses | - | - | ||||||||||
| Net Income (loss) for the period | (2,326 | ) | 1,009 | |||||||||
| Amounts that shall not be subsequently reclassified to profit and loss: | ||||||||||||
| Gain (loss) from remeasurement of defined benefit plans | - | - | ||||||||||
| Total comprehensive loss for the period | (2,326 | ) | 1,009 | |||||||||
| Basic earnings (loss) per share (in USD) (*) | 7 | (0.736 | ) | 0.318 | ||||||||
| Weighted average of the number of ordinary shares used to calculate basic earnings per share (*) | 3,161,779 | 3,161,779 | ||||||||||
| Diluted earnings (loss) per share (in USD) (*) | 7 | (0.736 | ) | 0.287 | ||||||||
| Weighted average of the number of ordinary shares used to calculate diluted earnings per share (*) | 3,161,779 | 3,519,844 | ||||||||||
| (*) | After giving effect to the reverse stock split (see also Note 8) |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-71
U.S. Dollars in Thousands
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(in thousands of USD)
For the six-month period ended June 30, 2023
| Share capital | Premium and other capital reserves | Capital reserve for transactions with controlling Shareholders | Accumulated loss | Total | ||||||||||||||||
| Balance as of January 1, 2023 | 52 | 16,658 | 1,542 | (17,454 | ) | 798 | ||||||||||||||
| Net income for the year | ||||||||||||||||||||
| Stock-based compensation | - | 2,804 | - | - | 2,804 | |||||||||||||||
| Loss for the year | - | - | - | (2,326 | ) | (2,326 | ) | |||||||||||||
| Balance as of June 30, 2023 | 52 | 19,462 | 1,542 | (19,780 | ) | 1,276 | ||||||||||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-72
U.S. Dollars in Thousands
SILYNXCOM LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(in thousands of USD)
For the six-month period ended June 30, 2022
| Share capital | Premium and other capital reserves | Capital reserve for transactions with controlling Shareholders | Accumulated loss | Total | ||||||||||||||||
| Balance as of January 1, 2022 | 52 | 16,642 | 541 | (19,252 | ) | (2,017 | ) | |||||||||||||
| Debt forgiveness from controlling shareholders | - | - | 954 | 954 | ||||||||||||||||
| Net Income for the period | - | - | - | 1,009 | 1,009 | |||||||||||||||
| Balance as of June 30, 2022 | 52 | 16,642 | 1,495 | (18,243 | ) | (54 | ) | |||||||||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-73
U.S. Dollars in Thousands
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of USD)
| For the six-month period ended June 30 | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | (2,326 | ) | 1,009 | |||||
| Adjustments Required to Present Cash Flows from Operating Activities: | ||||||||
| Depreciation and amortization | 67 | 42 | ||||||
| Increase (decrease) in liability for employee benefits, net | (1 | ) | (3 | ) | ||||
| Revaluation of derivatives measured at fair value through profit and loss | (31 | ) | (1,157 | ) | ||||
| Benefit component in respect of related party transactions | - | 40 | ||||||
| Other finance expenses | 11 | (16 | ) | |||||
| Share-based payment | 2,804 | - | ||||||
| 2,850 | (1,094 | ) | ||||||
| Changes in asset and liability line items: | ||||||||
| Decrease (increase) in trade receivables | 1,993 | 983 | ||||||
| Decrease (increase) in other current assets | (227 | ) | 4 | |||||
| Decrease (increase) in inventory | (231 | ) | (224 | ) | ||||
| Increase (Decrease) in trade payables | (1,021 | ) | (1,514 | ) | ||||
| Increase (Decrease) in other accounts payables | (635 | ) | (530 | ) | ||||
| (121 | ) | (1,281 | ) | |||||
| Net cash provided by (used in) operating activities | 403 | (1,366 | ) | |||||
| Cash flow from investing activities | ||||||||
| Increase in long-term bank deposit | (11 | ) | (9 | ) | ||||
| Purchase of property, plant and equipment | (4 | ) | - | |||||
| Net cash provided by (used in) investing activities | (15 | ) | (9 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of loans from related parties | (17 | ) | - | |||||
| Repayment of loans from banking corporations | (40 | ) | (41 | ) | ||||
| Receipt of loans from related parties | - | - | ||||||
| SAFE | - | 343 | ||||||
| Repayment of lease liabilities | (44 | ) | (31 | ) | ||||
| Net cash provided by (used in) financing activities | (101 | ) | 271 | |||||
| Exchange rate differentials for cash and cash equivalent balances | (5 | ) | (13 | ) | ||||
| Increase (decrease) in cash and cash equivalents | 282 | (1,117 | ) | |||||
| Cash and cash equivalents balance at the beginning of the year | 69 | 1,561 | ||||||
| Cash and cash equivalents balance at the end of the year | 351 | 444 | ||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-74
U.S. Dollars in Thousands
SILYNXCOM LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of USD)
| For the six-month period ended June 30 | ||||||||
| 2023 | 2022 | |||||||
| Appendix A - Cash paid and received during the year for: | ||||||||
| Interest paid | 6 | 10 | ||||||
| Appendix B – Material activities not involving cash flows: | ||||||||
| Recognition of right-of-use asset against a lease liability | 39 | 69 | ||||||
| Debt forgiveness from controlling shareholders | - | 954 | ||||||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-75
U.S. Dollars in Thousands
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 1 – GENERAL
| A. | Silynxcom Ltd. (hereinafter - the Company) was incorporated in Israel on August 22, 2021, as a privately-held company as part of a restructuring carried out by the Company as set out in subsection B below. The Company’s registered offices are located at 19 Yad Harutzim St., Netanya. |
The Company is engaged through Silynx Communications Inc. (hereinafter - “Silynx”) and Source of Sound Ltd. (hereinafter - “SOS”) in a single area of activity: development, production, marketing and sale of ruggedized noise protection and communication accessories for tactical uses, including radios used by security forces, law enforcement, rescue forces, etc.
| B. | Silynx Communications, Inc. (hereinafter: the “The Former Company” or “Silynx”) was incorporated in Delaware, USA on September 19, 2005 and commenced operations in October 2005. |
On August 26, 2021, the Board of Directors of the Former Company decided to make a structural change (hereinafter “the Reorganization”). For the reorganization, Silynxcom Ltd. (hereinafter: the “Company”) was incorporated on August 22, 2021, as a private limited company, in accordance with the provisions of the Israeli Companies Law while maintaining the same capital structure as the Former Company. On August 26, 2021, the Former Company transferred to the Company all its holdings directly and indirectly in the subsidiary. The reorganization was completed on March 15, 2022, after receiving an approval from the Israeli Tax Authorities.
The Company accounted for the reorganization using the pooling of interest method, and the consolidation of the financial statements reflects the reorganization using the “As Pooling” method accordingly.
F-76
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 1 – GENERAL (CONT.)
| C. | Going Concern |
As of June 30, 2023, the Company has total shareholders’ equity of $1,276, and a working capital of $1,152.
However, in the opinion of Company’s management, the Company’s resources as of the approval date of the financial statements may not be sufficient to continue the Company’s activity in its present form in the foreseeable future. Therefore, the Company’s ability to consummate its plans is dependent on its ability to continue to finance its activities by raising additional funds.
Company’s management works to obtain the aforesaid financing sources, through, among other things, a public offering. However, as of the approval date of the Unaudited Interim Condensed Consolidated Financial Statements, there is uncertainty as to the plans of the Company’s management.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Unaudited Interim Condensed Consolidated Financial Statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
F-77
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:
| 1. | Significant accounting policy |
Statement of compliance
These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2022 annual consolidated financial statements. The Company has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2022 annual consolidated financial statements.
Basis of measurement
These Unaudited Interim Condensed Consolidated Financial Statements have been prepared on a going concern basis, under the historical cost basis, except for financial instruments which have been measured at fair value.
| 2. | Critical Estimates and Assumptions |
The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The Company’s financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the Company’s financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future periods.
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates; the Company has determined the functional currency of each entity to be denominated in the U.S. dollar. Such determination involves certain judgements to identify the primary economic environment. The Company shall reconsider the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment. During the six months ended June 30, 2023, there have been no such changes.
F-78
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONT):
The critical judgments and significant estimates in applying accounting policies that have the most significant effect on the amounts recognized in the Unaudited Interim Condensed Consolidated Financial Statements are the same as at December 31, 2022:
| a) | Determining the fair value of share-based payment transactions |
The fair value of share-based payment transactions is determined upon initial recognition by the binomial options-pricing model. The binomial options-pricing model is based on the share price, exercise price and assumptions regarding expected volatility, the term of share option, dividend yield and a risk-free interest rate.
| b) | Derivative liability – Warrants |
The Company uses the Black-Scholes option-pricing model to estimate fair value at each reporting date. The key assumptions used in the model are the expected future volatility in the price of the Company’s common shares and the expected life of the warrants.
NOTE 3 – SIGNIFICANT EVENTS AND TRANSACTIONS IN THE PERIOD:
| a. | On January 1, 2023, the Company granted 5,046,445 options to its employees and officers. The options may be exercised into ordinary shares of the Company in consideration of $0.24-$0.53 per option. The options shall vest in one to four installments and up to a period of four years commencing from the grant date. The theoretical economic value of these options is, according to the Black-Scholes option-pricing model, $5,242, based on the following assumptions: a standard deviation at a rate of 40-49% determined based on similar listed entities, a risk-free interest rate of 3.86-3.94% and an anticipated lifespan of five years. |
On January 9, 2023, the Company granted 130,000 options to its employees. The options may be exercised into ordinary shares of the Company in consideration of $0.26 per option. The options shall vest in four installments over a period of three years commencing from the grant date. The theoretical economic value of these options is, according to the Black-Scholes option-pricing model, $139, based on the following assumptions: a standard deviation at a rate of 47-49% based on similar listed entities, a risk-free interest rate of 3.86-3.94% and an anticipated lifespan of five years.
F-79
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 3 – SIGNIFICANT EVENTS AND TRANSACTIONS IN THE PERIOD (CONT):
Set forth below are the movements in options awarded to Company employees and officers in the reporting years:
| For the six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| No. of options | Weighted Average Exercise Price | No. of options | Weighted Average Exercise Price | |||||||||||||
| Outstanding at beginning of year | 604,330 | 0.71 | 655,791 | 0.67 | ||||||||||||
| Granted | 5,176,445 | 0.33 | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Outstanding at ending of year | 5,780,775 | 0.37 | 655,791 | 0.67 | ||||||||||||
| Exercisable at the end of the year | 2,015,442 | 0.39 | 655,791 | 0.67 | ||||||||||||
| b. | On April 19, 2023, the Company and the bank corporation amended the warrant cancellation agreement (the “Amendment”). According to the Amendment, the warrants are cancelled in exchange for approximately $162 unless an initial public offering does not occur by November 30, 2023. The Amendment was extended to December 31, 2023. |
F-80
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 4 – FAIR VALUE MEASUREMENT:
The following table sets out the Company’s liabilities that are measured at fair value in the financial statements:
| Fair value measurements using input type | ||||||||||||||||
| June 30, 2023 (Unaudited) | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| SAFE | (345 | ) | (345 | ) | ||||||||||||
| Warrants at fair value | - | - | (146 | ) | (146 | ) | ||||||||||
| Fair value measurements using input type | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| SAFE | (365 | ) | (365 | ) | ||||||||||||
| Warrants at fair value | - | - | (157 | ) | (157 | ) | ||||||||||
As of June 30, 2023 and December 31, 2022, the Company estimated the value of the warrants with the assistance of an independent external appraiser at $146 and $157 respectively, under management’s assessments in connection with the different scenarios, in accordance with the following parameters and using the Black-Scholes options-pricing model:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Silynx share price (USD) | 0.04 | 0.04 | ||||||
| Exercise price (in USD) | 0.159 | 0.159 | ||||||
| Expected volatility in Silynx’s share price | 41 | % | 45.6 | % | ||||
| Expected life of the warrants (in years) | 0.01 | 0.5 | ||||||
| Risk-free interest | 5.24 | % | 4.14 | % | ||||
| Expected dividend yield | – | – | ||||||
F-81
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 4 – FAIR VALUE MEASUREMENT (CONT.):
(**) As of June 30, 2023 and December 31, 2022, the Company estimated the value of the SAFE with the assistance of an independent external appraiser at $346 and $365 respectively, under management’s assessments in connection with the different scenarios.
The following tables describes the change in the Company’s liabilities that are measured at level 3 in the financial statements:
| SAFE + Warrants | ||||
| As of December 31, 2021 | (1,394 | ) | ||
| Issuance of SAFE | (343 | ) | ||
| Change in fair value | 1,157 | |||
| Balance as of June 30, 2022 | (580 | ) | ||
| Balance as of December 31, 2022 | (522 | ) | ||
| Change in fair value | 31 | |||
| Balance as of June 30, 2023 | (491 | ) | ||
F-82
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 5 – REVENUE:
| For six months ended June 30, | ||||||||
| 2022 | 2022 | |||||||
| Breakdown of revenue by geography | ||||||||
| Israel | 1,260 | 1,131 | ||||||
| Europe | 78 | 46 | ||||||
| Asia | 1,015 | 38 | ||||||
| USA | 623 | 738 | ||||||
| Other | 120 | 27 | ||||||
| 3,096 | 1,980 | |||||||
| Revenue by product group: | ||||||||
| In-Ear Headset systems | 2,143 | 1,395 | ||||||
| SST Headset systems | 678 | 267 | ||||||
| Other | 275 | 318 | ||||||
| 3,096 | 1,980 | |||||||
The Company operates in one operation segment. The Company’s chief operating decision-maker (CEO of the Company) evaluates performance, makes operating decisions and allocates resources based on financial data, consistent with the presentation in the accompanying financial statements. CODM reviews revenue, gross profit and operating income.
F-83
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 6 – RELATED PARTIES:
| A. | Balances with related parties |
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable and accruals (included in employees and liabilities in respect thereof) | 128 | 131 | ||||||
| Loans from related parties | 33 | 50 | ||||||
| B. | Benefits to related parties |
| For the six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Payroll and related expenses in respect of employed related parties (*) | 149 | 161 | ||||||
| Number of related parties | 3 | 3 | ||||||
| C. | Benefits to senior officers |
| For the six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Short-term benefits (*) | 219 | 220 | ||||||
| No. of recipients | 3 | 3 | ||||||
F-84
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 6 – RELATED PARTIES (CONT):
| D. | Profit and loss data (*) |
| For the 6 months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cost of revenue | 28 | 53 | ||||||
| Research and development expenses | 69 | 73 | ||||||
| Selling and marketing expenses | 158 | 138 | ||||||
| General and administrative expenses | 116 | 118 | ||||||
| (*) | Including benefits to interested parties, related parties and officers, included in subsections b and c above. |
F-85
U.S. Dollars in Thousands
SILYNXCOM LTD.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(in thousands of USD)
NOTE 7 – EARNINGS (LOSS) PER SHARE:
| For
the 6 months ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Weighted average of the number of ordinary shares used to calculate basic earnings per share (**) | 3,162 | 3,162 | ||||||
| Weighted average of the number of ordinary shares used to calculate diluted earnings per share (**) | 3,162 | 3,520 | ||||||
| The income (loss) used in calculation | (2,326 | ) | 1,009 | |||||
| (**) | Number of shares restated based on the reverse stock split according to subsequent events note – see note 8. |
NOTE 8 – SUBSEQUENT EVENTS:
Change in authorized share capital and reverse stock split – |
On August 6, 2023, the Company’s shareholders approved in the general shareholders meeting that:
All shares (issued and unissued) are consolidated on the basis that every 5.612 Ordinary Shares of par value NIS 0.01 are consolidated into 1 ordinary share with no par value, such that the authorized ordinary shares of the Company following the reverse stock split and the cancellation of par value per share will be in the amount of 4,455,000 ordinary shares of no par value. In addition, the Company approved to increase its authorized share capital to 20,000,000 ordinary shares.
On November 28, 2023, the Company's shareholders approved in the general shareholders meeting that:
All shares (issued and unissued) are consolidated on the basis that every 1 Ordinary Share par is consolidated into 1.064572054 ordinary share with no par value, such that the authorized ordinary shares of the Company following the stock split will be in the amount of 21,291,441 ordinary shares of no par value. In addition, the Company approved to decrease its authorized share capital to 20,000,000 ordinary shares, and the Company’s current issued and outstanding Ordinary Shares will be in the aggregate amount of 3,161,779 Ordinary Shares, of no par value each, and the Company’s options will be in the amount of 1,150,275 options to purchase Ordinary Shares (in such case the exercise price will be adjusted accordingly).
F-86
1,075,000 Ordinary Shares
Silynxcom Ltd.
PRELIMINARY PROSPECTUS
ThinkEquity
, 2023
Through and including, , 2023 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors, Officers and Employees
Indemnification
The Companies Law, and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | A financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; | |
| ● | Reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; | |
| ● | Reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court; (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceeding of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and | |
| ● | Expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:
| ● | To events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and | |
| ● | In amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
We have entered into indemnification agreements with all of our directors and with all members of our senior management. Each such indemnification agreement provides the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.
Exculpation
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.
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Limitations
The Companies Law provides that our Company may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
Item 7. Recent Sales of Unregistered Securities
Set forth below are the sales of all securities by us in the last three years which were not registered under the Securities Act. We believe that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 and/or Regulation S under the Securities Act.
On December 29, 2021, we entered into an agreement with certain investors, or the Investors, as amended on October 26, 2022, whereby such Investors invested NIS 700 thousand in exchange for the issuance of securities following this offering under the following terms: (1) existing shareholders will hold 50% of our issued and outstanding share capital following this offering (including 237,600 options to be assigned to our Company’s vice president); (2) the Investors would hold a minimum of 13.48% of our issued and outstanding share capital following the offering; (3) following the completion of the offering, we may allocate 12% of our share capital to our option plan; and (4) we will list the Investors’ shares for trading up to six months following the completion of the offering.
On June 1, 2022, we entered into certain equity investment agreements, which we refer to as a Simple Agreement for Future Equity, or SAFEs, for an aggregate net proceeds of NIS 1.14 million, which amounts will be converted into our Ordinary Shares at a discount rate of (i) 67% (i.e., 33% discount) with respect to an initial public offering or change of control, or a Liquidity Event, or (ii) 70% (i.e., 30% discount) with respect to a bona fide transaction with the principal purpose of raising capital, pursuant to which our Company issues and sells shares in consideration for investment in an aggregate amount of at least NIS 10,000 thousand in one or more related closings, or Equity Financing.
Since March 2011, we have granted to our directors, officers, and employees options to purchase an aggregate of 1,342,237 Ordinary Shares under our ESOP, with exercise prices ranging between $1.27 and $59.46 per share. As of June 30, 2023, no options granted to directors, officers and employees have been exercised, and 191,961 options were forfeited and expired. The total outstanding amount of options and warrants to directors, officers, employees and consultants as of June 30, 2023 is 454,105.
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Item 8. Exhibits and Financial Statement Schedules
Exhibits:
| % | Filed herewith |
| * | To be filed by an amendment |
| # | Previously Filed |
Financial Statement Schedules:
All financial statement schedules have been omitted because either they are not required, are not applicable or the information required therein is otherwise set forth in our Company’s consolidated financial statements and related notes thereto.
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Item 9. Undertakings
| (a) | The undersigned Registrant hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| i. | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. |
| (5) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| i. | If the registrant is relying on Rule 430B: |
| A. | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| B. | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness of the date of the first contract or sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date and underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
II-4
| ii. | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (6) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell securities to such purchaser: |
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6 hereof, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
| (1) | That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement on Form F-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Netanya, Israel on December 19, 2023.
| SIlynxcom LTD. | ||
| By: | /s/ Nir Klein | |
| Nir Klein | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement on Form F-1 has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ Ron Klein |
Chairman, Board of Directors | December 19, 2023 | ||
| Ron Klein | ||||
/s/ Nir Klein |
Chief Executive Officer and Director | December 19, 2023 | ||
| Nir Klein | (Principal Executive Officer) | |||
/s/ Ilan Akselrod |
Chief Financial Officer | December 19, 2023 | ||
| Ilan Akselrod | (Principal Financial and Accounting Officer) | |||
/s/ Gal Nir Klein |
Vice President of Marketing and Israel Sales and Director | December 19, 2023 | ||
| Gal Nir Klein |
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SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, as amended, the undersigned, Silynx Communications Inc., the duly authorized representative in the United States of Silynxcom Ltd., has signed this registration statement on December 19, 2023.
| SILYNX COMMUNICATIONS INC. | ||
| By: | /s/ Ilan Akselrod | |
| Name: | Ilan Akselrod | |
| Title: | Chief Financial Officer | |
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Exhibit 3.2
AMENDED AND RESTATED ARTICLES
THE COMPANIES LAW, 1999
A LIMITED LIABILITY COMPANY
ARTICLES OF ASSOCIATION
OF
SILYNXCOM LTD.
| 1. | Definitions; Interpretation. |
(a) In these Articles, the following terms (whether or not capitalized) shall bear the meanings set forth opposite to them respectively, unless inconsistent with the subject or context.
| “Articles” | shall mean these Articles of Association, as amended from time to time. |
| “Board of Directors” | shall mean the Board of Directors of the Company. |
| “Chairperson” | shall mean the Chairperson of the Board of Directors, or the Chairperson of the General Meeting, as the context provides; |
| “Company” | shall mean SILYNXCOM LTD. |
| “Companies Law” | shall mean the Israeli Companies Law, 5759-1999 and the regulations promulgated thereunder. The Companies Law shall include reference to the Companies Ordinance (New Version), 5743-1983, of the State of Israel, to the extent in effect according to the provisions thereof. |
| “Director(s)” | shall mean the member(s) of the Board of Directors holding office at any given time, including alternate directors. | |
| “External Directors” | shall mean as defined in the Companies Law. |
| “General Meeting” | shall mean an Annual General Meeting or Special General Meeting of the Shareholders, as the case may be. |
| “NIS” | shall mean New Israeli Shekels. |
| “Office” | shall mean the registered office of the Company at any given time. |
| “Office Holder” or “Officer” | shall mean as defined in the Companies Law. |
| “RTP Law” | shall mean the Israeli Restrictive Trade Practices Law, 5758-1988. |
| “Securities Law” | shall mean the Israeli Securities Law, 5728-1968. |
| “Shareholder(s)” | shall mean the shareholder(s) of the Company, at any given time. |
| “in writing” or “writing” | shall mean written, printed, photocopied, photographic, typed, sent via email, facsimile or produced by any visible substitute for writing, or partly one and partly another, and signed shall be construed accordingly. |
1
(b) Unless otherwise defined in these Articles or required by the context, terms used herein shall have the meaning provided therefor under the Companies Law.
(c) Unless the context shall otherwise require: words in the singular shall also include the plural, and vice versa; any pronoun shall include the corresponding masculine, feminine and neuter forms; the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; the words “herein”, “hereof” and “hereunder” and words of similar import refer to these Articles in its entirety and not to any part hereof; all references herein to Articles, Sections or clauses shall be deemed references to Articles, Sections or clauses of these Articles; any references to any agreement or other instrument or law, statute or regulation are to it as amended, supplemented or restated, from time to time (and, in the case of any law, to any successor provisions or re-enactment or modification thereof being in force at the time); any reference to “law” shall include any supranational, national, federal, state, local, or foreign statute or law and all rules and regulations promulgated thereunder (including, any rules, regulations or forms prescribed by any governmental authority or securities exchange commission or authority, if and to the extent applicable); any reference to a “day” or a number of “days” (without any explicit reference otherwise, such as to business days) shall be interpreted as a reference to a calendar day or number of calendar days; reference to month or year means according to the Gregorian calendar; any reference to a “company”, “corporate body” or “entity” shall include a, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof, and reference to a “person” shall mean any of the foregoing or an individual.
(d) The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision hereof.
Limited Liability
| 2. | The Company is a limited liability company and therefore each shareholder’s obligations to the Company shall be limited to the payment of the nominal value of the shares held by such shareholder, subject to the provisions of the Companies Law. |
Public Company; Company’s Objectives
| 3. | Public Company; Objectives. |
| (a) | The Company is a Public Company as such term is defined in and as long as it so qualifies under the Companies Law. |
| (b) | The Company’s objectives are to carry on any business, and do any act, which is not prohibited by law. |
| 4. | Donations. |
The Company may donate a reasonable amount of money (in cash or in kind, including the Company’s securities) for any purpose that the Board of Directors finds appropriate.
Share Capital
| 5. | Authorized Share Capital. |
(a) The share capital of the Company shall consist of 50,000,000 Ordinary Shares, no par value each (the “Shares”).
(b) The Shares shall rank pari passu in all respects.
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| 6. | Increase of Authorized Share Capital. |
(a) The Company may, from time to time, by a Shareholders’ resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its authorized share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide.
(b) Except to the extent otherwise provided in such resolution, any new shares included in the authorized share capital increased as aforesaid shall be subject to all the provisions of these Articles which are applicable to shares of such class included in the existing share capital without regard to class (and, if such new shares are of the same class as a class of shares included in the existing share capital, to all of the provisions which are applicable to shares of such class included in the existing share capital).
| 7. | Special or Class Rights; Modification of Rights. |
(a) If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class, unless otherwise provided by the Companies Law or these Articles, may be modified or cancelled by the Company by a resolution of the General Meeting of the holders of all shares as one class, without any required separate resolution of any class of shares.
(b) The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class, it being clarified that the requisite quorum at any such separate General Meeting shall be two or more shareholders present in person or by proxy and holding not less than twenty five (25%) percent of the issued shares of such class.
(c) Unless otherwise provided by these Articles, an increase in the authorized share capital, the creation of a new class of shares, an increase in the authorized share capital of a class of shares, or the issuance of additional shares thereof out of the authorized and unissued share capital, shall not be deemed, for purposes of this Article 7, to modify or derogate or cancel the rights attached to previously issued shares of such class or of any other class.
| 8. | Consolidation, Division, Cancellation and Reduction of Share Capital. |
(a) The Company may, from time to time, by or pursuant to an authorization of a Shareholders’ resolution, and subject to applicable law:
(i) consolidate all or any part of its issued or unissued authorized share capital into shares of a per share nominal value which is larger, equal to or smaller than the per share nominal value of its existing shares;
(ii) divide or sub-divide its shares (issued or unissued) or any of them, into shares of smaller or the same nominal value (subject, however, to the provisions of the Companies Law), and the resolution whereby any share is divided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, in contrast to others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company may attach to unissued or new shares;
(iii) cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and reduce the amount of its share capital by the amount of the shares so canceled; or
(iv) reduce its share capital in any manner.
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(b) With respect to any consolidation of issued shares and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, and, in connection with any such consolidation or other action which could result in fractional shares, may, without limiting its aforesaid power:
(i) determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into a share of a larger, equal or smaller nominal value per share;
(ii) issue, in contemplation of or subsequent to such consolidation or other action, shares sufficient to preclude or remove fractional share holdings;
(iii) redeem such shares or fractional shares sufficient to preclude or remove fractional share holdings;
(iv) round up, round down or round to the nearest whole number, any fractional shares resulting from the consolidation or from any other action which may result in fractional shares; or
(v) cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees of such fractional shares to pay the transferors thereof the fair value thereof, and the Board of Directors is hereby authorized to act in connection with such transfer, as agent for the transferors and transferees of any such fractional shares, with full power of substitution, for the purposes of implementing the provisions of this sub-Article 8(b)(v).
| 9. | Issuance of Share Certificates, Replacement of Lost Certificates. |
(a) To the extent that the Board of Directors determines that all shares shall be certificated or, if the Board of Directors does not so determine, to the extent that any shareholder requests a share certificate, share certificates shall be issued under the corporate seal of the Company or its written, typed or stamped name and may bear the signature of one Director, the Company’s Chief Executive Officer or of any other person or persons authorized therefor by the Board of Directors. Signatures may be affixed in any mechanical or electronic form, as the Board of Directors may prescribe. For the avoidance of doubt, any transfer agent designated by the Company may issue share certificates on behalf of the Company even if the signatories on the share certificate no longer serve in the relevant capacities at the time of such issuance.
(b) Subject to the Article 9(a), each Shareholder shall be entitled to one numbered certificate for all the shares of any class registered in his name. Each certificate may also specify the amount paid up thereon. The Company (as determined by an officer of the Company to be designated by the Chief Executive Officer) shall not refuse a request by a Shareholder to obtain several certificates in place of one certificate, unless such request is, in the opinion of such officer, unreasonable. Where a Shareholder has sold or transferred some of such Shareholder’s shares, such Shareholder shall be entitled to receive a certificate in respect of such Shareholder’s remaining shares, provided that the previous certificate is delivered to the Company before the issuance of a new certificate.
(c) A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Register of Shareholders in respect of such co-ownership.
(d) A share certificate which has been defaced, lost or destroyed, may be replaced, and the Company shall issue a new certificate to replace such defaced, lost or destroyed certificate upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors in its discretion deems fit.
| 10. | Registered Holder. |
Except as otherwise provided in these Articles or the Companies Law, the Company shall be entitled to treat the registered holder of each share as the absolute owner thereof, and accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by the Companies Law, be obligated to recognize any equitable or other claim to, or interest in, such share on the part of any other person.
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| 11. | Issuance and Repurchase of Shares. |
(a) The unissued shares from time to time shall be under the control of the Board of Directors (and to the full extent permitted by law any Committee thereof), which shall have the power to issue or otherwise dispose of shares and of securities convertible or exercisable into or other rights to acquire from the Company to such persons, on such terms and conditions (including inter alia terms relating to calls set forth in Article 13(f) hereof), and either at par or at a premium, or subject to the provisions of the Companies Law, at a discount and/or with payment of commission, and at such times, as the Board of Directors (or the Committee, as the case may be) deems fit, and the power to give to any person the option to acquire from the Company any shares or securities convertible or exercisable into or other rights to acquire from the Company, either at par or at a premium, or, subject as aforesaid, at a discount and/or with payment of commission, during such time and for such consideration as the Board of Directors (or the Committee, as the case may be) deems fit.
(b) The Company may at any time and from time to time, subject to the Companies Law, repurchase or finance the purchase of any shares or other securities issued by the Company, in such manner and under such terms as the Board of Directors shall determine, whether from any one or more shareholders. Such purchase shall not be deemed as payment of dividends and no shareholder will have the right to require the Company to purchase his shares or offer to purchase shares from any other shareholders.
| 12. | Payment in Installment. |
If pursuant to the terms of issuance of any share, all or any portion of the price thereof shall be payable in installments, every such installment shall be paid to the Company on the due date thereof by the then registered holder(s) of the share or the person(s) then entitled thereto.
| 13. | Calls on Shares. |
(a) The Board of Directors may, from time to time, as it, in its discretion, deems fit, make calls for payment upon shareholders in respect of any sum (including premium) which has not been paid up in respect of shares held by such shareholders and which is not, pursuant to the terms of issuance of such shares or otherwise, payable at a fixed time, and each shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such times may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all the shares in respect of which such call was made.
(b) Notice of any call for payment by a shareholder shall be given in writing to such shareholder not less than fourteen (14) days prior to the time of payment fixed in such notice, and shall specify the time and place of payment, and the person to whom such payment is to be made. Prior to the time for any such payment fixed in a notice of a call given to a shareholder, the Board of Directors may in its absolute discretion, by notice in writing to such shareholder, revoke such call in whole or in part, extend the time fixed for payment thereof, or designate a different place of payment or person to whom payment is to be made. In the event of a call payable in installments, only one notice thereof needs to be given.
(c) If pursuant to the terms of issuance of a share or otherwise, an amount is made payable at a fixed time (whether on account of such nominal value of such share or by way of premium), such amount shall be payable at such time as if it were payable by virtue of a call made by the Board of Directors and for which notice was given in accordance with paragraphs (a) and (b) of this Article 13, and the provision of these Articles with regard to calls (and the non-payment thereof) shall be applicable to such amount or such installment (and the non-payment thereof).
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(d) Joint holders of a share shall be jointly and severally liable to pay all calls for payment in respect of such share and all interest payable thereon.
(e) Any amount called for payment which is not paid when due shall bear interest from the date fixed for payment until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and payable at such time(s) as the Board of Directors may prescribe.
(f) Upon the issuance of shares, the Board of Directors may provide for differences among the holders of such shares as to the amounts and times for payment of calls for payment in respect of such shares.
| 14. | Prepayment. |
With the approval of the Board of Directors, any shareholder may pay to the Company any amount not yet payable in respect of such shareholder’s shares, and the Board of Directors may approve the payment by the Company of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 14 shall derogate from the right of the Board of Directors to make any call for payment before or after receipt by the Company of any such advance.
| 15. | Forfeiture and Surrender. |
(a) If any shareholder fails to pay an amount payable by virtue of a call, installment or interest thereon as provided for in accordance herewith, on or before the day fixed for payment of the same, the Board of Directors, may at any time after the day fixed for such payment, so long as such amount (or any portion thereof) or interest thereon (or any portion thereof) remains unpaid, forfeit all or any of the shares in respect of which such payment was called for. All expenses incurred by the Company in attempting to collect any such amount or interest thereon, including, without limitation, attorneys’ fees and costs of legal proceedings, shall be added to, and shall, for all purposes (including the accrual of interest thereon) constitute a part of, the amount payable to the Company in respect of such call.
(b) Upon the adoption of a resolution as to the forfeiture of a shareholder’s share, the Board of Directors shall cause notice thereof to be given to such shareholder, which notice shall state that, in the event of the failure to pay the entire amount so payable by a date specified in the notice (which date shall be not less than fourteen (14) days after the date such notice is given and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to such date, the Board of Directors may cancel such resolution of forfeiture, but no such cancellation shall stop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount.
(c) Without derogating from Articles 52 and 56 hereof, whenever shares are forfeited as herein provided, all dividends, if any, theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time.
(d) The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share.
(e) Any share forfeited or surrendered as provided herein, shall become the property of the Company as a dormant share, and the same, subject to the provisions of these Articles, may be sold, re-issued or otherwise disposed of as the Board of Directors deems fit.
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(f) Any person whose shares have been forfeited or surrendered shall cease to be a shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 13(e) above, and the Board of Directors, in its discretion, may, but shall not be obligated to, enforce or collect the payment of such amounts, or any part thereof, as it shall deem fit. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing to the Company by the person in question (but not yet due) in respect of all shares owned by such shareholder, solely or jointly with another.
(g) The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-issued or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it deems fit, but no such nullification shall stop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 15.
| 16. | Lien. |
(a) Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each shareholder (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements to the Company arising from any amount payable by such shareholder in respect of any unpaid or partly paid share, whether or not such debt, liability or engagement has matured. Such lien shall extend to all dividends from time to time declared or paid in respect of such share. Unless otherwise provided, the registration by the Company of a transfer of shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer.
(b) The Board of Directors may cause the Company to sell a share subject to such a lien when the debt, liability or engagement giving rise to such lien has matured, in such manner as the Board of Directors deems fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such shareholder, his executors or administrators.
(c) The net proceeds of any such sale, after payment of the costs and expenses thereof or ancillary thereto, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such shareholder in respect of such share (whether or not the same have matured), and the residue (if any) shall be paid to the shareholder, his executors, administrators or assigns.
| 17. | Sale After Forfeiture of Surrender or in Enforcement of Lien. |
Upon any sale of a share after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint any person to execute an instrument of transfer of the share so sold and cause the purchaser’s name to be entered in the Register of Shareholders in respect of such share. The purchaser shall be registered as the shareholder and shall not be bound to see to the regularity of the sale proceedings, or to the application of the proceeds of such sale, and after his name has been entered in the Register of Shareholders in respect of such share, the validity of the sale shall not be impeached by any person, and person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.
| 18. | Redeemable Shares. |
The Company may, subject to applicable law, issue redeemable shares or other securities and redeem the same upon terms and conditions to be set forth in a written agreement between the Company and the holder of such shares or in their terms of issuance.
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Transfer of Shares
| 19. | Registration of Transfer. |
No transfer of shares shall be registered unless a proper writing or instrument of transfer (in any customary form or any other form satisfactory to the Board of Directors) has been submitted to the Company (or its transfer agent), together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Notwithstanding anything to the contrary herein, shares registered in the name of The Depository Trust Company or its nominee shall be transferrable in accordance with the policies and procedures of The Depository Trust Company. Until the transferee has been registered in the Register of Shareholders in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer, and may approve other methods of recognizing the transfer of shares in order to facilitate the trading of the Company’s shares on the Nasdaq or on any other stock exchange on which the Company’s shares are then listed for trading.
| 20. | Suspension of Registration. |
The Board of Directors may, in its discretion to the extent it deems necessary, close the Register of Shareholders of registration of transfers of shares for a period determined by the Board of Directors, and no registrations of transfers of shares shall be made by the Company during any such period during which the Register of Shareholders is so closed.
Transmission of Shares
| 21. | Decedents’ Shares. |
(a) In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article 21(b) have been effectively invoked.
(b) Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient (or to an officer of the Company to be designated by the Chief Executive Officer)), shall be registered as a shareholder in respect of such share, or may, subject to the provisions as to transfer contained herein, transfer such share.
| 22. | Receivers and Liquidators. |
(a) The Company may recognize any receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate shareholder, and a trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceeding with respect to a shareholder or its properties, as being entitled to the shares registered in the name of such shareholder.
(b) Such receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate shareholder and such trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceedings with respect to a shareholder or its properties, upon producing such evidence as the Board of Directors (or an officer of the Company to be designated by the Chief Executive Officer) may deem sufficient as to his authority to act in such capacity or under this Article, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares.
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General Meetings
| 23. | General Meetings. |
(a) An annual General Meeting (“Annual General Meeting”) shall be held at such time and at such place, either within or out of the State of Israel, as may be determined by the Board of Directors in accordance with the Companies Law.
(b) All General Meetings other than Annual General Meetings shall be called “Special General Meetings”.
| 24. | Record Date for General Meeting. |
Notwithstanding any provision of these Articles to the contrary, and to allow the Company to determine the shareholders entitled to notice of or to vote at any General Meeting or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or grant of any rights, or entitled to exercise any rights in respect of or to take or be the subject of any other action, the Board of Directors may fix a record date, which shall not be more than the maximum period and not less than the minimum period permitted by law. A determination of shareholders of record entitled to notice of or to vote at a meeting shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
| 25. | Shareholder Proposal Request. |
(a) Any Shareholder or Shareholders of the Company holding at least one percent (1%) or a higher percent, as may be required by the Companies Law from time to time, of the voting rights of the Company (the “Proposing Shareholder(s)”) may request, subject to the Companies Law, that the Board of Directors include a matter on the agenda of a General Meeting to be held in the future, provided that the Board determines that the matter is appropriate to be considered in a General Meeting (a “Proposal Request”). In order for the Board of Directors to consider a Proposal Request and whether to include the matter stated therein in the agenda of a General Meeting, notice of the Proposal Request must be timely delivered in accordance with applicable laws, and the Proposal Request must comply with the requirement of these Articles (including this Article 25) and any applicable law and stock exchange rules and regulations. The Proposal Request must be in writing, signed by all of the Proposing Shareholder(s) making such request, delivered, either in person or by certified mail, postage prepaid, and received by the Secretary (or, in the absence thereof by the Chief Executive Officer of the Company). To be considered timely, a Proposal Request must be received within the time periods prescribed by applicable law. The announcement of an adjournment or postponement of a General Meeting shall not commence a new time period (or extend any time period) for the delivery of a Proposal Request as described above. In addition to any information required to be included in accordance with applicable law, the Proposal Request must include the following: (i) the name, address, telephone number, fax number and email address of the Proposing Shareholder (or each Proposing Shareholder, as the case may be) and, if an entity, the name(s) of the person(s) that controls or manages such entity; (ii) the number of Shares held by the Proposing Shareholder(s), directly or indirectly (and, if any of such Shares are held indirectly, an explanation of how they are held and by whom), which shall be in such number no less than as is required to qualify as a Proposing Shareholder, accompanied by evidence satisfactory to the Company of the record holding of such Shares by the Proposing Shareholder(s) as of the date of the Proposal Request, and a representation that the Proposing Shareholder(s) intends to appear in person or by proxy at the meeting; (iii) the matter requested to be included on the agenda of a General Meeting, all information related to such matter, the reason that such matter is proposed to be brought before the General Meeting, the complete text of the resolution that the Proposing Shareholder proposes to be voted upon at the General Meeting and, if the Proposing Shareholder wishes to have a position statement in support of the Proposal Request, a copy of such position statement that complies with the requirement of any applicable law (if any), (iv) a description of all arrangements or understandings between the Proposing Shareholders and any other Person(s) (naming such Person or Persons) in connection with the matter that is requested to be included on the agenda and a declaration signed by all Proposing Shareholder(s) of whether any of them has a personal interest in the matter and, if so, a description in reasonable detail of such personal interest; (v) a description of all Derivative Transactions (as defined below) by each Proposing Shareholder(s) during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions; and (vi) a declaration that all of the information that is required under the Companies Law and any other applicable law and stock exchange rules and regulations to be provided to the Company in connection with such matter, if any, has been provided to the Company. The Board of Directors, may, in its discretion, to the extent it deems necessary, request that the Proposing Shareholder(s) provide additional information necessary so as to include a matter in the agenda of a General Meeting, as the Board of Directors may reasonably require.
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A “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proposing Shareholder or any of its affiliates or associates, whether of record or beneficial: (1) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the Company, (2) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company, (3) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (4) which provides the right to vote or increase or decrease the voting power of, such Proposing Shareholder, or any of its affiliates or associates, with respect to any shares or other securities of the Company, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proposing Shareholder in the securities of the Company held by any general or limited partnership, or any limited liability company, of which such Proposing Shareholder is, directly or indirectly, a general partner or managing member.
(b) The information required pursuant to this Article shall be updated as of (i) the record date of the General Meeting, (ii) five business days before the General Meeting, and (iii) as of the General Meeting, and any adjournment or postponement thereof.
(c) The provisions of Articles 25(a) and 25(b) shall apply, mutatis mutandis, on any matter to be included on the agenda of a Special General Meeting which is convened pursuant to a request of a Shareholder duly delivered to the Company in accordance with the Companies Law.
| 26. | Notice of General Meetings; Omission to Give Notice. |
(a) The Company is not required to give notice of a General Meeting, subject to any mandatory provision of the Companies Law, and any other requirements applicable to the Company. Notwithstanding anything herein to the contrary, to the extent permitted under the Companies Law, with the consent of all Shareholders entitled to vote thereon, a resolution may be proposed and passed at such meeting although a lesser notice period than hereinabove prescribed has been given.
(b) The accidental omission to give notice of a General Meeting to any Shareholder, or the non-receipt of notice sent to such Shareholder, shall not invalidate the proceedings at such meeting or any resolution adopted thereat.
(c) No Shareholder present, in person or by proxy, at any time during a General Meeting shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such General Meeting on account of any defect in the notice of such meeting relating to the time or the place thereof, or any item acted upon at such meeting.
(d) The Company may add additional places for Shareholders to review the full text of the proposed resolutions to be adopted at a General Meeting, including an internet site.
Proceedings at General Meetings
| 27. | Quorum. |
(a) No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the quorum required under these Articles for such General Meeting or such adjourned meeting, as the case may be, is present when the meeting proceeds to business.
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(b) In the absence of contrary provisions in these Articles, two or more shareholders (not in default in payment of any sum referred to in Article 13 hereof), present in person or by proxy and holding shares conferring in the aggregate at least twenty five percent (25%) of the voting power of the Company, shall constitute a quorum of the General Meetings. A proxy may be deemed to be two (2) or more Shareholders pursuant to the number of Shareholders represented by the proxy holder.
(c) If within half an hour from the time appointed for the meeting a quorum is not present, then the meeting shall be canceled if it was convened upon requisition under Section 63 of the Companies Law, and in any other case, without any further notice the meeting shall be adjourned either (i) to the same day in the next week, at the same time and place, (ii) to such day and at such time and place as indicated in the notice to such meeting, or (iii) to such day and at such time and place as the Chairperson of the General Meeting shall determine (which may be earlier or later than the date pursuant to clause (i) above). No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting any shareholder (not in default as aforesaid) present in person or by proxy, shall constitute a quorum.
| 28. | Chairperson of General Meeting. |
The Chairperson of the Board of Directors shall preside as Chairperson of every General Meeting of the Company. If at any meeting the Chairperson is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling to act as Chairperson, any of the following may preside as Chairperson of the meeting (and in the following order): Director, Chief Executive Officer, Chief Financial Officer, Secretary or any person designated by any of the foregoing. If at any such meeting none of the foregoing persons is present or all are unwilling to act as Chairperson, the Shareholders present (in person or by proxy) shall choose a Shareholder or its proxy present at the meeting to be Chairperson. The office of Chairperson shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairperson to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).
| 29. | Adoption of Resolutions at General Meetings. |
(a) Except as required by the Companies Law or these Articles, including, without limitation, Articles 38, 39 and 42 below, a resolution of the Shareholders shall be adopted if approved by the holders of a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting. Without limiting the generality of the foregoing, a resolution with respect to a matter or action for which the Companies Law prescribes a higher majority or pursuant to which a provision requiring a higher majority would have been deemed to have been incorporated into these Articles, but resolutions with respect to which the Companies Law allows the Company’s Articles to provide otherwise, shall be adopted by a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting.
(b) Every question submitted to a General Meeting shall be decided by a show of hands, but the Chairperson of the General Meeting may determine that a resolution shall be decided by a written ballot. A written ballot may be implemented before the proposed resolution is voted upon or immediately after the declaration by the Chairperson of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot.
(c) A declaration by the Chairperson of the General Meeting that a resolution has been carried unanimously, or carried by a particular majority, or rejected, and an entry to that effect in the minute book of the Company, shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.
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| 30. | Power to Adjourn. |
A General Meeting, the consideration of any matter on its agenda or the resolution on any matter on its agenda, may be postponed or adjourned, from time to time and from place to place: (i) by the Chairperson of a General Meeting at which a quorum is present (and he shall if so directed by the meeting, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment), but no business shall be transacted at any such adjourned meeting except business which might lawfully have been transacted at the meeting as originally called, or a matter on its agenda with respect to which no resolution was adopted at the meeting originally called; or (ii) by the Board (whether prior to or at the General Meeting).
| 31. | Voting Power. |
Subject to the provisions of Article 32(a) and to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot or by any other means.
| 32. | Voting Rights. |
(a) No shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls then payable by him in respect of his shares in the Company have been paid.
(b) A company or other corporate body being a Shareholder of the Company may duly authorize any person to be its representative at any meeting of the Company or to execute or deliver a proxy on its behalf. Any person so authorized shall be entitled to exercise on behalf of such Shareholder all the power which the Shareholder could have exercised if it were an individual. Upon the request of the Chairperson of the General Meeting, written evidence of such authorization (in form acceptable to the Chairperson) shall be delivered to him.
(c) Any Shareholder entitled to vote may vote either in person or by proxy (who need not be Shareholder of the Company), or, if the Shareholder is a company or other corporate body, by representative authorized pursuant to Article (b) above.
(d) If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s). For the purpose of this Article 32(d), seniority shall be determined by the order of registration of the joint holders in the Register of Shareholder.
(e) A Shareholder who wishes to vote at a General Meeting shall prove his title to a share to the Company as required under the Companies Law and regulations promulgated thereunder. Without prejudice to the aforesaid, the Board of Directors may prescribe regulations and procedures with regard to proof of title to the Company’s shares.
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Proxies
| 33. | Instrument of Appointment. |
(a) An instrument appointing a proxy shall be in writing and shall be substantially in the following form:
| “I | of | |||
| (Name of Shareholder) | (Address of Shareholder) | |||
| Being a shareholder of SILYNXCOM LTD. hereby appoints | ||||
| of | ||||
| (Name of Proxy) | (Address of Proxy) | |||
| as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the ___ day of _______, _______ and at any adjournment(s) thereof. | ||||
| Signed this ____ day of ___________, ______. | ||||
| (Signature of Appointor)” | ||||
or in any such form as may be approved by the Board of Directors.
(b) Subject to the Companies Law, the original instrument appointing a proxy or a copy thereof (and the power of attorney or other authority, if any, under which such instrument has been signed) shall be delivered to the Company (at its Office, at its principal place of business, or at the offices of its registrar or transfer agent, or at such place as notice of the meeting may specify) not less than forty eight (48) hours (or such shorter period as the notice shall specify) before the time fixed for such meeting. Notwithstanding the above, the Chairperson shall have the right to waive the time requirement provided above with respect to all instruments of proxies and to accept any and all instruments of proxy until the beginning of a General Meeting. A document appointing a proxy shall be valid for every adjourned meeting of the General Meeting to which the document relates.
| 34. | Effect of Death of Appointor of Transfer of Share and or Revocation of Appointment. |
(a) A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the prior death or bankruptcy of the appointing shareholder (or of his attorney-in-fact, if any, who signed such instrument), or the transfer of the share in respect of which the vote is cast, unless written notice of such matters shall have been received by the Company or by the Chairperson of such meeting prior to such vote being cast.
(b) Subject to the Companies Law, an instrument appointing a proxy shall be deemed revoked (i) upon receipt by the Company or the Chairperson, subsequent to receipt by the Company of such instrument, of written notice signed by the person signing such instrument or by the Shareholder appointing such proxy canceling the appointment thereunder (or the authority pursuant to which such instrument was signed) or of an instrument appointing a different proxy (and such other documents, if any, required under Article 33(b) for such new appointment), provided such notice of cancellation or instrument appointing a different proxy were so received at the place and within the time for delivery of the instrument revoked thereby as referred to in Article 33(b) hereof, or (ii) if the appointing shareholder is present in person at the meeting for which such instrument of proxy was delivered, upon receipt by the Chairperson of such meeting of written notice from such shareholder of the revocation of such appointment, or if and when such shareholder votes at such meeting. A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the revocation or purported cancellation of the appointment, or the presence in person or vote of the appointing shareholder at a meeting for which it was rendered, unless such instrument of appointment was deemed revoked in accordance with the foregoing provisions of this Article 34(b) at or prior to the time such vote was cast.
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Board of Directors
| 35. | Powers of Board of Directors. |
(a) The Board of Directors may exercise all such powers and do all such acts and things as the Board of Directors is authorized by law or as the Company is authorized to exercise and do and are not hereby or by law required to be exercised or done by the General Meeting. The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, these Articles and any regulation or resolution consistent with these Articles adopted from time to time at a General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.
(b) Without limiting the generality of the foregoing, the Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall deem fit, including without limitation, capitalization and distribution of bonus shares, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or re-designate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit.
| 36. | Exercise of Powers of Board of Directors. |
(a) A meeting of the Board of Directors at which a quorum is present shall be competent to exercise all the authorities, powers and discretion vested in or exercisable by the Board of Directors.
(b) A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present, entitled to vote and voting thereon when such resolution is put to a vote. In the case of an equality of votes, the Chairman, in addition to his deliberative vote (if any), has a casting vote.
(c) The Board of Directors may adopt resolutions, without convening a meeting of the Board of Directors, in writing or in any other manner permitted by the Companies Law.
| 37. | Delegation of Powers. |
(a) The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees (in these Articles referred to as a “Committee of the Board of Directors”, or “Committee”), each consisting of one or more persons (who may or may not be Directors), and it may from time to time revoke such delegation or alter the composition of any such Committee. No regulation imposed by the Board of Directors on any Committee and no resolution of the Board of Directors shall invalidate any prior act done pursuant to a resolution by the Committee which would have been valid if such regulation or resolution of the Board had not been adopted. The meeting and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by any regulations adopted by the Board of Directors or by the Companies Law. Unless otherwise expressly prohibited by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall be empowered to further delegate such powers.
(b) Without derogating from the provisions of Article 49, the Board of Directors may from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors deems fit, and may terminate the service of any such person. The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and compensation, of all such persons.
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(c) The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purposes(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it deems fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors deems fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.
| 38. | Number of Directors. |
(a) The Board of Directors shall consist of such number of Directors, not less than three (3) nor more than twelve (12), including the External Directors, which will be elected if and as required under the Companies Law, as may be fixed from time to time by the Board of Directors.
(b) Notwithstanding anything to the contrary herein, this Article 38 may only be amended or replaced by a resolution adopted at a General Meeting by a majority of 70% of the voting power represented at the General Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital.
| 39. | Election and Removal of Directors. |
(a) The Directors, excluding the External Directors if any (who shall be elected and serve in office in strict accordance with the provisions of the Companies Law, if so required by the Companies Law), shall be classified, with respect to the term for which they each severally hold office, into three classes, as nearly equal in number as practicable, hereby designated as Class I, Class II and Class III.
(i) The term of office of the initial Class I directors shall expire at the first Annual General Meeting to be held in 2023 and when their successors are elected and qualified,
(ii) The term of office of the initial Class II directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (i) above and when their successors are elected and qualified, and
(iii) The term of office of the initial Class III directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (ii) above and when their successors are elected and qualified.
(b) Directors (other than External Directors), may be elected only in Annual Meetings. At each Annual General Meeting, commencing with the Annual General Meeting to be held in accordance with Companies Law and subject to the provisions of these Articles, each of the successors elected to replace the Directors of a Class whose term shall have expired at such Annual General Meeting shall be elected to hold office until the third Annual General Meeting next succeeding his or her election and until his or her respective successor shall have been elected and qualified. Notwithstanding anything to the contrary, each Director shall serve until his or her successor is elected and qualified or until such earlier time as such Director’s office is vacated.
(c) If the number of Directors (excluding External Directors) that constitutes the Board of Directors is hereafter changed, the then-serving Directors shall be redesignated to other Classes and/or any newly created directorships or decrease in directorships shall be apportioned by the Board of Directors among the classes so as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
(d) Prior to every Annual General Meeting of the Company at which Directors are to be elected, and subject to clauses 39(a) and (h) of this Article, the Board of Directors (or a Committee thereof) shall select, by a resolution adopted by a majority of the Board of Directors (or such Committee), a number of Persons to be proposed to the Shareholders for election as Directors at such Annual General Meeting (the “Nominees”).
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(e) Any Proposing Shareholder requesting to include on the agenda of an Annual General Meeting a nomination of a Person to be proposed to the Shareholders for election as Director (such person, an “Alternate Nominee”), may so request provided that it complies with this Article 39(e) and Article 25 and applicable law. Unless otherwise determined by the Board, a Proposal Request relating to Alternate Nominee is deemed to be a matter that is appropriate to be considered only in an Annual General Meeting. In addition to any information required to be included in accordance with applicable law, such a Proposal Request shall include information required pursuant to Article 25, and shall also set forth: (i) the name, address, telephone number, fax number and email address of the Alternate Nominee and all citizenships and residencies of the Alternate Nominee; (ii) a description of all arrangements, relations or understandings between the Proposing Shareholder(s) or any of its affiliates and each Alternate Nominee; (iii) a declaration signed by the Alternate Nominee that he consents to be named in the Company’s notices and proxy materials relating to the Annual General Meeting, if provided or published, and, if elected, to serve on the Board of Directors and to be named in the Company’s disclosures and filings, (iv) a declaration signed by each Alternate Nominee as required under the Companies Law and any other applicable law and stock exchange rules and regulations for the appointment of such an Alternate Nominee and an undertaking that all of the information that is required under law and stock exchange rules and regulations to be provided to the Company in connection with such an appointment has been provided (including, information in respect of the Alternate Nominee as would be provided in response to the applicable disclosure requirements under Form 20-F or any other applicable form prescribed by the U.S. Securities and Exchange Commission); (v) a declaration made by the Alternate Nominee of whether he or she meets the criteria for an independent director and/or External Director of the Company under the Companies Law and/or under any applicable law, regulation or stock exchange rules, and if not, then an explanation of why not; and (vi) any other information required at the time of submission of the Proposal Request by applicable law, regulations or stock exchange rules. In addition, the Proposing Shareholder shall promptly provide any other information reasonably requested by the Company. The Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing. The Company shall be entitled to publish any information provided by a Proposing Shareholder pursuant to this Article 39(e) and Article 25, and the Proposing Shareholder shall be responsible for the accuracy and completeness thereof.
(f) The Nominees or Alternate Nominees shall be elected by a resolution adopted at the Annual General Meeting at which they are subject to election.
(g) Notwithstanding anything to the contrary herein, this Article 39 and Article 42(e) may only be amended, replaced or suspended by a resolution adopted at a General Meeting by a majority of 70% of the voting power represented at the General Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital.
(h) Notwithstanding anything to the contrary in these Articles, the election, qualification, removal or dismissal of External Directors shall be only in accordance with the applicable provisions set forth in the Companies Law.
(i) Directors whose terms of office have expired or terminated may be re-elected. The aforesaid will not apply to external directors, whose reappointment shall be in accordance with the provisions of the Companies Law and the regulations promulgated thereunder.
| 40. | Commencement of Directorship. |
Without derogating from Article 39, the term of office of a Director shall commence as of the date of his appointment or election, or on a later date if so specified in his appointment or election.
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| 41. | Continuing Directors in the Event of Vacancies. |
The Board may at any time and from time to time appoint any person as a Director to fill a vacancy (whether such vacancy is due to a Director no longer serving or due to the number of Directors serving being less than the maximum number stated in Article 38 hereof). In the event of one or more such vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, provided, however, that if they number less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency or to fill the office of director which has become vacant up to a number equal to the minimum number provided for pursuant to Article 38 hereof. The office of a Director that was appointed by the Board of Directors to fill any vacancy shall only be for the remaining period of time during which the Director whose service has ended was filled would have held office, or in case of a vacancy due to the number of Directors serving being less than the maximum number stated in Article 38 hereof, the Board shall determine at the time of appointment the class pursuant to Article 39 to which the additional Director shall be assigned.
| 42. | Vacation of Office. |
The office of a Director shall be vacated and he or she shall be dismissed or removed:
(a) ipso facto, upon his or her death;
(b) if he or she is prevented by applicable law from serving as a Director;
(c) if the Board determines that due to his or her mental or physical state he or she is unable to serve as a director;
(d) if his or her directorship expires pursuant to these Articles and/or applicable law;
(e) by a resolution adopted at an Annual Meeting by a majority of 70% of the voting power represented at the Annual Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital. Such removal shall become effective on the date fixed in such resolution;
(f) by his or her written resignation, such resignation becoming effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later; or
(g) with respect to an External Director, and notwithstanding anything to the contrary herein, only pursuant to applicable law.
| 43. | Conflict of Interests; Approval of Related Party Transactions. |
Subject to the provisions of the Companies Law and these Articles, no Director shall be disqualified by virtue of his office from holding any office or place of profit in the Company or in any company in which the Company shall be a shareholder or otherwise interested, or from contracting with the Company as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested, be avoided, nor, other than as required under the Companies Law, shall any Director be liable to account to the Company for any profit arising from any such office or place of profit or realized by any such contract or arrangement by reason only of such Director’s holding that office or of the fiduciary relations thereby established, but the nature of his interest, as well as any material fact or document, must be disclosed by him at the meeting of the Board of Directors at which the contract or arrangement is first considered, if his interest then exists, or, in any other case, at no later than the first meeting of the Board of Directors after the acquisition of his interest.
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| 44. | Alternate Directors. |
(a) Subject to the provisions of the Companies Law, a Director may, by written notice to the Company, appoint, remove or replace any person as an alternate for himself; provided that the appointment of such person shall have effect only upon and subject to its being approved by the Board (in these Articles, an “Alternate Director”). Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for all purposes, and for a period of time concurrent with the term of the appointing Director.
(b) Any notice to the Company pursuant to Article 44(a) shall be given in person to, or by sending the same by mail to the attention of the Chairperson of the Board of Directors at the principal office of the Company or to such other person or place as the Board of Directors shall have determined for such purpose, and shall become effective on the date fixed therein, upon the receipt thereof by the Company (at the place as aforesaid) or upon the approval of the appointment by the Board, whichever is later.
(c) An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided however, that (i) he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and (ii) an Alternate Director shall have no standing at any meeting of the Board of Directors or any Committee thereof while the Director who appointed him is present.
(d) Any individual, who qualifies to be a member of the Board of Directors, may act as an Alternate Director. One person may not act as Alternate Director for several directors.
(e) The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the office of the Director who appointed such Alternate Director is vacated, for any reason.
Proceedings of the Board of Directors
| 45. | Meetings. |
(a) The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Directors think fit.
(b) Any Director may at any time, and the Secretary, upon the request of such Director, shall, convene a meeting of the Board of Directors, but not less than forty-eight (48) hours’ notice shall be given of any meeting so convened, unless such notice is waived by all of the Directors as to a particular meeting or unless the matters to be discussed at such meeting are of such urgency and importance, as determined by the Chairperson, that notice ought reasonably to be waived under the circumstances.
(c) Notice of any such meeting shall be given in writing.
(d) Notwithstanding anything to the contrary herein, failure to deliver notice to a director of any such meeting in the manner required hereby may be waived by such Director, and a meeting shall be deemed to have been duly convened notwithstanding such defective notice if such failure or defect is waived prior to action being taken at such meeting, by all Directors entitled to participate at such meeting to whom notice was not duly given as aforesaid. Without derogating from the foregoing, no Director present at any time during a meeting of the Board of Directors shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such meeting on account of any defect in the notice of such meeting relating to the date, time or the place thereof or the convening of the meeting.
| 46. | Quorum. |
Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence in person or by any means of communication of a majority of the Directors then in office who are lawfully entitled to participate and vote in the meeting. No business shall be transacted at a meeting of the Board of Directors unless the requisite quorum is present (in person or by any means of communication) when the meeting proceeds to business.
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| 47. | Chairperson of the Board of Directors. |
The Board of Directors shall, from time to time, elect one of its members to be the Chairperson of the Board of Directors, remove such Chairperson from office and appoint in his place. The Chairperson of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairperson, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting or if he is unwilling to take the chair, the Directors present shall choose one of the Directors present at the meeting to be the Chairperson of such meeting. In case of an equality of votes on any question at a meeting of the Board of Directors, the Chairman of the Board shall have a second or casting vote, and the proposed resolution shall be deemed vetoed and no further voting is required.
| 48. | Validity of Acts Despite Defects. |
All acts done or transacted at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meeting or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.
Chief Executive Officer
| 49. | Chief Executive Officer. |
(a) The Board of Directors shall from time to time appoint one or more persons, whether or not Directors, as Chief Executive Officer of the Company and may confer upon such person(s), and from time to time modify or revoke, such titles and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to any additional approvals required under, and the provisions of, the Companies Law and of any contract between any such person and the Company) fix their salaries and compensation, remove or dismiss them from office and appoint another or others in his or their place or places.
(b) Unless otherwise determined by the Board of Directors, the Chief Executive Officer shall have authority with respect to the management and operations of the Company in the ordinary course of business.
Minutes
| 50. | Minutes. |
Any minutes of the General Meeting or the Board of Directors or any committee thereof, if purporting to be signed by the Chairperson of the General Meeting, the Board or a committee thereof, as the case may be, or by the Chairperson of the next succeeding General Meeting, meeting of the Board or meeting of a committee thereof, as the case may be, shall constitute prima facie evidence of the matters recorded therein.
Dividends
| 51. | Declaration of Dividends. |
The Board of Directors may from time declare, and cause the Company to pay, such dividend as may appear to the Board of Directors to be justified by the profits of the Company and as permitted by the Companies Law. The Board of Directors shall determine the time for payment of such dividends and the record date for determining the shareholders entitled thereto.
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| 52. | Amount Payable by Way of Dividends. |
(a) Subject to the provisions of these Articles and subject to the rights or conditions attached at that time to any share in the capital of the Company granting preferential, special or deferred rights or not granting any rights with respect to dividends, any dividend paid by the Company shall be allocated among the shareholders (not in default in payment of any sum referred to in Article 13 hereof) entitled thereto in proportion to their respective holdings of the shares in respect of which such dividends are being paid.
(b) Whenever the rights attached to any shares or the terms of issue of the shares do not provide otherwise, shares which are fully paid up or which are credited as fully or partly paid within any period which in respect thereof dividends are paid shall entitle the holders thereof to a dividend in proportion to the amount paid up or credited as paid up in respect of the nominal value of such shares and to the date of payment thereof (pro rata temporis).
| 53. | Interest. |
No dividend shall carry interest as against the Company.
| 54. | Capitalization of Profits, Reserves, etc. |
The Board of Directors may determine that the Company (i) may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and (ii) may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum.
| 55. | Implementation of Powers. |
For the purpose of giving full effect to any resolution under Article 54, and without derogating from the provisions of Article 56 hereof, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may fix the value for distribution of any specific assets and may determine that cash payments shall be made to any shareholders upon the footing of the value so fixed, or that fractions of less value than a certain determined value may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors. Where requisite, a proper contract shall be filed in accordance with Section 291 of the Companies Law, and the Board of Directors may appoint any person to sign such contract on behalf of the persons entitled to the dividend or capitalized fund.
| 56. | Deductions from Dividends. |
The Board of Directors may deduct from any dividend or other moneys payable to any Shareholder in respect of a share any and all sums of money then payable by such Shareholder to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.
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| 57. | Retention of Dividends. |
(a) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.
(b) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22, entitled to become a Shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a Shareholder in respect of such share or shall transfer the same.
| 58. | Unclaimed Dividends. |
All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed. The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company. The principal (and only the principal) of any unclaimed dividend of such other moneys shall be, if claimed, paid to a person entitled thereto.
| 59. | Mechanics of Payment. |
Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to the joint holder whose name is registered first in the Register of Shareholders or his bank account or the person who the Company may then recognize as the owner thereof or entitled thereto under Article 21 or 22 hereof, as applicable, or such person’s bank account), or to such person and at such other address as the person entitled thereto may by writing direct, or in any other manner the Board deems appropriate. Every such check or warrant or other method of payment shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company.
| 60. | Receipt from a Joint Holder. |
If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.
Accounts
| 61. | Books of Account. |
The Company’s books of account shall be kept at the Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors. The Company shall make copies of its annual financial statements available for inspection by the Shareholders at the principal offices of the Company. The Company shall not be required to send copies of its annual financial statements to the Shareholders.
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| 62. | Auditors. |
The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law, provided, however, that in exercising its authority to fix the remuneration of the auditor(s), the shareholders in General Meeting may act (and in the absence of any action in connection therewith shall be deemed to have so acted) to authorize the Board of Directors (with right of delegation to management) to fix such remuneration subject to such criteria or standards, and if no such criteria or standards are so provided, such remuneration shall be fixed in an amount commensurate with the volume and nature of the services rendered by such auditor(s).
| 62A. | Internal auditor. |
To the extent required by the Companies Law the Board of Directors will appoint an internal auditor according to the audit committee’s recommendation (“Internal Auditor”).
The Internal Auditor shall submit, for the approval of the Board of Directors or the audit committee, as determined by the Board of Directors, a proposal for an annual or periodic work plan, and the Board of Directors or the audit committee shall approve such plan with such changes as it deems fit. Unless the Board of Directors determines otherwise, the work plan shall be submitted to the Board of Directors and approved by it.
Supplementary Registers
| 63. | Supplementary Registers. |
Subject to and in accordance with the provisions of Sections 138 and 139 of the Companies Law, the Company may cause supplementary registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
Exemption, Indemnity and Insurance
| 64. | Insurance. |
Subject to the provisions of the Companies Law with regard to such matters, the Company may enter into a contract for the insurance of the liability, in whole or in part, of any of its Office Holders imposed on such Office Holder due to an act performed by or an omission of the Office Holder in the Office Holder’s capacity as an Office Holder of the Company arising from any matter permitted by law, including the following:
(a) a breach of duty of care to the Company or to any other person;
(b) a breach of duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable grounds to assume that the act that resulted in such breach would not prejudice the interests of the Company;
(c) a financial liability imposed on such Office Holder in favor of any other person; and
(d) any other event, occurrence, matter or circumstance under any law with respect to which the Company may, or will be able to, insure an Office Holder, and to the extent such law requires the inclusion of a provision permitting such insurance in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Securities Law, if and to the extent applicable, and Section 50P of the RTP Law).
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| 65. | Indemnity. |
(a) Subject to the provisions of the Companies Law, the Company may retroactively indemnify an Office Holder of the Company with respect to the following liabilities and expenses, provided that such liabilities or expenses were imposed on such Office Holder or incurred by such Office Holder due to an act performed by or an omission of the Office Holder in such Office Holder’s capacity as an Office Holder of the Company:
(i) a financial liability imposed on an Office Holder in favor of another person by any court judgment, including a judgment given as a result of a settlement or an arbitrator’s award which has been confirmed by a court in respect of an act performed by the Office Holder;
(ii) reasonable litigation expenses, including attorneys’ fees, expended by the Office Holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, or in connection with a financial sanction, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability in lieu of a criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding or if such financial liability was imposed, it was imposed with respect to an offence that does not require proof of criminal intent;
(iii) reasonable litigation costs, including attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder by the Company or in its name or by any other person or in a criminal charge in respect of which the Office Holder was acquitted or in a criminal charge in respect of which the Office Holder was convicted for an offence which did not require proof of criminal intent; and
(iv) any other event, occurrence, matter or circumstance under any law with respect to which the Company may, or will be able to, indemnify an Office Holder, and to the extent such law requires the inclusion of a provision permitting such indemnity in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Securities Law, if and to the extent applicable, and Section 50P(b)(1) of the RTP Law).
(b) Subject to the provisions of the Companies Law, the Company may undertake to indemnify an Office Holder, in advance, with respect to those liabilities and expenses described in the following Articles:
(i) Sub-Article 65(a)(ii) to 65(a)(iv); and
(ii) Sub-Article 65(a)(i), provided that:
(1) the undertaking to indemnify is limited to such events which the Board of Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made and for such amounts or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances; and
(2) the undertaking to indemnify shall set forth such events which the Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made, and the amounts and/or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances.
The maximum amount of indemnification payable by the Company with respect to those liabilities and expenses described in Sub-Article 65(a)(i), for each Office Holder and for all Office Holders together, individually or in aggregate, under all letters of indemnification issued or to be issued by the Company, shall not exceed the amount stated in the Company’s compensation policy, as amended from time to time, if applicable, or as approved according to applicable law.
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| 66. | Exemption. |
Subject to the provisions of the Companies Law and the Securities Law, the Company may exempt and release, in advance, any Office Holder from any liability to the Company for damages arising out of a breach of the Office Holder’s duty of care towards the Company.
Notwithstanding the foregoing, the Company may not exempt a Director in advance from his liability for damages with respect to violation of his duty of care to the Company with respect to distributions. In addition, the Company may not exempt an Office Holder from his liability to the Company with regard to a resolution and/or a transaction in which the controlling Shareholder and/or any Office Holder has a personal interest.
| 67. | Subject to the provisions of the Companies Law and the provisions of any other law, the Company may exempt, insure and/or indemnify (whether retroactively or by way of advance indemnity undertaking) a person who has held, holds or will hold office and/or who was employed, is employed or will be employed on the Company’s behalf or in another company in which the Company holds securities, directly or indirectly, or in which the Company has any interest due to liability, payment or cost imposed upon him or expensed by him in consequence of an action made by him in his capacity as an officer or an employee in such company, and Articles 64 through 66 shall apply, mutatis mutandis, in that respect. |
| 68. | The provisions of Articles 64 through 66 shall also apply to an alternate director. |
| 69. | General. |
(a) Any amendment to the Companies Law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to Articles 64 to 68 and any amendments to Articles 64 to 68 shall be prospective in effect and shall not affect the Company’s obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by applicable law.
(b) The provisions of Articles 64 to 68 (i) shall apply to the maximum extent permitted by law (including, the Companies Law, the Securities Law and the RTP Law); and (ii) are not intended, and shall not be interpreted so as to restrict the Company, in any manner, in respect of the procurement of insurance and/or in respect of indemnification (whether in advance or retroactively) and/or exemption, in favor of any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder; and/or any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law.
Winding Up
| 70. | Winding Up. |
If the Company is wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the shareholders shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made.
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Exclusive Forum
| 71. | Exclusive Forum. |
Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the United States Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to this exclusive forum provision. This exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the United States Securities Exchange Act of 1934, as amended.
Notices
| 72. | Notices. |
(a) Any written notice or other document may be served by the Company upon any shareholder either personally, by facsimile, email or other electronic transmission, or by sending it by prepaid mail (airmail if sent internationally) addressed to such shareholder at his address as described in the Register of Shareholders or such other address as he may have designated in writing for the receipt of notices and other documents.
(b) Any written notice or other document may be served by any shareholder upon the Company by tendering the same in person to the Secretary or the Chief Executive Officer of the Company at the principal office of the Company, by facsimile transmission, or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its Office.
(c) Any such notice or other document shall be deemed to have been served:
(i) in the case of mailing, forty-eight (48) hours after it has been posted, or when actually received by the addressee if sooner than forty-eight hours after it has been posted;
(ii) in the case of overnight air courier, on the next business day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three business days after it has been sent;
(iii) in the case of personal delivery, when actually tendered in person, to such addressee; or
(iv) in the case of facsimile, email or other electronic transmission, on the first business day (during normal business hours in place of addressee) on which the sender receives automatic electronic confirmation by the addressee’s facsimile machine that such notice was received by the addressee or delivery confirmation from the addressee’s email or other communication server.
(d) If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some other respect, to comply with the provisions of this Article 71.
(e) All notices to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Shareholders, and any notice so given shall be sufficient notice to the holders of such share.
(f) Any shareholder whose address is not described in the Register of Shareholders, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.
(g) Notwithstanding anything to the contrary contained herein, notice by the Company of a General Meeting, containing the information required by applicable law and these Articles to be set forth therein, which is published, within the time otherwise required for giving notice of such meeting, in the manner required by applicable law.
* * *
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Exhibit 10.2
Silynxcom Ltd
2022 Equity Reward Plan
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This plan, as periodically updated, shall be hence termed the 2022 Equity Reward Plan by Silynxcom Ltd. (the “Plan”).
The purpose of the Plan is to allocate to Silynxcom Ltd.’s (“the Company”) employees, officers, consultants and service providers, and affiliated companies (as defined below), restricted company shares and/or exercisable options for the company’s shares and/or any other equity reward, in order to provide them with an incentive to act for the Company’s success.
| 1. | Terms |
For all matters and purposes regarding the Plan and its associated documents, including the allocation agreements, the following terms shall apply:
| “Option” | An option to purchase one ordinary Company share, subject to the provisions of this Plan. |
| “Stock Exchange” | The Tel Aviv Stock Exchange Ltd., or any other stock exchange on which the Companies’ shares will be traded. |
| “Choice” | As defined in section 4.6 of the Plan. |
| “Controlling Owner” | As defined in section 32(9) of the Ordinance. |
| “Board of Directors” | The Company’s board of directors. |
| “The Rules” | As defined in section 2.5 of the Plan. |
| The “Committee” | A Reward Committee, to the extent that such is formed with members of the Board of Directors in accordance with the provisions of the Companies Law, which shall be granted powers given to the Board of Directors in accordance with this Plan (regardless of whether or not it is indicated next to each of the said powers whether the Committee may exercise them). |
| “The Company” | Silynxcom Ltd., a company incorporated under the laws of the State of Israel. |
| “Tax Authority Directives” | Professional circulars, taxation decisions, executive orders, reportable positions as well as any other directive of the Tax Authority, whether issued in writing or orally, which has an impact on section 102 and/or on the Rules and/or on the Plan and/or on a certain allocation. |
| “Allocation agreement” | An agreement or other document (whether written or electronic) between the Company and an offeree, which includes, stipulates and determines the conditions according to which a certain allocation is made to an offeree in accordance with the Plan and subject to its provisions. |
| “Allocation” | An allocation of options and/or restricted shares in accordance with the Plan, as well as any other capital-based allocation, as determined by the board of directors in accordance with the provisions of this Plan. Each allocation will be approved by means of an allocation agreement that shall provide its terms. |
| “Route 3(i) Allocation” | An option granted subject to the provisions of section 3(i) of the ordinance for persons who are not employees. |
| “Trustee Route Allocation” | An allocation to an employee granted subject to the provisions of section 102(b) (or section 102(b)(3)) of the Ordinance and held in escrow by a trustee for the employee. |
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| “Allocation route with no trustee” | An allocation to an employee that is granted subject to the provisions of section 102(c) of the Ordinance and is not held in escrow by a trustee for the employee. |
| “Capital Gain Route Allocation” | As defined in section 4.4 of the Plan. |
| “Employment Income Route Allocation” | As defined in section 4.5 of the Plan. |
| “Affiliated company” | Any employing company in accordance with the definition provided in section 102 of the Ordinance. |
| “Purchasing company” | A company surviving a transaction, including any entity that said company merges with or is acquired by or that purchases the company’s assets. |
| “Companies Law” | The Companies Law, 1999, as may be amended from time to time. |
| “Securities Law” | The Securities Law, 1968, as may be amended from time to time. |
| “Award date” | The date of awarding of the allocation, as determined by the board of directors and as stated in the allocation agreement with the offeree. |
| “Vesting date” | The date, as determined by the board of directors, as of which the offeree will be entitled to exercise the allocation or part thereof. With regards to the options – in any event, the vesting date of the first tranche of the options will not be earlier than one year from the date of the awarding, and the vesting date of all options will not be earlier than three years from the date of the awarding, unless otherwise determined by the board of directors. |
| “Date of termination of relationship” | The date of end of employee-employer relationship; The date of termination of services by the offeree to the Company or affiliated companies; or the date of termination of the offeree’s position as officer or director in the Company or affiliated companies, as the case may be. |
| “Expiration date” | The date on which the allocation expires, as stated in section 01 of the Plan. |
| “Exercise price” | The price to be paid by the offeree for each exercise share, subject to variations as detailed in section 9 below. |
| “Share” | An ordinary Company share of NIS 0.01 par value. |
| “Restricted share” | An allocated share subject to the terms of the Plan. |
| “Exercise share” | A share that is allocated by the Company to an offeree following the exercise of an option granted to the offeree, subject to the provisions of this Plan. |
| “Trustee” | A person appointed by the Company to serve as trustee and who is approved by the tax authorities, subject to the provisions of section 102(a) of the Ordinance, who may be replaced at any time by the Company (with no need for the offeree’s consent) subject to compliance with the requirements of section 102. The trustee will hold in escrow the “Trustee Route Allocation” awarded under this Plan and the shares, as applicable. |
| “Officer” | As defined in the Companies Law. |
| “Offeree” | A person to whom the company awards an allocation under the Plan. |
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| “Grounds” | When this term appears in quotation marks – any of the following: (a) Conviction of an flagrant offense or an offense that has a substantial impact on the Company or the affiliated companies; (b) Refusal of the offeree to comply with a reasonable instruction by his superiors, including the board of directors, the CEO and the offeree’s direct manager, with regards to the Company’s business or the business of affiliated companies, for which there was no legal impediment; (c) embezzlement of the Company’s or the affiliated companies’ funds (d) breach of fiduciary duty towards the Company or affiliated companies, including disclosure of confidential information regarding the Company or affiliated companies; (e) any act or omission (unless executed in good faith) which in the opinion of the board of directors is significantly harmful to the Company or affiliated companies. |
| “Section 102” | Section 102 of the Ordinance, as in force at present or as amended in the future, and all rules or regulations or ruling or other legislation pursuant to this section, including the Income Tax Rules (tax reliefs in the allocation of shares to employees), 2003. |
| “Employee” | A person employed by the Company or an affiliated company, including an officer or director, excluding a controlling owner. |
| “Transaction” |
Any of the following cases, whether such occurred as a single event or as a sequence of events that may be deemed as a single event in the Company:
(1) The sale, or transfer by any means, of all or most of the Company’s assets (in case of doubt, the Company’s board of directors will determine whether all or most of the company’s consolidated assets were sold);
(2) A transfer of control in the Company;
(3) A merger or similar transaction of the Company with or into another company (or other companies), resulting in the Company not surviving or in a change of control in the Company;
(4) Delisting of the Company’s shares from the stock exchange following a voluntary decision by the Company or following a full tender offer (provided that the Company’s shares were previously listed for trade on the stock exchange).
For the purposes of this term, “control” – shall be interpreted as defined in the Securities Law. |
| “Ordinance” | The Income Tax Ordinance [new version], 1961, as may be amended from time to time. |
| “Tax authorities” | The Israeli tax authorities. |
| “Non-employee” | A consultant, service provider, controlling owner or any other entity that is not an employee. |
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| “Market value” |
At any given time, the value of a share, which shall be determined as follows:
(1) In case the shares are listed on any stock exchange, the market value of the share shall be the share’s closing price (or the closing price offer if no sales have been reported) as reported on that stock exchange on the last trading day preceding the determining date.
(2) If the Company’s shares are not listed on a stock exchange, the market value will be determined in good faith by the board of directors.
(3) Without derogating from the foregoing, and solely for the purpose of determining the tax liability in accordance with section 102(b)(3) of the Ordinance, the share’s market value on the date of allocation shall be determined in accordance with the average value of the Company’s shares during the thirty (30) trading days preceding the date of allocation or the thirty (30) trading days following the date of listing, as applicable and in accordance with the provisions of section 102(b)(3) of the Ordinance. |
| “Blocking period” | As defined in section 5.1 of the Plan. For the avoidance of doubt, the blocking period is in addition to the vesting dates. The blocking period and the vesting period may coincide with each other, but they are not interchangeable. |
| 2. | Management of the Plan and the powers of the board of directors |
| 2.1. | This Plan shall be managed by the Company’s board of directors directly, or alternatively, by the committee, to the extent such is appointed, subject to any applicable law and to the provisions of the Company’s articles of association. Notwithstanding the above, the board of directors will have full authority regarding this Plan in the event that no committee is appointed or in the event that the committee ceases to exist for any reason or in the event that the law prohibits the committee from acting. |
| 2.2. | The board of directors will have sole authority and absolute discretion to decide as follows: (1) to determine who will be the offerees, or alternatively to appoint the committee; (2) to determine the terms of the allocation agreements, including the number of options and/or restricted shares offered to each offeree, the vesting dates, the method of exercising the allocation, the exercise price for the option and the purchase price for the restricted share (if determined); (3) to establish limitations regarding the transferability of the options or the exercise shares or the restricted shares as well as the conditions regarding the forfeiture and expropriation of the options and exercise shares or the restricted shares as well as to rescind and suspend the grants; (4) to determine the market value of the exercise shares; (5) to choose the taxation routes for a trustee route allocation; (6) to determine the type of allocation granted; (7) to change the limitations and conditions applicable to an allocation, including the exercise shares; (8) to interpret the terms of the Plan and supervise the management of the Plan; (9) to fully or partially expedite the vesting dates of the allocations granted to each offeree; (10) to suspend, terminate or cancel the Plan in whole or in part; to amend or change the Plan and its provisions; (11) to determine the manner of exercise of the options (such as Cashless/Net Exercise); (12) to determine the adjustment mechanisms in relation to the terms of the allocations, subject to the provisions of the law, the instructions of the Tax Authority and the obtainment of the required approvals from the Tax Authority (if required); (13) to determine, correct, change, adapt, complete and rescind the provisions and terms of the Plan and/or of a certain allocation agreement in accordance with the instructions of the Tax Authority (to the extent there are relevant instructions); (14) to have the granting of the allocations contingent on the provision of a power of attorney by the offeree with regards to the exercise of the voting rights in the restricted shares granted according to the Plan and/or in the exercise shares, including after the end of the blocking period; (15) to decide and determine any other matter necessary for the management of the Plan. |
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| 2.3. | The board of directors will have the authority to grant, at its discretion, to the offeree, in exchange for the rescission of the allocations granted to him, new allocations at an exercise price (or purchase price) that is the same, lower or higher than the exercise price (or purchase price) of the original allocations that were rescinded, subject to the obtainment of the required approvals by the tax authorities and provided that this does not constitute an infringement of the offeree’s rights. |
| 2.4. | The interpretation of any clause in the Plan or the allocation agreement by the board of directors will be final and absolute. |
| 2.5. | The Company does not guarantee that the Plan will be recognized by the tax authorities as such that grants the offerees the benefits stipulated in section 102 of the Ordinance. Should the provisions of Section 102 of the Ordinance and the Income Tax Rules (Tax Relief for Allocations of Shares to Employees), 2003 established pursuant thereto (the “Rules”) apply, the Plan and the allocation agreement will be subject to the terms of Section 102, the rules and the approval of the tax assessor, to the extent that such approval is granted. The provisions of Section 102 or the approval of the tax assessor as said, which are not explicitly specified in the Plan or in the allocation agreement, will be deemed applicable and binding on the Company and the offerees. |
| 2.6. | Unless explicitly stipulated otherwise in the allocation agreement, in any case of conflict between the provisions of the Plan and the allocation agreement, the provisions of the Plan shall prevail. Should the allocation agreement explicitly stipulate otherwise, the provisions of the agreement will prevail over the provisions of the Plan. |
| 3. | Determining the Plan participants |
| 3.1. | The persons or corporations eligible to participate in the Plan as offerees will include employees and non-employees (as this term is defined in section 1 above) of the Company or of affiliated companies, provided that: (1) the employees will be granted options and/or restricted shares solely in accordance with section 102; (2) non employees will be granted options and/or restricted shares solely in accordance with section 3(i). The qualification to participate in the Plan does not mean eligibility to participate in the Plan, and the board of directors (or the committee, to the extent such is appointed by the board of directors) has the absolute discretion to determine for each person qualified to participate in the Plan whether they will be granted an allocation or not. |
| 3.2. | The granting of an allocation to an offeree under this Plan does not entitle nor does it deny the offeree the right to participate in other allocations under the Plan or any other plan of the Company or affiliated companies. |
| 3.3. | Without derogating from the foregoing, any allocation to a controlling owner and officer shall be approved and implemented in accordance with the provisions of any law, as shall be in effect from time to time, including the Companies Law, the Securities Law and the regulations established pursuant thereto. |
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| 4. | Determining the type of allocation in accordance with section 102 |
| 4.1. | The company may determine the type of option to be granted to employees in accordance with section 102 as an “allocation in a route with no trustee” and an “allocation in a route with a trustee”. |
| 4.2. | The granting of an “allocation in a trustee route” under this Plan will be subject to the approval of the Plan by the board of directors and will be subject to the approval of the Plan by the tax authorities. The allocation may be executed after 30 days of the submission of the plan to the tax authorities as said. |
| 4.3. | An “allocation in a trustee route” may be classified as an “allocation in a capital gain route” or as an “allocation in a work income route”. |
| 4.4. | An “allocation in a trustee route” for which the Company has chosen and determined that the taxation route to be applied will be a capital gain route in accordance with section 102(b)(2) (or section 102(b)(3)) of the Ordinance, will be referred to below as an “allocation in a capital gain route”. |
| 4.5. | An “allocation in a trustee route” for which the company has chosen and determined that the taxation route to be applied will be a work income route in accordance with section 102(b)(1) of the Ordinance will be referred to below as an “allocation in a work income route”. |
| 4.6. | The Company’s choice regarding the type of “allocation in a trustee route” as an “allocation in a capital gain route” or as an “allocation in a work income route” (the “Choice”), will be submitted as required to the tax authorities before the date of granting of the “allocation in a trustee route”. The Choice will take effect as at the date of the first award and will remain in effect at least until the end of the year following the year in which the Company first awarded the “allocation in a trustee route”, or any other date as determined from time to time in accordance with the provisions of section 102. The Choice will oblige the Company to award solely the chosen type of “allocation in a trustee route” and will apply to all offerees awarded an “allocation in a trustee route” during the period as indicated above, in accordance with the provisions of section 102(g) of the Ordinance. For the avoidance of doubt, the Choice shall not prevent the Company from awarding an “allocation in a no trustee route” concurrently. |
| 4.7. | Each “allocation in a trustee route” will be held in escrow by a trustee, as described in section 5 below. |
| 4.8. | For the avoidance of doubt, the determination of the type of allocation as an “allocation in a trustee route” or an “allocation in a no trustee route” will be subject to the provisions of section 102 of the Ordinance. |
| 4.9. | In the case of an “allocation in a trustee route”, the terms of the Plan or the allocation agreement will be subject to the terms of section 102 of the Ordinance, the instructions of the Tax Authority and the approval of the tax assessor, and said conditions, instructions and approval will constitute an integral part of the Plan and the allocation agreement. Each of the stipulations of section 102 or the instructions or approval as said, which are necessary in order to obtain or maintain tax benefits under section 102, and which are not explicitly indicated in the Plan or the allocation agreement, will be considered as applicable and binding on the Company and the offerees. |
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| 5. | Trustee |
| 5.1. | An “allocation in a trustee route” and/or shares issued following the grant or exercise or vesting of an “allocation in a trustee route” and/or other shares or other rights granted by virtue of such, including bonus shares, will be allocated or issued in the name of the trustee for the benefit of the offeree and will be held by the trustee for at least the periods prescribed and required by section 102 or by any law or regulation or rule enacted thereto (the “blocking period”) and the same taxation route will apply to them. In the event that the conditions for granting an “allocation in a trustee route” are not met, the granted “allocation in a trustee route” may be considered an “allocation in a no trustee route”, or as a “route 3(i) allocation”, in accordance with the provisions of section 102. The Company may execute an allocation in a work income route or option 3(i) through a trustee and in such case, the provisions of this section 5 and the provisions of the Plan with regards to the trustee shall apply, with the required changes, with the exception of provisions relating to the blocking period. |
| 5.2. | The trustee will not transfer to the offeree the options and/or the restricted shares and/or the exercise shares and/or shares allocated by virtue of the exercise of rights, or to any third party to whom the offeree seeks to sell said shares before full payment of the tax liability pertaining to the grant and/or exercise and/or sale of said shares. |
| 5.3. | Regarding an “allocation in a trustee route”, subject to the provisions of section 102 of the Ordinance, the offeree will not sell or transfer from the trustee any options and/or restricted shares and/or exercise shares and/or shares that were allocated as a result of the exercise of rights, including bonus shares, until the expiration of the blocking period. To the extent that such a sale or transfer occurs during the blocking period contrary to the above, the sanctions provided by section 102 will apply to the offeree. | |
| Upon being awarded an “allocation in a trustee route”, the offeree shall sign an undertaking as required by the provisions of section 102. |
| 6. | Restricted shares |
| 6.1. | Restricted shares will be granted in accordance with the decision of the board of directors. The board of directors will determine the identity of the offerees to whom the restricted shares will be granted, the number of restricted shares to be granted and any other condition with regards to the allocation, including, among others, vesting conditions, purchase price (if determined, including in the amount of the face value) and the date of payment and the cases in which restricted shares will be returned to the Company or purchased by the Company shareholders (in cases where said return to the Company is not possible under the provisions of law). |
| 6.2. | Upon allocation, the restricted shares will be equal in rights to the Company shares for all intents and purposes, and they will be eligible for any dividend or other benefit, with the determining date for such right being on or after the day of allocation of the restricted shares, subject to the provisions of this Plan, the allocation agreement and the Company’s articles of association. |
| 6.3. | Should the company’s board of directors decide to allocate restricted shares to an offeree through a trustee, the restricted shares will be subject to the provisions of this Plan, with the required changes, including regarding the blocking period and to the provisions of section 102 with regards to an “allocation in a trustee route”. |
| 6.4. | At the date of the termination of the relationship, the offeree’s rights pertaining to the restricted shares that have not yet vested at that time will expire (unless otherwise stipulated in the allocation agreement) and the trustee will return the restricted shares that have not yet vested to the Company together with all rights derived by such (unless such shares are purchased as stated in section 6.1 above), subject to and in accordance with the provisions of the allocation agreement. Unless otherwise determined by the board of directors, such expiration shall not apply in the case of a transfer of the employment relationship or the provision of services or position as an officer or director of the offeree from the Company to affiliated companies and/or in the event of a change in the employment relationship or the provision of services from an employee to a service provider or vice versa. The allocation agreement approved under the Plan may include other additional conditions, subject to the discretion of the board of directors from time to time. |
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| 7. | Holding shares in the registered capital |
| 7.1. | The Company will keep a sufficient amount of shares in its registered capital for allocation in accordance with the Plan and in accordance with other reward plans as it chooses to implement in the future, subject to adjustments as a result of changes in the company’s capital, as stated in section 9 below. Said shares which will be registered but not issued and which are not subject to allocations at the time of termination of the Plan will no longer be retained for the purposes of the Plan, however, until the end of the plan and at any given time, the Company will retain a sufficient amount of shares in accordance with the requirements of the Plan. Should the allocation granted in accordance with the plan expire or be rescinded at a time prior to the date of vesting or exercise or should the offeree waive the allocation or the exercise of an allocated option as said, then the expired and/or rescinded allocation as said and the shares not yet allocated and/or purchased by virtue of the allocation will be at the disposal of the plan and may be used, including for the purpose of assigning them to other offerees. |
| 7.2. | The granting of an allocation to an offeree under this Plan, shall be done through a written allocation agreement between the Company and the offeree in a wording as approved by the board of directors from time to time. Each allocation agreement shall specify, among other things, the number of options and/or restricted shares, the type of allocation granted and the relevant tax route – “allocation in a capital gain route”, “allocation in a work income route”, “allocation in a no trustee route” or “route 3(i) allocation”, the vesting dates, the exercise price for the share subject of the option, the purchase price (to the extent applicable), the expiration date and other conditions as determined by the board of directors. |
| 8. | Option exercise price |
| 8.1. | The exercise price will be determined by the board of directors at its sole discretion in accordance with the provisions of the law. The exercise price for each offer will be specified in the allocation agreement to be signed between the offeree and the Company. |
| 8.2. | The exercise price will be paid at the date the option is exercised by a means as determined by the board of directors, including by cash or check. Subject to the instructions of the Tax Authority and the prior approval of the Tax Authority (to the extent required), the board of directors will have the authority to determine that the exercise price will be paid through a ‘same day sale’ mechanism through a broker provided that the company’s shares are listed on the stock exchange, as well as to defer the payment date under the conditions as determined by the board. |
| 8.3. | The exercise price, which will be determined by the board of directors, at its sole discretion and in accordance with the provisions of the law and the Plan, will be denominated in a currency as determined by the Company. |
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| 8.4. | Without derogating from the generality of the foregoing, subject to the instructions of the Tax Authority (and subject to the prior approval by the Tax Authority if required) and the payment of the applicable tax by the offeree, the reward committee or the board of directors will have the authority to allow or determine that the offerees may exercise the options, under the Plan, all or part thereof, through an option exercising mechanism based on the benefit component (Cashless Exercise / Net Exercise) according to which the offeree shall be entitled to receive shares that reflect the benefit component inherent in the exercised options according to the formula below (“the benefit component”), in exchange for the payment of the face value of the shares alone or without the payment of the face value as determined by the board of directors. For the avoidance of doubt, it is hereby clarified that according to this exercise method, the options may be exercised for the amount of shares that reflects only the benefit component. The offeree will not pay the exercise price, which is used solely for the purpose of calculating the benefit component. The number of shares that may be purchased by the offeree according to this mechanism in exchange for their face value will be determined in accordance with the instructions of the Tax Authority. |
| 8.5. | It is clarified that for the purpose of calculating the number of shares to be exercised under the “Cashless” mechanism, the Company’s board of directors may establish instructions and conditions regarding the implementation of the mechanism (including in the case of adjustments) in accordance with and subject to the provisions of section 102 and the instructions of the Tax Authority. |
| 8.6. | To the extent that under the allocation agreement, the offeree is not required to pay the nominal value of the exercise shares, the Company will convert the nominal value of the exercise shares into the share capital. |
| 8.7. | In the event that as a result of the above calculation, the Company will be required to allocate fractional shares, the Company will not allocate said fractional shares, and the number of shares allocated to the offeree will be rounded down for every fraction of a share lower than 0.5, and rounded up for every fraction of a share equal to or higher than 0.5. |
| 9. | Adjustments |
In each of the events mentioned below, the offeree’s right to exercise the options or receive the restricted shares granted to him under the Plan will be subject to the adjustments as detailed below:
| 9.1. | Transaction Adjustments |
| 9.1.1. | In any event of a transaction and/or other structural change in the Company, and subject to approvals as required by law, the instructions of the tax authority and the obtainment of all required approvals from the tax authority (to the extent required), the Company’s board of directors, subject to its sole discretion and without the need to obtain the consent of the offerees, may, but is not obliged to formulate instructions regarding one or more of the alternatives listed below: |
| 9.1.1.1. | If and how the vesting period of options and/or restricted shares that have not vested (all or part) shall be expedited; |
| 9.1.1.2. | If and how options and/or restricted shares whose vesting period will not be expedited, will be rescinded, sold, redeemed or converted into options and/or substitute shares, or will be exchanged for options and/or shares in the Company and/or another company, as the case may be, and to change the exercise price for that purpose to the extent required; |
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| 9.1.1.3. | If and how options and/or restricted shares that have vested (including options and/or restricted shares whose vesting period has been expedited as mentioned in section 9.1.1 above) will be rescinded, exercised, redeemed, substituted and/or sold by the trustee or the Company, for the offerees or by the offerees, as the case may be; |
| 9.1.1.4. | If and how restricted shares and/or exercise shares held for the offeree by the trustee will be substituted and/or sold and/or converted by the trustee for the offeree; |
| 9.1.1.5. | To formulate any instruction and perform any action and/or adjustment with regards to the options and/or the restricted shares and/or the exercise shares and their conditions, as may be required at the discretion of the Company’s board of directors. |
| 9.1.2. | The company will inform the offeree of the transaction in a manner and means as the Company deems appropriate at least fifteen (15) days prior to the transaction set date. |
| 9.2. | Adjustments due to changes in the issued share capital |
After the date of the board of directors’ decision on the allocation of options to the offerees, should there be a change in the Company’s issued share capital as a result of the actions of splitting of shares or consolidation or substitution of shares, or any other similar event, then the number of shares resulting from the exercise of each option will be proportionally adjusted in order to proportionally preserve the number of shares and/or the exercise price (or the purchase price) at an amount equal to the benefit component.
| 9.3. | Adjustments for the distribution of bonus shares |
| 9.3.1. | In the event that the Company distributes bonus shares whose distribution date is set after the date of the board of directors’ decision on the allocation of options to the offerees but before the exercise date and before the offeree’s right to exercise them expires, the number of options granted but not yet exercised will be adjusted, so that the number of shares to which the offeree is entitled upon exercise of the options will be increased by the number of shares that the offeree would have been entitled to as bonus shares if the options had been exercised before the set date of distribution of the bonus shares. |
| 9.3.2. | For the avoidance of doubt, it is clarified that bonus shares will be awarded to the offerees if they were allocated restricted shares before the date set for the distribution of the bonus shares or if they were allocated options that were exercised by them before the date set for the distribution of the bonus shares. The bonus shares will be awarded in addition to the restricted shares and/or exercise shares, as the case may be, and they will be of the same type of shares distributed as bonus shares to the shareholders of the exercise shares or the restricted shares, as fully repaid bonus shares. It is reiterated that other provisions in this Plan that refer to the exercise shares and/or the restricted shares will also apply to the bonus shares that will be added to the exercise shares as mentioned above, subject to the required changes. |
| 9.4. | Adjustments due to the issuance of rights |
In the case the Company issues rights to its shareholders, for which the determining date for their distribution is later than the date of the board of directors’ decision on the allocation of options to the offerees but before the exercise date, the number of options allocated but not yet converted to shares will be adjusted, so that the number of exercise shares granted by these options will be increased or decreased in accordance with the benefit component in the issuance of the rights (and in case the company’s shares are listed on the stock exchange - as it is expressed in the ratio between the closing price of the share on the stock exchange on the last trading day before the “ex” day for the issuance of the rights and the base price of the share “ex-rights”, or alternatively, the supplement exercise specified in the option will be reduced by the amount of the bonus per distributed share, at the discretion of the board of directors).
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| 9.5. | Adjustments due to distribution of dividend |
In the case of a dividend distribution in cash or in kind by the Company to all of its shareholders and where the determining date for the right to receive such dividend (“the determining date”) shall be later than the date of the board of directors’ decision on the allocation of options to the offerees, but before their exercise date, the exercise price of each unexercised option per Company share before the determining date will be reduced by the amount of the gross dividend per share distributed by the Company (or the value of the dividend per share in the case of distribution in kind).
| 9.6. | For the avoidance of doubt, in any case of adjustments in accordance with this section, the offerees will not be entitled to receive parts of one whole share and the number of shares that will be allocated to each offeree will be rounded up to the nearest whole number, and the provisions of the reward plan will apply to this case. |
| 9.7. | Without derogating from the terms of the Plan, it is hereby clarified to any offeree that the provisions of this section 9 are subject to the instructions of the Tax Authority and to the obtainment of a prior approval of the Tax Authority (to the extent required) as well as to the instructions of the stock exchange on which the Company’s shares will be traded, as determined from time to time. In addition, in the event that the company’s shares are listed on the Tel Aviv Stock Exchange, then in accordance with the instructions of the Tel Aviv Stock Exchange, there will be no conversion of options on the determining date of the distribution of bonus shares, to be offered as rights, as distribution of dividends, as capital consolidation, as capital split or as capital reduction (each of the above shall be referred to below as: a “Company Event”). In addition, it is hereby clarified that should the ex-date of a company event occur before the determining date of the company event, the option deeds will not be converted on the aforementioned ex-date. |
| 9.8. | The offeree alone shall bear all tax liabilities that may apply as a result of adjustments in accordance with this section. |
| 10. | Option terms, vesting and exercise |
| 10.1. | Should an offeree seek to exercise his options, he will provide a written notice regarding this matter to the Company or its representative, in the form and manner as determined by the company and, if necessary, by the trustee in accordance with the provisions of section 102. Such exercise will be effective upon receipt of the notice of exercise at the Company or its representative and the payment of the exercise price, if required, at the Company’s offices or to a Company representative. In the notice, the offeree shall specify the number of shares pertaining to the option that the offeree wishes to exercise, the allocation by virtue of which he received the options, and the relevant tranche that has vested for the exercise of the options. The notice will be attached with all other documents that the offeree must sign as a prerequisite for exercising the option, as detailed in the Plan and the option agreement and in accordance with the decision of the board of directors. The board of directors will be entitled to introduce changes in the procedures and the method of exercise at any time, according to its discretion, among other things, for the purpose of improving and streamlining the exercise procedures and to adapt them to the changes in accordance with the applicable law and the Company’s experience. The Company will notify the offerees of the aforementioned changes and of the new procedures that will apply, as far as the aforementioned is relevant to them. For the avoidance of doubt, it is clarified that, to the extent required, any change and/or adjustment will be made in collaboration and coordination with the trustee and subject to the provisions of section 102. |
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| 10.2. | The option will expire if not exercised as a share earlier, on the earliest of: (1) the expiration date as stated in the option agreement; (2) the end of the period in the cases indicated in this section 10 above and below. |
| 10.3. | In the event of liquidation, foreclosure or bankruptcy of the Company, options that have not yet reached their vesting date or have not yet been exercised under the Plan will expire immediately before the liquidation or foreclosure of the Company is completed. Should it be decided on the voluntary dissolution of the Company while there are options that have not yet reached their vesting date or have not yet been exercised under the Plan, the Company will give notice to all option holders regarding the adoption of the aforementioned decision in a manner and form as the Company shall deem appropriate, and each option holder will have ten (10) days to exercise the options that have not yet been exercised as shares and whose vesting date has passed, in accordance with the exercise procedure set forth below. At the end of said ten days, all options that have not yet been exercised as shares shall expire immediately. |
| 10.4. | The option may be exercised by the offeree in full at any time or in parts if possible, from time to time, as long as the option’s vesting date has passed, and before the expiration date has passed, and provided that, subject to the provisions of section 10.5 below, at the time of such exercise, the offeree is employed by the Company or an affiliated company, or provides services to any of them or serves as an officer or director in any of them, or alternatively, a period of up to 90 days has not yet passed after the date of termination of the relationship as specified in section 10.5 and 10.6 below, unless otherwise stipulated in the agreement signed with the offeree and subject to the provisions of the law (and in the case that the company’s shares are listed on the stock exchange - including restrictions that apply to trading of securities as required by the Company, the underwriters or the provisions of any law, and which will apply to the other Company shareholders). |
| 10.5. | On the date of termination of the relationship, the options and/or restricted shares, which were granted to the offeree and have not yet reached their vesting date, will expire immediately, unless otherwise stipulated in the allocation agreement. Unless otherwise determined by the board of directors, such expiration shall not apply in the case of transfer of the employment relationship or the provision of services or position as an officer or director of the offeree from the Company to an affiliated company and/or in the event of a change of the employment relationship or the provision of services from an employee to a service provider or vice versa. The company may stipulate in the offeree’s allocation agreement that options and/or restricted shares that have vested but not been exercised will also expire, in certain cases to be determined, at the date of termination of the relationship or within a determined period of time after the date of termination of the relationship. |
| 10.6. | Unless otherwise stipulated in the offeree’s allocation agreement, the offeree will be entitled to exercise options granted to him by virtue of the Plan at a later date than the date of termination of the relationship within an additional period after the date of termination of the relationship, but only with respect to options whose vesting date has reached before the date of termination of the relationship, in accordance with the vesting periods of the option, and in accordance with the cases listed below: |
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| 10.6.1. | In any case of termination of the relationship without “grounds”, the offeree will have the right to exercise the options that he was entitled to exercise by virtue of the option agreement in accordance with the vesting dates and provided that they have not yet expired, for a period of ninety (90) days after the date of termination of the relationship (or a different period as stipulated in the allocation agreement). |
| 10.6.2. | In the event of termination of the relationship due to the death or disability of the offeree, the offeree or his legal heirs will have the right to exercise the options that the offeree was entitled to exercise by virtue of the option agreement up to the date of termination of said relationship, in accordance with the vesting dates and provided that they have not yet expired as stated above, for a period of twelve (12) months from the date of termination of the relationship. |
| 10.6.3. | In the event that the board of directors has approved this prior to the date of termination of the relationship, the offeree will have the right to exercise the options that have not yet been exercised by him after the date of termination of the relationship, for a period that does not exceed the original period set for the exercise of the option. |
For the avoidance of doubt, in the event that the termination of the relationship is due to “grounds”, then all options that have not yet been exercised will expire for all intents and purposes (regardless of whether the offeree was entitled to exercise part of the options at the time of the termination of the relationship), and the offeree will have no rights with regards to the options.
| 10.7. | Unless otherwise determined by the board of directors, the vesting of allocations granted under this Plan will be suspended and will not continue during any type of unpaid leave (for the duration of the unpaid leave), however, such unpaid leave shall not, in itself, be deemed as a termination date for the purposes of this section 10. |
| 10.8. | For the avoidance of doubt, the offeree will have no rights with regards to the options that have expired. |
| 10.9. | For the avoidance of doubt, the offerees will not have the rights granted to company shareholders, with regards to the options, and the offerees who received such options will not be considered as class shareholders or company creditors for the purposes of Articles 350 and 351 of the Companies Law, up to the date of the allocation of the shares by virtue of the options. |
| 10.10. | The allocation agreement approved under the Plan may constitute other additional provisions, subject to the discretion of the board of directors from time to time. |
| 10.11. | Regarding an “allocation in a non-trustee route” and/or in accordance with the provisions of the tax route under section 3(i), upon termination of the relationship between the Company or affiliated companies and the offeree or as per the Company’s request, the offeree will provide a guarantee or security for the employer and any other security as required by law, to ensure the payment of the tax applicable on the date of vesting and/or exercise of the options and/or the sale of the restricted shares or exercise shares, in accordance with the provisions of section 102 of the Ordinance. |
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| 11. | Dividend |
All shares (including restricted shares and exercise shares, and excluding for the avoidance of doubt, options that have not yet been converted or exercised into shares) allocated to the offerees or the trustee, as the case may be, will entitle their owners to receive a dividend according to the number of shares, subject to the provisions of the Company’s articles of association and subject to taxation applicable to the distribution of dividends as said, and as per the matter subject to section 102 of the Ordinance and the rules, regulations, injunctions and procedures by virtue thereof. The trustee and/or the Company will be entitled to withhold tax in accordance with law before transferring the dividend to the offeree in accordance with the instructions of the tax authority.
For the avoidance of doubt, it is clarified that in the event of distribution of a dividend in cash or in kind, by the Company to all its shareholders and the determining date for the right to receive such dividend (the “determining date”) shall occur after the allocation of the limited shares, then the said dividend shall be transferred to the trustee who will then transfer it to the offeree (subject to withholding tax in accordance with the Plan’s provisions), however, to the extent that at that time the restricted shares have not yet vested, the dividend for such shares will be transferred to the offeree shortly after their vesting date. [To be verified with the trustee]
| 12. | Transferability |
Unless the Company approves otherwise in writing, the options or the offeree’s rights with regards to the options, and/or the restricted shares – solely during the period prior to their vesting, whether payment is made for them (to the extent required) or not, are not transferable, assignable, nor may be guaranteed, and any rights pertaining to such may not be transferred to any third party, except in accordance with the laws of inheritance or wills and except as stated expressly in accordance with the Plan, and while the offeree is alive, all rights of the offeree to purchase shares under the Plan may be exercised solely by the offeree. Any such action, whether direct or indirect, whether effective immediately or in the future, will be null and void.
Unless the company approves otherwise in writing, as long as allocations in a trustee route (options or restricted shares) and/or exercise shares are held by the trustee for the offeree, then all rights of the offeree with regards to such allocations and/or said exercise shares are personal and non-transferable, and may not be assigned, pledged, seized or otherwise encumbered, subject to the provisions of section 102, with the exception of a transfer by virtue of a will or the laws of inheritance and subject to the payment of all mandatory payments required in such cases. To the extent that the allocations and/or the shares subject of this section are transferred by virtue of a will or inheritance laws as said, the provisions of section 102 and section 3(i), as the case may be, will continue to apply to the heirs and transferees respectfully.
| 13. | Term of the Plan |
The Plan shall be in effect as at the date of its adoption by the Company’s board of directors and will expire at the end of ten (10) years from the date of adoption.
| 14. | The period of holding the shares in escrow |
The restricted shares or exercise shares and the rights arising therefrom which are assigned by the Company to the offerees through a trustee, will be held by the trustee for the offeree for a period not exceeding 10 years from the date of vesting of the options and/or restricted shares. The board of directors will instruct the trustee as to the manner of transferring the restricted shares, exercise shares and the aforementioned rights. In addition, in accordance with and subject to the provisions of the Plan, at the end of this period the trustee will have the right to transfer the aforementioned shares and rights to the offeree, with the exception of some of the shares that the trustee may sell at his discretion as required for the purpose payment of taxes, unless the offeree will bear the payment of the entire tax.
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| 15. | Changes or termination of the Plan |
The board of directors may at any time, amend, change, suspend or terminate the Plan. Such amendment, change, suspension or termination shall not materially detract from the rights of any offeree who has already been assigned options and/or restricted shares under the Plan, unless mutual agreement has been reached between the offeree and the Company in writing and signed by the offeree and the Company. The termination of the Plan will not affect the rights of the board of directors to exercise the powers granted to it by virtue of the Plan, regarding options granted under the Plan before the date of termination of the Plan.
| 16. | The applicable rules |
The Plan, the granting and exercise of options and/or restricted shares, and the Company’s undertaking to transfer shares exercised by virtue of options, will be subject to all the applicable laws, regulations and rules, either of the State of Israel or any other country that has jurisdiction over the Company and the offeree, as the case may be, including the registration of shares in accordance with the Ordinance and the obtainment of approvals by government agencies or stock exchanges, as may be required. The above does not require the Company to register its shares under the securities laws of any judicial authority.
| 17. | Continued employment and one-time benefit |
| 17.1. | Any provision in this Plan and in the allocation agreement with the offeree may not be construed as a undertaking or as an agreement on the part of the Company or an affiliated company to continue to employ the offeree, nor shall any provision in the agreement or Plan be construed as providing the offeree with any right to continue to be employed by or to provide services to the Company or affiliated companies, or as limiting the Company’s or an affiliated company’s right to terminate any offeree’s employment at any time. |
| 17.2. | The allocation is a special and one-time benefit that may not be deemed as part of the offeree’s salary in any way, including for the purpose of calculating social benefits and severance pay. |
| 18. | Applicable law and jurisdiction |
The Plan will be administered, interpreted and enforced solely in accordance with the laws of the State of Israel, with no regard to choice of law principles. The exclusive jurisdiction under this Plan shall be of the competent courts in Tel Aviv-Jaffa, Israel.
| 19. | Taxation and other arrangements relating to the transfer of the shares to the offeree |
| 19.1. | All tax liabilities in accordance with any law incurred as a result of the grant, vesting, exercise, possession, transfer, sale (including relinquishment) of allocations under the Plan and/or of the exercise shares (or of any other security granted under the Plan) by or for the offeree, or by any other action and/or act and/or omission of the Company and/or an affiliated company and/or the trustee and/or the offeree with regards to the allocations and/or the restricted shares and/or the exercise shares, will apply solely to the offeree and will be paid by the offeree. Without derogating from the generality of the foregoing, the Company and/or affiliated companies and/or the trustee will deduct all the taxes they are required to deduct in accordance with any law, regulations and rules, including withholding tax. |
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The offeree agrees to indemnify the Company and/or affiliated companies and/or the trustee and to hold them harmless of any liability pertaining to the deduction and payment of said taxes, interest and fines and any other payment, including liabilities incurred by the requirement to deduct tax or the failure to deduct tax from any payment transferred to the offeree.
| 19.2. | The Company or the trustee, as the case may be, shall not transfer the share to the offeree until all mandatory payments as mentioned above have been paid in full. |
| 19.3. | In the event of the offeree’s death, this section will apply to the offeree’s legal heirs, with the required changes. |
| 19.4. | It is hereby clarified that the Company does not guarantee that the granting of options and/or restricted shares under this Plan, including granting in accordance with section 102, will indeed comply with the provisions of section 102 and/or the provisions of the tax route chosen by the Company. It is further clarified that any granting under section 102 which does not meet the conditions of the provisions of section 102 and the rules, will be deemed as subject to a grant under section 3(i) or section 102(c), as the case may be. |
| 19.5. | Whenever the offeree and/or the Company and/or an affiliated company and/or the trustee are required to make a payment (including by means of withholding tax) regarding the options and/or restricted shares granted to the offeree and/or the exercise shares, the Company and/or affiliated company and/or the trustee shall be entitled to withhold tax as well as demand from the offeree in advance an amount sufficient (as determined by the Company or the trustee) to cover any withholding tax requirement as said and in the event that the options and/or shares or any other asset that is not monetary is transferred following vesting and/or the exercise of allocations, the Company and/or affiliated company and/or the trustee will have the right to deduct withholding tax for such transfer as well as the right to demand in advance from the offeree to transfer a sum of money sufficient to meet the withholding tax requirement in full, and should this sum not be transferred in a timely manner, the Company and/or the affiliated company and/or the trustee shall have the right to hold and/or withhold and/or set off the options and/or the restricted shares and/or the exercise shares or any such asset, in whole or in part, as well as hold and/or withhold the sale proceeds until the transfer of said payment by the offeree and/or deduct the said withholding tax and/or deduct its sum from the sale proceeds. |
| 19.6. | Before the applicable tax has been paid as stated in section 7 of the rules and/or the provisions of the Ordinance, or before their payment has been guaranteed, the options and/or the restricted shares and/or the exercise shares will not be transferable, or subject to any lien, pledge, seizure or other voluntary encumbrance, no undertaking will be provided for such action nor any power of attorney or deed of transfer, whether they take effect immediately or whether they take effect at a future date, with the exception of transfer by virtue of a will or by law. |
| 19.7. | With regard to allocations in accordance with section 102, the provisions of the Plan and the allocation agreements shall be applied and interpreted subject to the requirements and instructions of section 102, the instructions of the Tax Authority and the tax appraiser’s approval of the Plan as required by section 102 as well as any taxation decision in the agreement (the |
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“Ruling”) to the extent that such is issued with regards to this Plan. Any instruction and/or provision pursuant to Section 102, the rules and instructions of the Tax Authority which are to be complied with in order to obtain/maintain eligibility for the tax benefits granted under Section 102 and which are not expressly stated in the Plan and/or the allocation agreement, will be deemed as included in the Plan and/or the allocation agreement (as the case may be) and will be binding on the Company and the offeree. To the extent that any of the provisions of the Plan and/or the allocation agreement will result in the Plan and/or the allocation agreement being ineligible for the tax benefits granted under section 102, thus said provisions will not apply to allocations through a trustee and the shares they provide, unless the Tax Authority instructs otherwise.
| 20. | Instructions regarding the expedition of vesting periods of allocations |
| 20.1. | Subject to approvals as required by law, the board of directors may decide, at its sole discretion (including in the event of a change in control of the Company as defined therein), to expedite the vesting period of allocations that have not yet vested, all or in part, with regards to all or part of the offerees and subject to provisions of the law. |
| 20.2. | In addition to the blocking period as required by section 102, at the request of the underwriters upon a public offering of securities by the Company, the board of directors may decide that the options and/or restricted shares and/or exercise shares will be subject to a lock-up period of up to 180 days, or a longer period as recommended by the board of directors, during which all or some of the offerees will be prohibited from selling said shares. |
| 21. | Non-exclusivity of the Plan |
The adoption of the plan by the board of directors shall not be construed as amending, modifying or rescinding any previously approved incentive plans or as limiting the authority of the board of directors to adopt other incentive plans as it deems appropriate, including the granting of options and/or additional restricted shares not pursuant to the Plan, and such plans may apply generally or in specific cases.
| 22. | Multiple agreements |
The terms of each option and/or restricted share may differ from other options and/or restricted shares, respectively, granted under the Plan concurrently. The board of directors may grant more than one grant to any offeree during the Plan’s term, either in addition to or as a substitute to one or more option granted to that offeree.
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Exhibit 10.3
THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM.
SILYNXCOM LTD.
SAFE
(Simple Agreement for Future Equity)
THIS CERTIFIES THAT on the parties hereto agree that, in exchange for the payment by, Israeli I.D Number (the “Investor”) of NIS ____________________________ (the “Purchase Amount”) which shall be wired within three (3) business days following the execution of this SAFE (the date of wire of the Purchase Amount, the “Effective Date”), Silynxcom Ltd., an Israeli company, company registration number 516454154 (the “Company”), hereby issues to the Investor the right to certain shares of the Company’s share capital, subject to the terms set forth below.
This SAFE is entered by and between the Company and the Investor as part of execution by the Company of a series of related forms of SAFEs (the “Additional SAFEs”) having substantially the same terms, by and between the Company and additional investors (the “Additional Investors”) for an aggregate Purchase Amount of up to NIS 1,000,000 (including the Purchase Amount under this SAFE). Determination in writing of the Company and the investors who have invested at least majority of the aggregate purchase amount invested under this SAFE and all Additional SAFEs (the “Majority Investors”) to amend all SAFEs shall bind the Company, the Investor and all Additional Investors, and shall be deemed an amendment of this SAFE, provided that all forms of Additional SAFEs shall be amended in the same manner.
The “Discount Rate” is (i) 67% (i.e., 33% discount) with respect to an IPO or Liquidity Event, or (ii) 70% (i.e., 30% discount) with respect to any Equity Financing.
See Section 2 for certain additional defined terms.
1. Events
(a) IPO. If there is an IPO before the expiration or termination of this instrument, the Company will automatically issue to the Investor, immediately prior to and conditional upon the closing of the IPO, a number of Ordinary Shares, equal to the Purchase Amount divided by the applicable Conversion Price.
In connection with the issuance of Ordinary Shares by the Company to the Investor pursuant to this Section
1(a), in the IPO, the Investor will execute and deliver to the Company, as a condition precedent for the issuance of any shares, all transaction documents, undertakings and lock up agreements related to the IPO.
(b) Equity Financing. If there is an Equity Financing before the expiration or termination of this instrument, the Company will automatically issue to the Investor, immediately prior to and conditional upon the closing of the Equity Financing, a number of Safe Shares equal to the Purchase Amount divided by the applicable Conversion Price.
In connection with the issuance of Safe Shares by the Company to the Investor pursuant to this Section 1(b), in the Equity Financing, the Investor will execute and deliver to the Company, as a condition precedent for the issuance of any shares, all transaction documents related to the Equity Financing.
(c) Liquidity Event. If there is a Liquidity Event before the expiration or termination of this instrument, the Company will automatically issue to the Investor, immediately prior to and conditional upon the closing of the Liquidity Event, a number of shares of the most senior class of shares then issued and outstanding in the Company, equal to the Purchase Amount divided by the applicable Liquidity Price.
(d) Dissolution Event. If there is a Dissolution Event before this instrument expires or terminates, the Company will pay an amount equal to the Purchase Amount, due and payable to the Investor immediately upon the consummation of the Dissolution Event.
(f) Termination. This instrument will expire and terminate (without relieving the Company of any obligations arising from a prior breach of or non-compliance with this instrument) upon either (i) the issuance of shares to the Investor pursuant to Section 1(a), Section 1(b), or Section 1(c); or (ii) the payment, or setting aside for payment, of amounts due the Investor pursuant to Section 1(d).
2. Definitions
“Share Capital” means the share capital of the Company, including, without limitation, the “Ordinary Shares” and the “Preferred Shares” of the Company.
“Change of Control” means (i) any reorganization, merger or consolidation of the Company, other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving, acquiring or resulting entity or (ii) a sale, lease or other disposition of all or substantially all of the assets or issued and outstanding shares of the Company, including through the grant of an irrevocable, perpetual, worldwide and exclusive license to all or substantially all intellectual property assets.
“Conversion Price” means the applicable Discount Price.
“Discount Price” means (i) with respect to an IPO – the price per share of the Ordinary Shares sold in the IPO multiplied by the applicable Discount Rate, or (ii) with respect to an Equity Financing – the price per share of the Standard Share sold in the Equity Financing multiplied by the applicable Discount Rate.
“Dissolution Event” means (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary.
“Equity Financing” means a bona fide transaction with the principal purpose of raising capital, pursuant to which the Company issues and sells shares in consideration for investment in an aggregate amount of at least NIS 10,000,000 in one or more related closings (unless such condition has been waived by the Investor).
“IPO” means the closing of the Company’s first firm commitment underwritten initial public offering of Ordinary Share pursuant to (i) a registration statement filed under the Securities Act, (ii) the Israeli Securities Law – 1968 or (iii) any other applicable securities laws.
“Liquidity Event” means a Change of Control.
“Liquidity Price” means the price per share payable for Company's issued shares in the Liquidity Event, multiplied by 30%.
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“Safe” means an instrument containing a future right to shares of Share Capital, purchased by investors for the purpose of funding the Company’s business operations.
“Safe Shares” means the shares issued to the investor(s) in an Equity Financing, having the same rights, privileges, preferences and restrictions as the Standard Shares, under the same terms as if the Investor had participated in the Equity Financing as an investor, but at an original issue price per share equal to the actual Conversion Price.
“Standard Shares” means the shares issued to the investors investing new money in the Company in connection with an Equity Financing.
3. Company Representations
(a) The Company is a corporation duly organized and validly existing under the laws of the state of Israel, and has the power and authority to own, lease and operate its properties and carry on its business as now conducted. As of the date hereof, the Company does not have any material monetary liability or obligation, absolute or contingent, except for monetary obligations and liabilities incurred in the ordinary course of business since its incorporation and until the date hereof.
(b) The execution, delivery and performance by the Company of this instrument is within the power of the Company and, other than with respect to the actions to be taken when equity is to be issued to the Investor, has been duly authorized by all necessary actions on the part of the Company. This instrument constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity. To the knowledge of the Company, it is not in violation of (i) its current Articles of Association, (ii) any material statute, rule or regulation applicable to the Company.
(d) No consents or approvals are required in connection with the performance of this instrument, other than: (i) any qualifications or filings under applicable securities laws, if any.
(e) To its knowledge, the Company owns or possesses (or can obtain on commercially reasonable terms) reasonably sufficient legal rights to patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights necessary for its business. As of the date hereof, the Company has not received, or is aware of, any written notice alleging that the Company has violated any patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of other persons or entities.
(f) As of the date hereof, there is no action, suit, proceeding or investigation pending or, to Company's actual knowledge, currently threatened against the Company that questions the validity of this agreement, or the right of the Company to enter into this agreement, or to consummate the transactions contemplated hereby, or that might result, either individually or in the aggregate, in any adverse changes in the assets, condition or business of the Company, financially or otherwise, or any change in the current equity ownership of the Company.
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4. Investor Representations
(a) The Investor has full legal capacity, power and authority to execute and deliver this instrument and to perform its obligations hereunder. This instrument constitutes valid and binding obligation of the Investor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.
(b) The Investor is a "classified investor" within the meaning set forth in the First Addendum of the Israeli Securities Law, 5728-1968 and at the Company's request, will provide evidence for such as detailed in guidance published by the Israel Securities Authority. The Investor is aware of the consequences of being identified as a "classified investor" and agrees to any and all such consequences.
5. Most Favorite Nation
If the Company issues any subsequent convertible loans, SAFEs or other convertible instruments which include favorable conversion terms to the investor prior to the termination of this instrument, the Company will provide the Investor with written notice thereof, together with a copy of the agreement evidencing such subsequent convertible loans, SAFEs or other convertible instruments. Upon written request from the Investor, the Company shall amend and restate this instrument to include the Favorable Conversion Terms provided that the Investor may only elect to receive all the terms set forth in the subsequent convertible loans, SAFEs or other convertible instruments which include Favorable Conversion Terms as a whole, but not part of them.
6. Miscellaneous
(a) Any provision of this instrument may be amended, waived or modified only upon the written consent of the Company and the Investor, or by Majority Investors (as set forth above).
(b) Any notice required or permitted by this instrument will be deemed sufficient when delivered personally or by overnight courier or sent by email to the relevant address listed on the signature page, or 48 hours after being couriered to the party to be notified at such party’s address listed on the signature page, as subsequently modified by written notice.
(c) The Investor is not entitled, as a holder of this instrument, to vote or receive dividends or be deemed the holder of Share Capital for any purpose, nor will anything contained herein be construed to confer on the Investor, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive subscription rights or otherwise until shares have been issued upon the terms described herein.
(d) Neither this instrument nor the rights contained herein may be assigned, by operation of law or otherwise, by either party, other than to a Permitted Transferee (mutatis mutandis with the definition set forth in the Company’s articles of association), without the prior written consent of the other. This Simple Agreement for Future Equity shall be binding upon and inure to the benefit of and be enforceable by the Investor and the Company and their respective successors and assigns.
(e) In the event any one or more of the provisions of this instrument is for any reason held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this instrument operate or would prospectively operate to invalidate this instrument, then and in any such event, such provision(s) only will be deemed null and void and will not affect any other provision of this instrument and the remaining provisions of this instrument will remain operative and in full force and effect and will not be affected, prejudiced, or disturbed thereby.
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(f) Upon conversion or repayment in full of the Purchase Amount, in accordance with the terms set forth above, any obligations of the Company towards the Investor hereunder shall be deemed satisfied in full.
(g) No fractional shares shall be issued to any Investor. The number of shares to be issued to each Investor shall be rounded to the nearest whole number.
(h) The Investor shall bear and be responsible to pay in cash (to the Company or the relevant tax authorities, as applicable) all taxes attributable to it, if any, in connection with or resulting from the transactions contemplated under this Agreement, including with respect to any repayment or conversion hereunder and the Company’s obligation to issue any shares or make any payment hereunder shall be conditioned on its compliance with applicable tax withholding requirements.
(i) All rights and obligations hereunder will be governed by the laws of the State of Israel, without regard to the conflicts of law provisions of such jurisdiction and the competent courts of Tel-Aviv-Jaffa, Israel, will have exclusive jurisdiction with respect to any dispute arising hereunder.
(Signature page follows)
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IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed and delivered.
| SILYNXCOM LTD. | ||
| By: | /s/ Nir Klein | |
| Nir Klein, CEO | ||
| s: 19 Yad Haruzim St. Netanya, Israel | ||
| Email: | kleinnir@s-o-s.co.il | |
| INVESTOR: | ||
| By: | ||
| Name: | ||
| Title: | ||
| Address: | ||
| Email: | ||
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Exhibit 10.5
Investment and Collaboration in Public Offering Agreement
Signed and executed on December 29, 2021
| BY AND BETWEEN: | Silynxcom Ltd. | |
| Company no. 516454154 | ||
| 19 Yad Haruzim Netanya | ||
| (Hereinafter referred to as the “Company”) | ||
| ON THE FIRST PART; | ||
| AND BETWEEN: | Ofer Amir, ID 59789479. | |
| Shlomi Amsalem, ID 043055482 | ||
| (Hereinafter, jointly and severally, the “Investors”) | ||
| ON THE SECOND PART. |
(Each of the Company and Investors will be referred to herein as a “Party”; and together: the “Parties”)
| WHEREAS | the Company is a private company dealing in development, manufacturing and distribution of headsets and auxiliary peripheral equipment for communication devices as specified in Section 3.12 herein (the “Activity”); AND |
| WHEREAS | the Parties would like the Investors to invest in the Company in return to Ordinary Shares of the Company (as defined below) according to the terms and conditions herein; at the same time, the Parties would like to use their best efforts to the extent possible and to act diligently and with full collaboration in order to offer the Company shares to the public under an R&D track or any other track in the Tel Aviv Stock Exchange or according to the Company resolution, another stock exchange - all according to the terms and conditions herein; AND |
| WHEREAS | the Parties wish to determine and define the scheme of legal relationship among them in the provisions of this agreement below. |
NOW THEREFORE, the Parties hereby declare, covenant and agree as follows:
1. Preamble
1.1 The Preamble and Schedules attached to this agreement constitute integral parts thereof. It is hereby clarified that the Schedules will be attached to this agreement no later than 7 days following its execution.
1.2 Dividing this agreement into sections and subsections and the headers herein are meant for convenience only; they have, and will be ascribed, no weight, not even for its interpretation.
1.3 No modification, addendum or reduction from this agreement following its execution will be effective unless made in writing and executed by all Parties.
1.4 Unless indicated otherwise herein, no provisions in this agreement and its Schedules is meant to derogate from any other provision or condition in this agreement, but to supplement it.
1.5 Any provision and/or expression using the singular form shall also mean the plural, and vice versa, any provision and/or expression using the feminine form shall also mean the masculine, and vice versa, and reference to an individual shall also mean a corporation, and vice versa.
2. Purposes of the Agreement
| 2.1 | The purposes of this agreement are to regulate the investment in the Company of the Investors and Additional Investors (as defined below) and the process of Company shares issuance and listing in TASE, among else, to determine the conditions for allotting shares to the Investors subject to making the investment. |
| 2.2 | On the earlier of: (a) one moment before completing Capital Raising from the Public (as defined below), or (b) on the Termination Date (as defined below), subject to the provisions of this agreement and based on the Company representations, the Company will allot to the Investors and Additional Investors the Issued Shares (as defined below), clean and free (for the avoidance of doubt, without their allotment entitling any entity to preemptive rights, refusal rights, first offer rights, tag-along rights, drag-along rights, lock-up, anti-dilution protection, or any similar right of any kind whatsoever), fully paid, all in consideration to the investment, as set forth herein. |
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3. Representations and Warranties of the Company
The Company hereby represents, acknowledges and warrants that as of the execution of this agreement and the earlier of: The Termination Date or Capital Raising from the Public date (mutatis mutandis):
| 3.1 | The Company is a private company as such term is used in the Companies Law, limited in shares, registered in Israel. |
| 3.2 | The Company has first- and second-tier subsidiaries (the “Group of Companies”) as set forth in the chart attached hereto as Schedule 3.2, during 2021 the Company has reorganized the Group of Companies structure. |
| 3.3 | The Company was duly incorporated and registered by the laws of the State of Israel, its number in the books of the Registrar of Companies is 516454154, it has submitted annual reports to the Registrar of Companies as required and complied with all its duties pursuant to the Companies Law and Regulations. In addition, the Company’s registration is of full effect on the execution of this agreement and the details of its registration with the Registrar of Companies are fully current and true. |
| 3.4 | The Company is qualified to conduct its business in its current conduct and to execute this agreement and perform all actions required by it and/or pursuant to it. Attached hereto as Schedule 3.4 are resolutions of the Company board and meeting of shareholders approving this agreement and its performance. |
| 3.5 | The execution and performance of this Agreement constitute no breach of the Company Articles of Association (but comply with them), and do not contradict the Company Articles of Association. To the best of the Company’s knowledge it is not in violation of any law or agreement or competent authority, and to the best of the Company’s knowledge the execution and performance of this agreement will not constitute such a violation. |
| 3.6 | Company Articles of Association as effective on the execution of this agreement are attached hereto as Schedule 3.6. |
| 3.7 | On the execution of this agreement, no legal actions and/or liquidation and/or receivership proceedings are being conducted against the Company and the Company and/or to the best of the Company’s knowledge, any of its shareholders, did not receive warnings on intention to initiate such proceedings and to the best of the Company’s knowledge there is no current cause and currently, no expected cause, to initiate such proceedings. Additionally, the Company is not a party to, and there is no, legal or quasi-legal proceeding conducted with respect to and/or concerning the Company before any court or other tribunal, including arbitration, mediation or compromise and to the best of the Company’s knowledge no investigation is conducted against and/or concerning and/or with respect to the Company by government any body or authority. |
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| 3.8 | On the execution of this agreement the Company’s authorized share capital is ILS 250,000, composed of 25,000,000 ordinary shares of ILS 0.01 par value each (the “Ordinary Shares”). |
| 3.9 | On the execution of this agreement the Company’s issued and outstanding share capital is composed of 16,666,666 Ordinary Shares, held according to the following distribution (the “Current Shareholders”). |
| Full name | ID | Number of Ordinary Shares | Holdings
rate | |||||||||
| Ron Joseph Klein | 22276901 | 833,333 | 5 | % | ||||||||
| Nir Klein | 23097926 | 14,755,000 | 88.53 | % | ||||||||
| Ron Goldstein | 36164192 | 833,333 | 5 | % | ||||||||
| Smadar Nir | 53537296 | 245,000 | 1.47 | % | ||||||||
| Total | 16,666,666 | 100 | % | |||||||||
| 3.10 | Except as specified in Schedule 3.10, the Company has no undertakings to issue shares and/or securities convertible into shares and/or other rights convertible into shares, and except the issued and outstanding share capital specified in Section 3.9 above the Company did not allot and has no undertaking to allot shares and/or convertible securities and/or convertible rights as noted above to any third party. |
| 3.11 | As of the execution of this agreement and until the Termination Date defined below, the Company did not declare and will not declare any dividend (distributed or not), and the Company board has made no resolution to distribute bonus shares and/or dividends. |
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| 3.12 | The Company operates in manufacturing and distribution of headset systems and peripheral equipment for radios, mostly in the following distribution channels: |
| (a) | Military |
| (b) | Police and other security forces |
| (c) | Industry |
| 3.13 | The current assets of the Company subsidiaries (Source of Sound Ltd. and the US-incorporated Silynx) and the shares of such companies are currently pledged with a floating pledge in favor Bank Mizrahi to secure a loan/credit taken by Source of Sound Ltd. from the bank; apart from that the Company has no active pledges or other undertaking to create pledges. |
| 3.14 | As of the execution of this agreement the Company has a performance guarantee to the Israel Police for a sum of ILS 3,500. |
Except the above, there are no additional guarantees provided to debts and undertakings of third parties and/or any undertaking to provide such guarantee.
| 3.15 | As of the execution of this agreement the Company has liabilities with a total estimated scope of 2 million ILS, except current liabilities in the ordinary course of business. Copy of the Company’s trial balance for September 30, 2021 is attached hereto as Schedule 3.15, describing, in principle, the financial status of the Company, including the list of its debts and liabilities as of the date indicated herein and there was no material change to the Company’s financial status since September 30, 2021 to the execution of this agreement. The Company further represents and warrants that the $250,000 debt to Micha Geiger and Stanley Gold as specified in Sections 3.15 and 3.21 below will be paid from the money the Company receives from the issuance. The agreement with Micha Geiger and Stanley Gold is attached hereto as Schedule 3.15A. |
| 3.16 | Except as specified in Section 3.16 the Company did not take or grant loans. The Company will procure that by the Termination Date (as defined below) the Company will have no, or form any, debts and/or liabilities outside the ordinary course of business, and in any case debts and/or liabilities will be resolved and/or repaid prior to the submission of the prospectus draft from the Company’s own sources. However, this subsection will not apply to (1) the debt to Ofakim (Micha Geiger) and Shamrok California (Stanley Gold) as specified in Section 3.15 below; (2) repayment of the Bank Mizrahi loan at a rate of approximately ILS 800K, net (after setting-off a 50K deposit), bearing overall interest of approximately P+1.5% and the last repayment date being April 30, 2025, and (3) deposit and debt repayment of approximately ILS 335K to Nick Klein; |
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| 3.17 | Except as specified in Schedule 3.17 herein, all know-how and intellectual property including intellectual property assets related to the Company activity are fully owned by the Company and/or Group of Companies and it may freely and fully use them without consideration in its discretion. Except as specified in Schedule 3.17 no third party has any rights and/or arguments with respect to such know-how or intellectual property. As of the execution of this agreement the Company possesses full ownership or lawful right to use all intellectual property rights used or expected to be used by the Company for the Activity (including planned future Activity) and/or in its regard, and the Company is not aware of any intellectual property required for the Activity not fully owned by the Company and/or for which no lawful right of use was granted to the Company. |
To the best of the Company’s knowledge there is no action and/or infringement of right of any third party (including related parties and/or Company shareholders) towards such intellectual property rights. Also, to the best of the Company’s knowledge it does not infringe on any intellectual property rights of any third party.
| 3.18 | To the Company’s knowledge, except this agreement and as set forth in Schedule 3.18 attached hereto, the Company is not a party to any material agreement. In this regard, a “material agreement” is an agreement for which prior termination, non-extension or termination may have material effect on the Company, its property, profits or liabilities, or its Activity. |
| 3.19 | As of the execution of this agreement the Group of Companies employs 30 employees and/or service providers in Israel and 4 in the US. The main terms of hiring such employees and engagement with service providers are specified in Schedule 3.19 attached hereto, and except to Elihai Cohen, Vice CEO, who is entitled to 1,333,333 options exercisable into Ordinary Shares (the “Vice CEO”) no options/shares or similar remuneration was promised to any employee. In all material sense, the Company complies with all its undertakings towards its employees and the Company has no employer’s liability towards the employee and for which for maintaining employee-employer relations between a company and any person, including former employees of the Company (“Former Employees”), and all employer liability amounts towards and for the employee were fully paid, or the liability for them was manifested in the financial statements for 2020. For the avoidance of doubt, exercising the options by the Vice CEO, in any case, will not dilute the holdings of Investors, Additional Investors and/or the public in the Company capital, but only the Current Shareholders. |
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| 3.20 | The Company’s audited financial data for 2019 and 2020 and trial balance for December 31, 2021 are specified in Schedule 3.20 herein. |
| 3.21 | Except as detailed herein, no agreement was executed and no undertaking was granted by the Company, its shareholders or anyone on their behalf resulting of which the Company will be charged any commission, finder’s fee or initiation fee or any other payment (in cash, securities or otherwise) with respect to the execution and/or performance of this agreement. |
| 3.22 | The Company is aware that the Investors enter this agreement, inter alia, based on the representations specified in this Section 3 above and based on the Company warranties detailed herein. |
| 3.23 | The Company represents that it has inspected the outcomes of the public offering procedure and that it is in the opinion that this procedure serves its best interest and is the optimal manner to continue developing its business and yield value to its shareholders; therefore it will cooperate, act diligently and do everything possible, subject to the Investors’ undertakings herein, to submit the first prospectus draft until and no later than March 31, 2022 based on the Company statements for 2019, 2020, 2021. Without derogating from and in addition to the above the Company will notify the Israeli Securities Authority of its intention to file a prospectus by December 31, 2021 and act to complete the public offering procedure soon and prior to December 31, 2021 (the “Termination Date”). |
| 3.24 | The shares allotted to the Investors for the investment will be Ordinary Shares, and they will be allotted free and clean of any debt, foreclosure, pledge, and/or any other right of third parties. |
4. Interim Period
As of the execution of this agreement and until completing the earlier of the Capital Raising from the Public or the Termination Date as defined below and without derogating from the representations and warranties of the Company and Investors specified herein, the following provisions will apply, except if the parties have agreed in writing in advance to act differently and except performing any action expressly allowed under this agreement:
| 4.1 | The Company will conduct in its ordinary course of business. To the extent any move outside the ordinary course of business is made, the Company will update the Investors as soon as possible and in any case, in advance, of any intention to perform such a move; |
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| 4.2 | No pledges will be created on the Activity assets or other assets of the Company and/or Group of Companies and no undertaking to create such pledges will be formed; |
| 4.3 | The Company will update the Investors as soon as possible to the extent there are material adverse changes to the Company representations and/or warranties detailed above or to its ability to meet any of its undertakings; |
| 4.4 | The Company will not issue and/or undertake to issue any securities and will not modify its capital structure and/or Articles except as set forth herein; |
| 4.5 | Except as specified herein or approved in writing in advance by the Investors, the Company will not perform or undertake to perform transactions in which the officers and/or interested parties and/or controlling shareholders and/or any party directly and/or indirectly related to any of those has personal interest, including change to terms of employment; |
| 4.6 | No changes will be made to the rights conferred upon the Company shares; |
| 4.7 | The terms of employment of Company officers as of the execution of this agreement and until completing of the Offering will be as indicated in Schedule 4.7 herein. Following completion of the Offering the terms of employment will be as detailed in the prospectus. To the extent the Offering does not complete by the Termination Date the terms prescribed in Schedule 4.7 will continue to apply. |
Without derogating from the above, during the interim period the following provisions will apply:
| 4.8 | The Company will update the Investors in writing as soon as possible after it learns of it, to the extent there are material adverse changes to the Company representations and/or warranties detailed above or to its ability to meet any of its undertakings; such notice will not derogate from any other undertaking herein or from any other remedy and/or relief granted to the party receiving such notice according to the provisions of this agreement and/or any applicable law and will not cure any breach of confirmation, representation, declaration or warranty herein. |
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| 4.9 | The Company will give the Investors access to its properties, books, records and officers so that they may inspect on the Company status and at the Investors’ request, provide any operational, financial or other information concerning the Company, all, with prior coordination. |
5. Capital Raising from the Public Expenses
| 5.1 | The Parties intend to act and bring upon a situation in which the Company offers the public to purchase Company shares while listing the Company shares in Tel Aviv Stock Exchange Ltd. (herein above and below, “TASE” and “Capital Raising from the Public” or “Offering”, respectively) in an R&D track and/or any other track. The Parties are aware that as of the execution of this agreement the conditions for listing the Company shares in TASE under the R&D track are, inter alia, those: (1) minimal shareholders’ equity of ILS 8M (following capital raising); (2) minimal holdings of the public as defined by TASE rules will be at a rate of 10%; (3) minimal value of holdings of the public as defined by TASE rules will be at a rate of ILS 16M; (4) distribution of Company shares between a minimum of 35 shareholders; and (5) minimal capital raising from the public at a scope of ILS 16M. |
| 5.2 | The Company represents that it has R&D expenses of at least ILS 3M cumulatively over the 3 years preceding the execution of this agreement, 2019 to 2021 inclusive. |
| 5.3 | Subject to transfer of the Initial Investment Amount (as defined below) by the Investors on the date set in Section 7 below the Company will notify the Securities Authority by December 31, 2021, of its intention to file a prospectus to the Securities Authority based on financial statements for 2021 (the “Financial Statements”). |
| 5.4 | Simultaneously with the investment and later completion of the additional investment the Investors will help the Company to the extent required in filing the prospectus draft to the Israeli Securities Authority based on the Financial Statements and to receive a permit from the Securities Authority to offer the Company shares to the public by December 31, 2022. |
| 5.5 | The Investors estimate that the cost of prospectus filing until completing the Capital Raising from the Public will be approximately ILS 700K (the “Estimated Prospectus Filing Cost”). Such cost includes CPA fee (about ILS 80+20K), offering attorney’s fee (approximately ILS 300K), external auditor fee (approximately ILS 220K), evaluators fee (several tens of thousands ILS), PR cost (approximately ILS 30,000), supporting counsel fee (approximately ILS 40K). In this regard it is agreed that bonuses and commissions for the Offering to any service providers and/or those assisting in the Offering process, including without limitation, underwriters or distributors (to be decided following the Offering, if any, with the mutual consent of the Company and Investors), including prior to the Offering process (such as any of the above), if any, will be paid by the Company from amounts raised in the Offering. |
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| 5.6 | The Investors and/or Additional Investors (as defined below) will transfer to the Company every additional investment required for the Offering costs except the Estimated Prospectus Filing Cost (the “Additional Investment”). The Estimated Prospectus Filing Cost will be transferred to the Company by the filing of the first prospectus draft to the Israeli Securities Authority. It is clarified that the responsibility to transfer such Additional Investment to the Company is in addition to the Investors’ responsibility to transfer the Investment as per Section 7.1 above. It is further agreed that to the extent the actual prospectus filing cost exceeds such ILS 700K, the Investors and/or anyone on their behalf (with respect to anyone on their behalf - with the Company’s prior approval which will not be unreasonably denied for considerations indicated in writing) will provide the Company Additional Investment for such financing. To the extent there are Additional Investors entitled to shares for such supplementary investments these shares will be on account of the shares the Investors are entitled to - that is, only Investors will be diluted following supplementary investments as noted in this Section above. |
The Company will execute appropriate Convertible Loan Agreements (as defined below) with each Investor transferring such Additional Investment as agreed by the Parties.
The Additional Investors under this Section will join the Investors and share their rights and promised shares, all as specified herein.
6. Representations of the Investors
| 6.1 | The Investors represent that to the best of their knowledge, engagement in this agreement does not violate the law on their part or the rights of any third party. |
| 6.2 | That except the representations included herein they did not receive from the Company and/or anyone on its behalf any representation, warranty or forecast concerning the Company and its business and that in their decision to purchase the securities they did not rely on any other information except the above. |
| 6.3 | The Investors represent that they have the professional knowledge to comply with their undertakings herein, that they received data and have inspected the Company, its Activity and business, that they are able to estimate the advantages and risks involved in the transaction and that the Company cooperated with them and provided them with information and documents. The Investors were also provided ample opportunities to ask questions and demand explanations about the Company, its Activity, products and undertakings. |
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7. The Transaction
| 7.1 | The Investors themselves and through the Additional Investors undertake to invest in the Company a total of ILS 700,000 (the “Investment”). |
Out of the total Investment, a sum of ILS 30,000 will be transferred to the Company within 5 business days from the execution of this agreement (the “Initial Investment Amount”) and the balance will be paid simultaneously with the payment demands of the Offering service providers.
It is agreed and clarified that the Investors may cause the Investment balance, except the Initial Investment Amount, with a total of ILS 670,000, or part thereof, to be invested transferred/financed by third parties they bring (to the extent these are third parties - with the Company’s prior approval which would not be unreasonably withheld unless specified in writing) (“Additional Investors”). The Company will execute appropriate Convertible Loan Agreements (as defined below) with each Additional Investor transferring such Investment as agreed by the Parties.
It is agreed that investment agreements executed by each Additional Investor will prescribe:
(a) that in case of an Offering the Additional Investor is entitled to convert his investment amount into Company shares so that the holdings are as set out in Section 7 below; (b) in case the Offering does not realize, but a private funding under the circumstances in Section 7.6 below - with a 30% discount, as per Section 7.6; or (c) according to the provisions of Section 9.3, all subject and according to the provisions of this agreement.
| 7.2 | Subject to completing the Investment and Additional Investment and subject to completing the Capital Raising from the Public the total holdings in the Company’s fully diluted share capital held by the Current Shareholders, Vice CEO, Investors and/or Additional Investors and public investors as part of the Offering will be: |
| (a) | To the extent the Capital Raising from the Public is ILS 16M together with the Investors’ Investments - the Investors together with the Offering investors (that is, public investors participating in the Capital Raising from the Public), together, soon following the Offering completing, will hold 40% of the Company’s issued and outstanding share capital soon following the Offering. In such an event the Current Shareholders together with the Vice CEO will hold the remaining Company shares, i.e., 60% of the issued and outstanding share capital of the Company soon following the Offering. To illustrate the rate of holdings of Company shares soon after the Offering, see a cap table in Schedule 7.2.1 simulating a scenario of Capital Raising from the Public at a scope of ILS 16M according to Company value of ILS 54M pre-money. |
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| (b) | To the extent the Capital Raising from the Company exceeds ILS 16M (capital raising that is subject to the consent of the Investors and the Company - then, for the part up to ILS 16M, inclusive, the provisions of Section 7.2(a) will apply, and for the surplus dilution for the part of investment exceeding ILS 16M it will be distributed between the Investors, on the first part, and the Company Current Shareholders, including the Vice CEO, on the second part, and Oded Tzuker on the third part, pro rata according to their holdings, with the starting point for the reduction being the holdings rate each of such parties had according to his holdings in the Company had a capital raising of ILS 16M only been achieved (subsection (a) above). To illustrate the rate of holdings of Company shares soon after the Offering in such an event, see a cap table in Schedule 7.2.2 simulating a scenario of Capital Raising from the Public at a scope of ILS 20M according to Company value of ILS 70M pre-money. |
| 7.3 | It is agreed that the minimal Company value (pre-money) by which the Company is issued would be ILS 54M. Offering for a lower value will be subject to the consent of the Company and Investors. |
| 7.4 | It is agreed and clarified that to the extent capital raising takes place under different conditions with the consent of the parties - the data in the tables Schedule 7.2.1 and 7.2.2 will be adjusted accordingly. |
| 7.5 | It is clarified that the calculation schedules in Sections 7.2.1 and 7.2.2 above are meant for convenience and illustration only of the holdings of Company capital under different scenarios, and various sample assumptions were made that are no indication or undertaking to the Company value determined in the Offering and/or Offering structure. |
| 7.6 | It is agreed that to the extent the Offering is not executed by the Termination Date, money transferred by the Investors and/or Additional Investors to the Company (whether as Investment, Additional Investment, supplementary funding, interim funding, or otherwise) will remain with the Company and be considered a loan convertible into Ordinary Shares of the Company according to the terms of an agreement executed between the parties (the “Convertible Loan Agreement”). Such loan would be converted into Company shares on the first investment round by which (inclusive) the Company has cumulatively raised an amount of no less than ILS 10M (“Aggregate Investment Amount”) and in which the Company raises funds in consideration to allotment of Company shares for a price reflecting a 30% discount from the price per share paid in the last investment round completing the Aggregate Investment Amount. It is clarified that the above will apply, mutatis mutandis, also in case of any other exit of the Company or its shareholders. |
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Financing the amounts which the Investors must procure are transferred to the Company according to this agreement (including the Investment) will be by way of capital raising from the Investors and/or Additional Investors or in any other manner (for example, by diluting the shares the Investors are supposed to receive in an Offering).
It is agreed that as of the execution of this agreement until the earlier of completing Capital Raising from the Public and/or Termination Date Mr. Ofer Amir will be an observer in the Company board, Offering coordinator for the Company, and will a right to view the Company bank accounts and books, all, subject to a non-disclosure undertaking attached hereto as Schedule 7.8 executed by Mr. Amir simultaneously with the execution of this agreement.
| 7.7 | Notwithstanding the provisions of Section 7.2(a) above it is agreed that to the extent the Offering is executed and completed each Party hereto (the Investors will be jointly considered one Party for this purpose) transfer to Oded Tzuker ID 059191338 (“Oded Tzuker”) Ordinary Shares held by him in an amount constituting half a percent from the Company’s issued and outstanding share capital immediately prior to the Offering (that is, a total of 1% of the Company’s issued and outstanding share capital). Oded Tzuker will bear the tax results of such transfer. |
| 7.8 | Until the completing of the Company shares Offering in TASE, if any, the Company resolutions will be made in the board with a simple majority and the Board chair will have no deciding vote in case of tide. |
| 7.9 | The Company may, as part of the Offering, allot up to 8% of the share capital to ESOP (including controlling shareholders employed by the Company) and the terms of employment for entrepreneurs hired by the Company will be guaranteed. Dilution resulting from exercising ESOP will apply to all Company shareholders as they may be following the Offering (Investors, Additional Investors, Current Shareholders, including the Vice CEO, Oded Tzuker and the public (Offering investors), pro-rata. |
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8. Procedures for Prospectus Publication
| 8.1 | The Company undertakes to allow the Investors and/or anyone on their behalf to conduct business, legal and accounting due diligence of the Company as required. |
| 8.2 | The Company undertakes to cooperate in the prospectus drafting process and provide the attorneys and CPAs drafting the prospectus documents all documents required and in the Company’s possession (to the extent new documents must be issued - to do so). |
The Company undertakes to fully answer in writing the letter of information demand sent, if any, by the Investors, various consultants, any authority and/or other relevant party in a full and concise, efficient and timely manner. In this regard, the Company undertakes to answer in writing, in full, on information demand letters provided by the professionals leading the Offering in order to complete drafting and updating the Company prospectus, promoting and completing the Offering. The Company is aware that full and speedy answer to an information demand letter and other possible demands is a material condition for meeting the timetable for capital raising specified herein. The Company answers to the information demand letter will be attached as a schedule to the Company representations herein.
| 8.3 | The Company undertakes to provide all information required, currently and in the future, by the Israeli Securities Authority and/or TASE for executing the Capital Raising from the Public, all on the due dates. |
9. No Shop, Right for Supplementary Investment
| 9.1 | Until the earlier of completion of Capital Raising from the Public and TASE listing, or alternatively, until the Termination Date the Company undertakes not to negotiate for investment and/or Company merger and/or sale of all or part of its assets, including any part of the subsidiary group, to terminate every such negotiation which started prior to such date and to notify the Investors of every third party or any written or verbal inquiry and/or offer to the Company and/or anyone on its behalf. Such undertaking will also apply to the controlling shareholders. |
| 9.2 | It is clarified that the above may not prevent any of the parties hereto from continued operation in their ordinary course of business. |
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| 9.3 | Where no Offering took place by September 30, 2022, then, notwithstanding the no-shop limitations as per Section 9.1 above, the Company and/or controlling shareholders may accept and advance investment proposals from additional parties and/or engagements on purchase, sale, or any exit activity, etc., provided that they promptly and currently update the Investors on every such proposals and/or negotiation. In any case it is agreed that in case such negotiation is fruitful and another such investment is made and/or exit engagements are made as noted above prior to the Termination Date, the Investors and Additional Investors will be compensated by receiving Company shares of the preferred class issued in such transaction in an amount representing their cash investment (more or less ILS 700,000, according to their actual investment by this agreement) in the Company pro-rata to the investment by this Section (that is, they will be part of the investment round by this Section and receive shares according to is conditions and price per share) and the right to conversion and discount share purchase as per Section 7.6 herein will terminate. Without derogating from the above the Investors will also receive as compensation 12% of the Company’s fully diluted share capital of the preferred class. Notwithstanding the above in this Section the Company will continue its efforts to execute the Offering until December 31, 2022. |
| 9.4 | Where, by the Termination Date, no Offering was made the Investors will have the right, subject to the Company’s consent at such time, to make an additional investment in the Company at a total of at least ILS 10M and at most ILS 16M in the aggregate (that is, including prior investments) (the “Supplementary Investment”) according to a Company value of ILS 34M (pre-money) until March 31, 2023. In such an event the previous investments, previous fundings as noted herein and the Supplementary Investment will be converted into Ordinary Shares of the Company according to a Company value of ILS 34M (pre-money) and the provisions of Section 7.6 on conversion will not apply. |
10. Taxes and Expenses
Each Party will bear the taxes applicable to it, if and to the extent any taxes apply resulting from performing this agreement.
11. General
| 11.1 | The Parties undertake to act in good faith and mutual collaboration to execute the provisions of this agreement, including, to take every action, sign every document and obtain every approval required for due performance of this agreement. |
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| 11.2 | This agreement will be subject to the laws of the State of Israel excluding any choice of law rules. The competent courts of Tel Aviv-Yafo alone will have jurisdiction in all matters involved in this agreement or arising therefrom. |
| 11.3 | In addition to the provisions herein, all reliefs and remedies granted to the parties under any applicable law will be available to them. |
| 11.4 | Unless agreed otherwise between the parties explicitly and in writing, this agreement includes and exhausts all rights and obligations of each Party towards the other, as the matter may be, with respect to or regarding their relationship, their rights and obligations between them and between any of them and the Company in any matter or thing related or concerning the Company. Drafts of this agreement, letters (including electronic mail), verbal or written exchanges made between the Parties or any of their representatives in anything related to or concerning this agreement and the negotiation for its execution will be null and void and may not serve as any evidence including for interpretation of this agreement, and the same is true for deletions in this agreement, if made. |
| 11.5 | No modification of this agreement or any of its provisions will be effective unless made in writing and executed by the Parties or the waiving Party. Consent of either Party in a certain instance to deviate from a condition and/or provision of this agreement will not constitute precedent or consent to such deviation in other instances and will not indicate of or project unto to other instances. |
| 11.6 | No behavior of any Party will be considered waiver on any of its rights by this agreement and/or by any applicable law, or as waiver or consent of that Party to any breach or default of any condition herein by any Party, or to postpone or extend or to modify, revoke or add any condition unless made explicitly and in writing. |
| 11.7 | The Parties hereto have jointly negotiated and drafted this agreement. In the event of unclarity or question on the intention or interpretation of any clause, this agreement would be interpreted as drafted by all Parties, and no deduction will be made, or any duty of proof imposed, in favor or against any Party by reason of any Party drafting any provision of the agreement. Drafts of this agreement will not be retained for its interpretation. |
| 11.8 | The Parties will take all additional means (including executing additional documents and issuing any approval) required for the implementation and execution of this agreement according to its language and spirit. |
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| 11.9 | If it is determined that any provision herein is unenforceable or void for any reason the other provisions of the agreement will remain intact and the Parties will act to implement the agreement according to its language and spirit, including replacing the unenforceable or void provision with an alternative provision with mainly identical results and effect and identical economic outcomes in terms of the Parties hereto. |
| 11.10 | Each Party will incur its own expenses with respect to this agreement and performing all its undertakings herein including attorneys’ and consultants’ fees. |
| 11.11 | This Agreement will not be inured to the benefit of any third party and accordingly, no third party will have a right of claim pursuant thereto or pursuant to any of its clauses or provisions against any of the Parties thereto. |
| 11.12 | Communications sent by the addresses of the Parties listed in the Preamble hereto via registered mail will be considered to have been received by the addressee within 72 hours from its delivery. Where such communication was delivered by hand it would be considered received upon delivery. |
| 11.13 | Each Party may change its address for the purpose of this agreement to another address in Israel with a written notice to the other on such address. |
| 11.14 | The Investors assume the payment of commission to Mr. Eli Shitrit. |
IN WITNESS THEREOF, the Parties signed and executed this agreement:
| [Signature] | [signature + stamp: Silynxcom Ltd.] |
| Ofer Amir | Silynxcom Ltd. |
| [Signature] | [Signature] |
| Shlomi Amsalem |
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Attorney Confirmation
I, Adv. Amit Dat license no. 44760 of 146 Menachem Begin Road, Tel Aviv, certify that I serve as counsel for Silynxcom Ltd., that this agreement was executed by the Company’s authorized signatories in this regard, that such signature on the agreement is binding and entitling the Company with respect to everything therein, that all resolutions required for its signature and execution were duly made by the competent organs of the Company and that the Company directors were duly appointed.
| Name: Amit Dat Date: December 29, 2021 | Signature and stamp: [signature + stamp: Amit Dat, Adv. / License no. 44760] |
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Schedule 3.15
| Dollars | Shekels | Account Description |
| 177,000.00 | Deposit Nicky Klein - agreement | |
| 50,000.00 | Credit and debit Nicky Klein deposit - agreement |
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Schedule 7.2.1
Share Distribution Plan Post Offering
| Parameters | ||||
| Raised | ILS 16,000,000 | |||
| Current value | ILS 54,000,000 | |||
| Market value post-money | ILS 70,000,000 |
| * | You may only change the numbers in the rage c5:c6 above (light-blue background) |
| Additional assumptions | ||||
| Founders’ shares | 16,666,666 | |||
| Capital raising w/o dilution | ILS 16,000,000 |
| Group of entrepreneurs | ||||||||||||||||
| Sub-group | Financial investment | Discount % | Number of shares | % of Company after | ||||||||||||
| Entrepreneurs | 16,666,666 | 60.00 | % | |||||||||||||
| 1 | ||||||||||||||||
| Ofer group | ||||||||||||||||||||
| Sub-group | Financial investment | ILS / $ multiplier | Discount % | Number of shares | % of Company after | |||||||||||||||
| SAFE group | 700,000 | ILS 1.00 | 25.0 | % | 370,370 | 1.33 | % | |||||||||||||
| Ofer | 4,391,534 | 15.81 | % | |||||||||||||||||
| Ofer group | ||||||||||||||||||||
| 4,761,905 | ||||||||||||||||||||
| Cap Table | ||||||||||||||||
| Number of shares | % in Company post Offering | Value post Offering | Control | |||||||||||||
| Entrepreneurs | 16,666,666 | 60.00 | % | 42,000,000 | 60.00 | % | ||||||||||
| Public | 6,349,206 | 22.86 | % | 16,000,000 | 22.86 | % | ||||||||||
| SAFE group | 370,370 | 1.33 | % | 933,333 | 1.33 | % | ||||||||||
| Ofer and Shlomi | 4,391,534 | 15.81 | % | 11,066,667 | 15.81 | % | ||||||||||
| Total | 27,777,777 | 100.00 | % | 70,000,000 | 100.00 | % | ||||||||||
Share value --> ILS 2.52
Assumption: The SAFE and public dilution - all on account of Ofer and Shlomi
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Schedule 7.2.2
Share Distribution Plan Post Offering
| Parameters | ||||
| Raised | ILS 20,000,000 | |||
| Current value | ILS 70,000,000 | |||
| Market value post-money | ILS 90,000,000 |
| * | You may only change the numbers in the rage c5:c6 above (light-blue background) |
| Additional assumptions | ||||
| Founders’ shares | 16,666,666 | |||
| Capital raising w/o dilution | ILS 16,000,000 |
Ofer group
| Sub-group | Financial investment | $ rate | % discount | Number of shares | % of Company post | |||||||||||||||
| SAFE group | 700,000 | ILS 1.00 | 25.0 | % | 304,942 | 1.04 | % | |||||||||||||
| Ofer | 5,899,014 | >0.06 | % | |||||||||||||||||
| Ofer group | ||||||||||||||||||||
| 6,203,956 | ||||||||||||||||||||
| Group of entrepreneurs | ||||||||||||||||
| Sub-group | Financial investment | % discount | Number of shares | % of Company post | ||||||||||||
| Entrepreneurs | 16,666,666 | 60.00 | % | |||||||||||||
| Cap Table | ||||||||||||||||
| Number of shares | % in Company post Offering | Value post Offering | Control | |||||||||||||
| Entrepreneurs | 16,666,666 | 56.68 | % | 51,011,583 | 56.68 | % | ||||||||||
| Public | 6,534,463 | 22.22 | % | 20,000,000 | 22.22 | % | ||||||||||
| SAFE group | 304,942 | 1.04 | % | 933,333 | 1.04 | % | ||||||||||
| Ofer and Shlomi | 5,899,014 | 20.06 | % | 18,055,084 | 20.06 | % | ||||||||||
| Total | 29,405,085 | 100.00 | % | 90,000,000 | 100.00 | % | ||||||||||
Share value -->> ILS 3.06
| % in case of raising over 16,000,000 | % | |||||||
| Entrepreneurs | 60.00 | % | 74.71 | % | ||||
| Ofer and Shlomi | 20.31 | % | 25.29 | % | ||||
| Total | 80.31 | % | 100.00 | % | ||||
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Exhibit 10.6
Amendment no. 1 to Framework Agreement for Investment and Collaboration on a Public Offering
Signed and executed in Netanya on October 26, 2022
| BY AND BETWEEN: | Silynxcom Ltd. | |
| Private company no. 516454154 | ||
| 19 Yad Haruzim, Netanya | ||
| (Hereinafter referred to as the “Company”) | ||
| ON THE FIRST PART; |
| AND BETWEEN: | Ofer Amir, ID 59789479. | |
| Shlomi Amsalem, ID 043055482 | ||
| (Hereinafter, jointly and severally, the “Investors”) |
ON THE SECOND PART;
| WHEREAS | on December 29, 2021 a framework agreement for investment and collaboration for public offering was executed between the Company and Investors, attached hereto as Annex I (the “Framework Agreement”); AND |
| WHEREAS | the Parties would like to make several amendments to the Framework Agreement, all as specified in this amendment below; |
NOW THEREFORE, the parties agree, represent and covenant as follows:
| 1. | Preamble, Headers, Interpretation |
| 1.1. | The Preamble to this amendment and the Annex attached thereto constitute an integral part thereof; |
| 1.2 | All terms and expressions in this amendment shall have the meaning ascribed to them in the Framework Agreement unless expressly stated otherwise herein and/or necessary by the context. |
| 2. | Amendment |
| 2.1. | As of the date of this amendment, the following provisions shall apply: |
| 2.1.1. | In the Preamble to the agreement, on the second recital, the words “in the Tel Aviv Stock Exchange” will be deleted and replaced with the words: “in TASE or US Stock Exchange as these terms are defined below”. |
| 2.1.2. | In Section 2.1 of the Framework Agreement, the word TASE will be added with the words: “Tel Aviv Stock Exchange Ltd. (“TASE”) or NASDAQ or NYSE (NASDAQ and NYSE will be referred to herein as the “US Stock Exchange”) |
| 2.1.3. | In Section 3.2 of the Framework Agreement, the word “second-” will be deleted. |
The following will be added at the end of Section 3.7: “Notwithstanding the above, the Investors acknowledge that they are aware that Mr. Rani Nir, holding 1.47% of the Company shares, has asserted before the Company arguments on calculation of his holdings, and in any way, any agreement of the Company with him will not be on account of the Investors and/or Additional Investors.”
| 2.1.4. | Section 3.9 of the Framework Agreement will be fully deleted (including the shareholders table) and replaced with the following: |
“On the execution of this agreement the Company’s issued and outstanding share capital is composed of 16,666,666 Ordinary Shares, held according to the distribution described in Schedule 2.1.1 attached to this amendment (the “Current Shareholders”).”
| 2.1.5. | Section 3.10 will remain in its current language, however, Schedule 3.10 (options and convertible securities) will be reattached to this amendment, replacing any previous format. |
| 2.1.6. | In Section 3.16 of the Framework Agreement, the word “Nick” will be entirely deleted and replaced with the word “Nir.” |
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| 2.1.7. | In Section 3.23 of the agreement, after the words “subject to the Investors’ undertakings herein” the paragraph will be deleted and replaced with the following: “to submit the first prospectus draft until and no later than March 31, 2023, based on the financial statement for 2020, 2021 and 2022 without derogating from and in addition to the above, the Company will notify by December 31, 2022 to the Israeli Securities Authority or any other relevant authority of its intention to file a prospectus and act to complete the public Offering process so that in any way it ends before June 30, 2023 (the “Termination Date”).” |
It is hereby clarified that whenever the Framework Agreement or this amendment mentions the term Termination Date or December 31, 2022 (including without limitation Section 9.3 of the Framework Agreement), it would mean June 30, 2023. For the avoidance of doubt, to the extent the public Offering procedure is incomplete by such Termination Date this agreement will be null and void, except under the circumstances specified in Section 3.14 below.
| 2.1.8. | The first paragraph of Section 5.1, Framework Agreement, starting with the words “The parties intend” and ending with the words “other track” will be fully replaced with the following: |
“The Parties intend to act and bring upon a situation in which the Company offers the public to purchase Company shares while listing the Company shares in TASE or US Stock Exchange (“Capital Raising from the Public” or “Offering”) in an R&D track and/or any other track.” In case of US Stock Exchange Offering the provisions of this agreement will apply mutatis mutandis”
| 2.1.9. | The following will be added at the end of Section 5.1 of the Framework Agreement: |
“In case of US Stock Exchange Offering the minimal capital raising will be USD 15M net after payment of all Offering expenses.”
| 2.1.10. | Section 5.3 of the Framework Agreement will be fully deleted. |
| 2.1.11. | In Section 7.1 of the Framework Agreement, Subsection (b) will be amended in such manner that after the words “in case the Offering does not realize, but a private funding under the circumstances in Section 7.6 below” the sentence will be deleted and replaced with the following: “under an assumption of 30% for a private fund-raising round and an assumption of 33% for an IPO or Liquidity Event as defined in the Convertible Loan Agreements.” |
| 2.1.12. | Section 7.2 of the Framework Agreement will be fully deleted and replaced with the following: |
“In consideration to completing the Investment and Additional Investment and subject to completing the Capital Raising from the Public the total holdings in the Company’s fully diluted share capital held by the Current Shareholders, Vice CEO, Additional Investors, and public investors as part of the Offering will be:
(a) To the extent the Capital Raising from the Public in Israel is ILS 16M in additional to the Investors’ Investments under this agreement - the Investors together with the Offering investors (that is, public investors participating in the Capital Raising from the Public), together, will hold 40% of the Company’s issued and outstanding share capital as is upon the Offering completion. In such an event the Current Shareholders together with the Vice CEO will hold the remaining Company shares, i.e., 60% of the issued and outstanding share capital of the Company as is on the Offering completion. To illustrate the rate of holdings of Company shares soon after the Offering, see a cap table in Schedule 7.2.1 simulating a scenario of Capital Raising from the Public at a scope of ILS 16M according to Company value of ILS 54M pre-money.
(b) To the extent the Capital Raising from the Company in TASE in Israel exceeds ILS 16M (capital raising that is subject to the consent of the Investors and the Company - then, for the part up to ILS 16M, inclusive, the provisions of Section 7.2(a) will apply, and the surplus dilution for the part of investment exceeding ILS 16M will be distributed between the Investors, on the first part, and the Company Current Shareholders, including the Vice CEO, on the second part, and Oded Tzuker on the third part, pro rata according to their holdings, with the starting point for the reduction being the holdings rate each of such parties had according to his holdings in the Company had a capital raising of ILS 16M only been achieved (subsection (a) above). To illustrate the rate of holdings of Company shares soon after the Offering in such an event, see a cap table in Schedule 7.2.2 simulating a scenario of Capital Raising from the Public at a scope of ILS 20M according to Company value of ILS 54M pre-money.
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| 2.1.13. | In case of US Stock Exchange Offering the following will apply: |
Capital Raising from the Public will be at a scope of at least USD 17M; (b) Section 7.2.A above will be amended in such manner that the Current Shareholders hold 50% of the issued and outstanding share capital soon following the Offering (including 1,333,333 options allotted to the Vice CEO) while Section 7.2.B will be deleted and have no effect; (c) The Company value for the Offering will be determined by the Company and Investors, subject to prior written consent of the competent Company institutions; (d) In any event (but subject to Section 3.1.3 below) the Investors will hold no less than 14% of the Company’s issued and outstanding share capital on the Offering completion; (e) In the event options as per Section 7.9 below are granted, the holdings rate of Current Shareholders and Investors will be less than those indicated in Subsections (b) and (d) above; (f) Any consideration whatsoever in shares or securities convertible into shares granted to an investment bank, underwriters and other service providers with respect to the Offering or Offering preparation process will equally dilute the Current Shareholders, Investors, Additional Investors, public shareholders, and all other holders of Company share or options at the time.”
| 2.1.14. | In Section 7.3 of the Framework Agreement, the words “the Company is issued” will be added with the words “in Israel.” |
| 2.1.15. | In Section 7.6 of the Framework Agreement, the words “with the following: “for a price reflecting a 30% discount from the price per share paid in the last investment round” will be followed by: “for a private fund-raising round and an assumption of 33% for an IPO or Liquidity Event as defined in the Convertible Loan Agreements.” |
| 2.1.16. | From the last paragraph of Section 7.6 of the Framework Agreement, the words “It is agreed that as of the execution of this agreement until the earlier of completing Capital Raising from the Public” will be deleted and replaced with “It is agreed that as of the execution of this agreement until the earlier of completing capital raising under Section 5.1 of the Framework Agreement” |
| 2.1.17. | In Section 7.9 of the Framework Agreement, the words: “The Company may, as part of the Offering, allot up to 8% of the share capital” will be deleted and replaced with the words: “The Company may, prior to or following the Offering completion, allot or undertake to allot up to 12% of the Company share capital, as is on the Offering completion, to ESOP.” |
| 2.1.18. | Section 7.9 will be followed by Section 7.10, stating: “In case of US Stock Exchange Offering the Company will list the Investors’ shares up to 6 months following the Offering, subject to regulations and rules that apply to US Stock Exchange listing” |
| 2.1.19. | It is hereby clarified that according to the provisions of Section 9.3 of the Framework Agreement, in case of investment according to the Section, the compensation to the Investors and Additional Investors will be cumulative: i.e., issuance of shares for the value of their actual investment in the Company from the most senior class issued in such investment transaction, and in addition, shares of the most senior class issued in such investment transaction reflecting 12% of the Company after executing such investment transaction, fully diluted. |
| 2.1.20. | In Section 9.4 of the Framework Agreement the date “March 31, 2023״ will be replaced with the date “September 31, 2023״. |
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| 3. | Additional Consents: |
| 3.1.1. | To the extent the Parties agree to advance the Offering in the US Stock Exchange the Parties will cease advancing the Offering in TASE. |
| 3.1.2. | It is hereby agreed that as of the Offering completion date according to the provisions of this agreement, Mr. Ofer Amir will provide services to the Company subordinate to the Company CEO and subject to executing a services agreement between the Parties in the language customary with the Company, until the earlier of: (a) the end of a 3-year period from the Offering completion date; or (b) the date in the holdings rate of Mr. Ofer Amir in the Company share capital decreases from 3%. In consideration to providing the services according to the terms of the agreement, Mr. Ofer Amir will be entitled to financial remuneration equal to the financial remuneration of the Company board chair, as actually paid from time to time (excluding, for the avoidance of doubt, bonuses, capital remuneration, and other similar components) against tax invoice together with VAT. |
| 3.1.3. | In addition to the other amounts paid to the Company by the date of this amendment, the Investors will transfer to the Company no later than the end of 45 (forty-five) days from the execution of this amendment by both Parties a sum of $200,000 (two hundred thousand US Dollars) as participation in the US Offering expenses. It is agreed that the Investors may cause this amount to be paid by third parties, whose identity was approved in advance by the Company, provided that the Company will not unreasonably withhold such approval except for written considerations. Such investors, to the extent approved by the Company will be considered Additional Investors as such term is defined in the original agreement. The Investors or Additional Investors, as the matter may be, will sign Convertible Loan Agreements with respect to transfer of such funds in a language customary with the Company. For the avoidance of doubt, payment of such additional sum by the Investors or Additional Investors and the terms of the Convertible Loan Agreements executed for that end may not modify the consents of the Parties on the minimal holdings rate of the Current Shareholders as per Section 2.1.12 and 2.1.13 above. |
| 3.1.4. | Where the Company started the process to complete Capital Raising from the Public in US Stock Exchange under this agreement and the process was not complete on the Termination Date then, as long as this process continues with support of the think Equity investment bank, the provisions of this agreement, including Section 7.2(c), will continue to apply on the completion of the Capital Raising from the Public as if such capital raising was completed by the Termination Date, even if the Termination Date has elapsed. |
| 3.1.5. | It is agreed that any payment made to Mizrahi Tefahot Bank with respect to revoking the option granted to the bank to purchase the Company shares will be made from the Company funds following Offering. |
| 3.1.6. | The total cost of the US Stock Exchange Offering process, excluding success fee, will not exceed $600,000, as detailed in Schedule 3.1.6. It is clarified that to the extent the Offering costs budget exceeds the above, the Company and Investors will jointly take care of a funding source for the additional payment. |
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| Representations |
The Company represents and acknowledges towards the Investors:
| 4.1. | That as of this amendment, a total Investment Amount of ILS 1,170,000 was transferred to it by the Investors and Additional Investors. |
| 4.2. | The Company will use reasonable commercial efforts to procure that within twenty-one (21) days from its execution, all required resolutions will be made in the competent organs of the Company for the execution of this agreement. Resolutions of the general meeting and board on approval of this amendment will be attached as Schedule 3.4 hereto, once made. This amendment will enter into effect and bind the Parties upon its approval by the competent organs of the Company, as noted above. |
General Terms and Conditions
| 5.1. | This amendment fully contains, embodies, merges, expresses and exhausts all consents of the Parties thereto on the matters mentioned herein only. |
| 5.2. | This amendment may not be modified and/or amended except with a written document executed by both Parties. |
| 5.3. | The Israeli law shall govern this amendment. The sole and exclusive jurisdiction on anything related to the amendment is exclusively granted to the competent courts in the City of Tel Aviv - Yafo. |
| 5.4. | Communications concerning this amendment will be sent via registered mail or electronic mail or delivered by hand according to the addresses of the Parties stated in the Preamble herein (or any other address detailed in an appropriate written notice), and every such communication will be deemed to have been delivered at its destination upon the earlier of: (a) its actual delivery (or offer to the addressee in case of failure to accept); (b) the elapsing of one business day from its email transmission; or (c) the elapsing of 3 business days from the date it was posted for registered mail except address change notice which would only be considered delivered on its actual delivery to the addressee. |
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IN WITNESS THEREOF, the Parties signed and executed this agreement:
| Silynxcom Ltd.: | [Signature] | [Signature] | |
| By: | Nir Klein | Ofer Amir | Shlomi Amsalem |
| Name: | [signature + stamp: Silynxcom Ltd.] | ||
| [Signature] | |||
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Exhibit 10.7
Silynxcom Ltd.
(the “Company”)
Compensation Policy for Company’s Office Holders
Dated: ____ 2023
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Introduction
| 1.1 | Pursuant to the provisions of the Companies Law, 5759-1999 (hereafter – “the Companies Law”), on [____] and [____], the Company’s Board of Directors and the General Meeting of Shareholders, respectively, approved a compensation policy (hereafter – the “Policy”) with respect to the terms of service and / or employment of Company’s office holders (as defined below) (hereafter - the “office holders”), after discussing and considering the recommendations of the Company’s Compensation Committee regarding this matter. |
| 1.2 | The provisions of the Policy shall be subject to the provisions of any cogent law applicable to the Company and its office holders in any territory. |
| 1.3 | The underlying principles and purposes of the Policy are as follows: (a) promoting the Company’s goals, its work plan and its policy for the long-term; (b) compensating and providing incentives to office holders, while considering the risks that the Company’s activities involve; (c) adjusting the compensation package to the size of the Company and the nature and scope of its activities; (d) creating incentives that are suitable to Company’s office holders by compensating those entitled for compensation under the Policy in accordance with their positions, areas of responsibility and contribution to the development of the Company’s business, the promotion of its targets and the maximization of profits in the short and long-term, taking into account, among other things, the need to recruit and retain qualified, highly-skilled officers in a global and competitive market; and (e) adjusting the compensation of office holders to the contribution of the office holder to the achievement of the Company’s goals. |
| 1.4 | This Policy is a multi-annual policy that will be effective for a period of five (5) years (and then consecutive periods of three (3) each) from the date of its approval. This policy shall be brought forward for re-approval by the Company’s Compensation Committee, the Company’s Board of Directors and the general meeting of its shareholders after five (5) years have elapsed since the date of approval thereof and so forth, unless any changes need to be made to the Policy in accordance with the law and/or in accordance with the Company’s needs. |
| 1.5 | Without derogating from the provisions set out in Section 1.4 above, the Company’s Compensation Committee and Board of Directors shall check, from time to time, whether the compensation that is granted under this policy, does, indeed, comply with the terms of this policy and the parameters set therein for each Company office holder. |
| 1.6 | This Policy is based, among other things, on the Company’s assessments as to the competitive environment in which it operates and the challenge it faces in recruiting and retaining high-quality officers in such an environment; it is also based on employment terms generally accepted in public companies operating in the Company’s area of activity and on existing employment agreements between the Company and its office holder, which – in order to remove any doubt – this policy cannot change and does not create a commitment between the company and its office holders. |
| 1.7 | For the avoidance of doubt, any compensation of office holders (as defined below), which are controlling shareholders (as the meaning of “control” is defined in the Companies Law- 5759-1999) (the “Companies Law”), may require additional approvals under applicable law. |
| 2. | The Policy |
| 2.1 | Definitions |
Office Holder- as defined in the Companies Law, i.e., Chief Executive Officer (CEO), deputy CEO, Directors, Active Chairperson, Subordinate Office Holder, any person filling any of these positions in the Company even if he holds a different title, and any other manager directly subordinate to the CEO.
Subordinate office holder- Office holder subordinate and reporting directly to the CEO.
Foreign office holder- Office holder in the position of CEO or subordinate office holder who his / her residency is outside of Israel.
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| 2.2 | Components of the Policy |
In accordance with the Policy, the compensation of the Company’s office holders shall be based on all or some of the following components:
| 2.2.1 | Basic salary component– refers to the monthly salary of that employee, excluding any social benefits and related benefits, and in respect to compensation paid as consultancy fee or equivalent (to a non-employee office holder) – the monthly gross consultation fees, excluding VAT (if applicable); |
To the extent that an Office Holder’s engagement or service is not through employment relations with the Company or any Affiliate thereof (“Services fees”), then this Policy shall apply, with the necessary changes and any reference to basic and/or gross salary shall apply to the respective consultation and/or service fees, which shall be calculated as the basic and/or gross salary defined pursuant to this Policy, as may be amended from time to time, multiplied by 1.4.
| 2.2.2 | Social and related benefits - social benefits as prescribed by local law (pension savings, contributions towards severance pay, contributions towards training fund, vacation pay, sick leave, recreation pay, etc.) and related benefits, such as company vehicle/vehicle maintenance, telephone expenses, laptop, meals at the workplace, gifts on public holidays, etc. |
| 2.2.3 | Variable cash compensation (bonus) – short and medium-term compensation, which includes annual bonuses, which are based on results and achievement of targets. The Company may also determine that a certain office holder will be paid discretionary annual / one-time / special bonuses, considering his/her contribution to the Company and the restrictions placed under this policy. |
| 2.2.4 | Variable equity-based compensation– share-based payment or another long-term compensation (subject to the existence of valid long-term compensation plans and provided that the Company decides to award such compensation). |
(the components in sections 2.2.3 and 2.2.4 above shall be called hereafter: “the variable components”).
At the time of approval of the compensation package of an office holder, the Compensation Committee and Board of Directors of the Company shall assess the compliance of each of those components and of the total cost of employment and/or consultancy fee with the criteria set out in this plan.
| 2.3 | Parameters for reviewing compensation terms |
Generally, some or all of the following parameters will be considered when reviewing the compensation terms of a Company office holder:
| 2.3.1 | Education, skills, expertise, tenure (specifically in the Company and in the office holder’s field of expertise in general), professional experience and achievements of the office holder; |
| 2.3.2 | The role of the office holder, his areas of responsibility and his employment or services terms under previous wage agreements entered into with this office holder; |
| 2.3.3 | The office holder’s contribution to the Company’s business, the achievement of its strategic goals and implementation of its work plans, the maximization of its profits and the enhancement of its strength and stability. |
| 2.3.4 | The extent of responsibility delegated to the office holder. |
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| 2.3.5 | The Company’s need to recruit or retain an office holder with unique skills, knowledge, or expertise. |
| 2.3.6 | Whether a material change has been made to the role or function of the office holder, or to the Company’s requirements from this office holder. |
| 2.3.7 | The size of the Company and the nature of its activities. |
| 2.3.8 | As to service and employment terms that include retirement grants – the term of service or employment of the office holder, the terms of his service and employment over the course of this period, the Company’s performances in the said period, the office holder’s contribution to the achievement of the Company’s goals and the circumstances of the retirement. |
| 2.3.9 | (a) The market conditions of the industry in which the Company operates at any relevant time, including the office holder’s salary compared to the salaries of other office holders working in similar positions (or in position of comparable level) in companies whose characteristics are similar to those of the Company in terms of its activity (as described in section 2.3.1 below); (b) the availability of suitable candidates that can serve as office holders in the Company, the recruitment and retainment of the office holders and the need to offer an attractive compensation package in a global competitive market; and (c) changes in the Company’s area of activity and in the scope and complexity of its activities. |
| 2.4 | Payroll review |
| 2.4.1 | For the purpose of determining the payroll that can be offered to an office holder upon recruitment, the Company will review from time to time the payroll generally accepted in the relevant markets for similar positions in companies, which are similar to the Company in terms of its area of activity/scope of activity/complexity of activity/market value/revenues and other relevant parameters (if such companies exist). |
| 2.4.2 | The payroll review will be conducted by the Company itself, or by an external advisor, at the Company’s discretion, after the Compensation Committee has issued its recommendations regarding this matter. |
| 2.5 | Basic salary, benefits and other related benefits |
| 2.5.1 | The basic salary of a new Company office holder shall be determined taking into accounts the parameters described in section 2.3 above and the conclusions of the payroll review described in section 2.4 above (should such a review be conducted). |
| 2.5.2 | The basic salary shall be in absolute numbers and will include additional costs as requires by applicable law and according to Office Holders position (such as a Company vehicle etc.). the Compensation Committee and the Board of Directors may decide to exchange basic salary with equity-based compensation, either in whole or in part, by issuing Restricted Shares (“RS”) or Restricted Shares Units (“RSU”) which will be vested on a monthly basis. In such case the calculation of the RS and RSU value in comparison to the basic salary will be times 1.25 of the basic salary for the relevant month. |
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| 2.5.3 | In any case, the basic monthly gross salary, or alternatively, the monthly Services Fees (as defined above) shall not exceed the maximum amount set out below (linked to the Consumer Price Index commencing July 2023): |
| Position* | Maximum
basic monthly gross salary* | |||
| Active Chairperson of the Board of Directors (“Active Chairperson”)** | NIS | 90,000 | ||
| Company’s CEO (“CEO”) | NIS | 110,000 | ||
| Subordinate Office holders | NIS | 82,500 | ||
| Foreign office Holder | $ | 25,000 | ||
| * | The amounts presented above are in respect of a full-time position (other than the Active Chairperson); those amounts shall change in proportion to the scope of position of the office holder. |
| ** | Unless the Active Chairperson hold another position in the Company, in which case he will not be entitled to a double compensation. |
| 2.5.4 | Social benefits1, related benefits, reimbursement of expenses |
The compensation package may include benefits that are generally acceptable in the market where employee serves, such as vacation pay2, contributions towards pension, life insurance, education fund, training fund saving, health insurance, social rights and benefits, mobile phone (including grossing up of the taxable value of the phone), internet and landline, gifts on public holidays, recreation, medical tests, medical insurance and/or undertaking such an insurance policy and other expenses, all as approved by the Compensation Committee and the Company’s Board of Directors, at their discretion and in accordance with the applicable Company policy.
| 2.5.5 | Relocation terms |
Should any of the Company’s Israeli resident office Holders be relocated on behalf of the Company out of Israel, the Company will be entitled to grant that officer a grant of up to $50,000 to cover relocation expenses, in addition to health care expenses as may be from time to time.
| 2.5.6 | Insurance, indemnification, and exemption |
D&O Insurance
| 2.5.6.1 | The Company’s Office Holders, as may be from time to time, shall be entitled to benefit from coverage provided by liability insurance of directors and Office Holders, which the Company will purchase from time to time (the “D&O Insurance”). |
| 2.5.6.2 | The D&O insurance and any extension, renewal or replacement of the D&O Insurance, may be approved by the Committee alone (and the Board of Directors, if required by law), if the insurance policy meets the following criteria and provided that the engagement with the insurer is entered into under market conditions and will not have a material effect on the Company’s profitability, its assets or liabilities: |
| a. | The limit of insurer’s liability under the insurance policy (including Side “A” coverage) shall not exceed $50,000,000 (fifty million U.S. Dollars) per claim and during the insurance period covered by that policy, plus reasonable litigation expenses in excess of the abovementioned limit. |
| 1 | As to an office holder that has entered into engagement with the Company whereby no employer-employee relationship exists, the Company may pay the social benefits described above on top of his monthly fee in lieu of the said expenses. |
| 2 | An office holder shall be entitled to annual leave as prescribed by law, but the Company may grant him further paid leave up to a maximum of 24 working days per year. The Company may allow the office holder to accumulate vacation days over his term of office in accordance with Company’s procedures. |
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| b. | The total annual premium that the Company will pay to an insurance company for the Office Holders liability insurance as described above, shall be (i) determined by the Company’s Compensation Committee and after consulting with an insurance expert; and in market conditions and in an immaterial cost at the time of purchasing; or (ii) Shall not exceed a total of $2,500,000. |
| c. | the Committee has determined that the sums are reasonable considering the Company’s exposures covered under such policy, the scope of cover and the market conditions, and that the D&O Insurance is on market terms and shall not have a material impact on the Company’s profitability, assets or liabilities. |
| 2.5.6.3 | Run Off Coverage- Upon circumstances to be approved by the committee (and, if required by law, by the Board), the Company shall be entitled to enter into a “run off” Insurance Policy of up to seven (7) years, with the same insurer or any other insurance (the “Run Off Coverage”). The limit of liability of the insurer shall not exceed $30,000,000 per claim and in the aggregate for the term of the policy, the premium for the insurance period shall not exceed 400% of the last paid annual premium and the deductible (except for extraordinary matters as prescribed in the D&O Insurance, such as lawsuits against the Company pursuant to securities laws and/or lawsuits to be filed in the US/Canada) shall not exceed US$150,000 per claim. The Run Off Coverage, as well as the limit of liability and the premium for each extension or renewal, shall be approved by the Committee which shall determine whether the sums are reasonable considering the Company’s exposures, the scope of coverage and market conditions and if the Run Off Coverage reflects then prevailing market conditions, and, provided, further, that the Run Off Coverage shall not materially affect the Company’s profitability, assets or liabilities.. |
| 2.5.6.4 | The insurance policy may include an entity cover that will cover the Company itself in case of lawsuits filed against it under the securities law (whether those lawsuits are filed only against the Company and whether they are filed against the Company and Office Holder thereof or an Office Holder in its related companies). Such cover will be subject to priorities for payment of any insurance benefits according to which the rights of the Directors and Officers to receive indemnity from the Insurer’s take precedence over the right of the Company itself. |
| 2.5.6.5 | In this section 2.5.6.2, if the overages do not exceed 10%, this will not be considered as an exemption of the Policy. |
Indemnification and Exemption
| 2.5.6.3 | The Company’s Office Holders may be entitled to an indemnification arrangement in accordance with arrangements that are normally acceptable and subject to the provisions of the law and the Company’s articles of association. The overall amount of indemnification per event to each office holder and to all office holders together, individually or in aggregate, shall not exceed the greater of: (i) 25% of the effective shareholders’ equity of the Company; or (ii) $5 million (the maximum indemnification amount). |
For that purpose, the “effective shareholders’ equity of the Company” means the amount of the Company’s shareholders’ equity in accordance with the last consolidated audited or reviewed financial statements of the Company (as applicable) at the time of actual payment of the indemnification. It is hereby clarified that the indemnification shall be paid in excess of any amount paid under the liability insurance of directors and office holders, which the Company has purchased or will purchase from time to time.
| 2.5.6.4 | Company Office Holders may be entitled to an exemption arrangement in accordance with arrangements that are normally acceptable and subject to the provisions of the law and the Company’s articles of association. |
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| 2.6 | Compensation in connection with termination of employment |
| 2.6.1 | Advance notice period |
| 2.6.1.1 | An office holder may be entitled to advance notice period or payment in lieu of advance notice period, as follows: |
Active Chairperson- up to 6 months advance notice period.
CEO - up to 6 months advance notice period.
Subordinate office holder - up to 6 months advance notice period.
Foreign office holder- up to 6 months advance notice period.
| 2.6.1.2 | Over the course of the advance notice period, the Office Holder shall continue to do his job in the Company at the request of the Company, unless the Company decides that he will not do so, in which case the office holder may be entitled to continue and receive over the advance notice period all employment and service terms, which were agreed upon in his employment agreement. |
| 2.6.1.3 | The service or employment terms of the Office Holders may include a provision whereby the Company may terminate the services or employment of the office holder without an advance notice period in cases which deny eligibility for severance pay according to the law, including the following cases: (a) conviction of an offence involving moral turpitude; (b) an office holder who will conduct himself in a disloyal and/or unreliable and/or dishonest manner in his relations with the Company and/or while carrying out actions on its behalf and/or will harm the Company’s reputation; (c) in case the office holder will breach the confidentiality duty towards the Company and/or his duty to protect the Company rights which were developed due to or as part of his work at the Company; (d) Any other case in which the Company is legally entitled to refrain from payment of severance pay. |
| 2.6.2 | Severance pay |
Office holders, who are Company’s employees, will be entitled to severance pay in accordance with the provisions of the local law and subject to the Board full discretion.
| 2.6.3 | Retirement / Adjustment Period terms |
| 2.6.3.1 | The retirement terms of Company’s Office Holders shall be determined by the Compensation Committee and the Board of Directors, in accordance with the following table, while taking into account, among other things, the parameters set out in section 2.3 above, the period of service or employment of the office holder, the terms of service and employment over the course of this period, his contribution to the achievement of the Company’s and the circumstances of the retirement: |
| Validation of the right from termination of employment / services date | Position | |
| Up to 4 months gross salary | CEO | |
| Up to 3 months gross salary | Subordinate office holder |
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| 2.7 | Annual bonus |
In addition to the basic salary, the compensation package of Company’s office holders may include eligibility to an annual bonus that is based on measurable targets and to an annual discretionary bonus (hereafter jointly: “the annual bonus”).
For the purpose of this Annual bonus section, whenever the term “salary” is used, it means (i) in the case of an employed office holder – the gross salary as paid to the office holder for the month of December in the relevant year, including any social benefits and related benefits as detailed in section 2.5.4 and 2.5.5 herein and (ii) in the case of office holder with no employer-employee relationship – the fee paid to the office holder for the month of December in the relevant year, excluding VAT (if applicable).
| 2.7.1 | Components of the annual bonus |
The Company may grant an Office holder an annual bonus up to the maximum annual bonus as described in the table in section 2.7.7 below, based on the compensation plan which will be approved by the compensation committee and the Board of Directors for each year in advance.
At the end of each year, the Compensation Committee and Board of Directors will review the office holders’ meeting their measurable targets in order to determine that component of the annual bonus, which is based on measurable targets. The Compensation Committee and Board of Directors may determine to pay only part of the component of the annual bonus, which is based on measurable targets, if the office holder meets only some of the targets.
According to the rates stated below, the components for each of the Office holders of the annual bonus will be:
| (i) | Measurable Company Targets (from the categories in the list below); | |
| (ii) | Measurable Personal Targets (from the categories in the list below); and | |
| (iii) | Discretionary Bonus (according to the limitations set forth herein) |
| Measurable Company Targets | Measurable Personal Targets | Discretionary Bonus | ||||||||
| Active Chairperson / CEO | 0-100 | % | 0-100 | % | 0-25% (by Board of Directors), see section 2.7.3(1) below | |||||
| Subordinate Office holders | 0-100 | % | 0-100 | % | 0-25% (by CEO), see section 2.7.3(2) below. |
| 2.7.2 | Measurable Targets (Company and Personal) |
Set forth below are several suggested criteria for the annual bonus that is based on measurable targets. It should be clarified that this list is not a closed and binding list. The Compensation Committee and the Board of Directors may consider adding or removing some of those criteria, considering the role of each office holder, his areas of responsibility and the Company’s activity.
A bonus that is based on meeting principal and personal performance metrics that are quantified and set out in the Company’s work plan and attributed to the relevant office holder. These performance metrics may include, among other things:
Active Chairperson and CEO Measurable Targets Criteria
| (a) | Sales and marketing targets. |
| (b) | Increase of revenue targets. |
| (c) | Engagement in contracts with revenue potential in a determined amount. |
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| (d) | Engagement in collaboration contracts. |
| (e) | Engagement of material contracts and/or strategic contracts. |
| (f) | Achievement of product development milestones. |
| (g) | Reducing costs. |
| (h) | Achievement of targets/milestones relating to Company’s products and projects. |
| (i) | Promotion of strategic plans and targets, including targets which were set for the office holder, and which are relevant to the relevant office holder’s area of activity. |
| (j) | Achievement of regulatory approvals and/or IP related approvals. |
| (k) | Achievement of financial indicators targets: gross margin, operational profit/loss, net profit/loss, cash balance, revenue. |
| (l) | Achievement of funding targets: raising loans, private placement, public or rights offering of shares, bonds, etc. |
Subordinate office holder Measurable Targets Criteria
| (a) | Sales and marketing targets. |
| (b) | Increase of revenue targets. |
| (c) | Engagement in contracts with revenue potential in a determined amount. | |
| (d) | Engagement in collaboration contracts. | |
| (e) | Engagement of material contracts and/or strategic contracts. | |
| (f) | Achievement of product development milestones. | |
| (g) | Reducing costs. | |
| (h) | Achievement of targets/milestones relating to Company’s products and projects. | |
| (i) | Promotion of strategic plans and targets, including targets which were set for the office holder, and which are relevant to the relevant office holder’s area of activity. | |
| (j) | Achievement of regulatory approvals and/or IP related approvals. | |
| (k) | Budget and work plan related targets. | |
| (l) | Inventory and Production related targets. | |
| (m) | Achievement of financial indicators targets: gross margin, operational profit/loss, net profit/loss, cash balance, revenue. | |
| (n) | Achievement of funding targets: raising loans, private placement, public or rights offering of shares, bonds, etc. |
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| 2.7.3 | Discretionary bonus |
| (1) | With regard to the Company’s CEO and an Active Chairperson of the Board of Directors– most of the annual bonus will be based on measurable targets and an immaterial portion of the annual bonus (for that purpose “immaterial portion” – the higher of (a) a total of 3 (gross) monthly salaries or (b) 25% of the variable components of the bonus (actual bonus and equity-based payment) shall be a discretionary bonus that is based on qualitative criteria (regarding a CEO which is a controlling shareholder- subject to shareholders approval). |
Notwithstanding the above, if in a specific year the Company does not pay the CEO or the Active Chairperson (as applicable) an annual bonus that is based on measurable targets (i.e., if the discretionary annual bonus paid to the CEO or the Active Chairperson (as applicable) constitutes the total annual bonus paid on that year), then the amount of the discretionary bonus that the Company may pay to the CEO and to the Active Chairperson (as applicable and separately) shall not exceed three (3) gross monthly salaries of that office holder.
| (2) | With regard to Subordinate Office Holders– subject to the provisions of the law, Subordinate Office Holders, may be eligible to an annual bonus that is based on measurable targets and to a discretionary annual bonus. It should be clarified that the amount of the discretionary bonus that the Company may pay to Subordinate Office Holders, shall not exceed three (3) gross monthly salaries of the Subordinate Office Holder. |
Notwithstanding the foregoing, subject to applicable law, the Company’s competent organs shall be entitled to approve payment of annual bonus based on all or some of the measurable targets and/or of discretionary bonus, on an Annual, quarterly, monthly, or otherwise basis.
| 2.7.4 | Neutralization of one-off events |
As part of the calculation of the eligibility to annual bonus that is based measurable targets on the basis of financial statements data (if such targets are set) the Board of Directors or the Compensation Committee will be authorized to neutralize the effect of “one-off events”, or alternatively to decide that such events should not be neutralized in a certain year, as applicable.
| 2.7.5 | The Company’s competent organs shall approve this component based, among other things, on data presented by the Company’s management and based on personal assessment and recommendation issued by the Company’s CEO (with regard to Subordinate office holders) and by the Company’s Board of Directors with regard to Active Chairperson and the CEO, while listing the underlying reasons for their recommendation. |
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| 2.7.6 | Annual bonus that is based on measurable targets only |
| 2.7.6.1 | Subject to the provisions of the law and the positions of the Israeli Securities Authority (as amended from time to time): |
| a. | The Compensation Committee and Board of Directors alone will be allowed to determine the measurable targets applicable to Active Chairperson of the Board of Directors or any other director, if one of the following (1) or (2) is fulfilled: |
| (1) | All of the following conditions are met: (a) the resolution is in line with the Policy; (b) the grant in question is based only on measurable targets; (c) the amount of the potential grant is immaterial (up to three salaries); and (d) the targets were pre-determined by the Compensation Committee and Board of Directors. |
| (2) | All of the following conditions are met: (a) the resolution is in line with the Policy; (b) the office holder in question serves both as a director and in an operational role in the Company; (c) The Compensation Committee and Board of Directors approved the targets, other than the said directors, who receive from the Company a bonus based on measurable targets, did not take part in the approval of those targets (whether in their capacity as directors or in their capacity as other office holders in the Company). |
| b. | The Compensation Committee and Board of Directors alone will be allowed to determine the measurable targets applicable to an office holder, who is a controlling shareholder or a relative thereof (as these terms are defined in the Companies Law), if one of the following (1) or (2) is fulfilled: |
| (1) | All of the following conditions are met: (a) the resolution is in line with the Policy; (b) the grant in question is based only on measurable targets; (c) the amount of the potential grant is immaterial (up to three salaries); and (d) the targets were pre-determined by the Compensation Committee and Board of Directors. |
| (2) | The Board of Directors has determined a clear target that is based on financial statements data and which applies in the same manner to the controlling shareholder and his relative and to other office holders, who are not related to the controlling shareholder. |
| 2.7.7 | The maximum annual bonus of office holders as of date of payment thereof (both in respect of Discretionary Bonus and in respect of bonus based on Measurable Targets): |
| Role | Maximum Annual Bonus3 | |
| Active Chairperson | Up to 8 monthly salaries (subject to the provisions of section 2.7.3(1) above) | |
| CEO | Up to 12 monthly salaries (subject to the provisions of section 2.7.3(1) above) | |
| Other Subordinate Office holders | Up to 8 monthly salaries. |
| 3 | The maximum values are in respect of the aggregate annual bonus – bonus based on measurable targets and discretionary bonus. |
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| 2.7.8 | The amount of the annual bonus that is based on measurable targets shall be calculated based on measurable criteria, that will be determined (if they are determined) for each and every office holder at a time close to the date of the discussion held by the Board of Directors for review of the Company’s budget for the forthcoming year, in accordance with the role of the relevant office holder, by the competent organs of the Company (in accordance with the provisions of the law and the positions of the Securities Authority, as amended from time to time), provided that the targets applicable to Subordinate Office Holders, shall be determined by the Company’s Compensation Committee and Board of Directors, at the recommendation of the CEO. |
| 2.7.9 | The Compensation Committee and the Board of Directors may decide to change the measurable targets at any time during the year if the change is for the best interest of the Company and for special circumstances (for example: change of job description, regulatory changes, other material events), that the Compensation Committee and Board of Directors believes that justify making such change (including retroactive change). |
| 2.7.10 | The Compensation Committee and Board of Directors may decide to pay the annual bonus in cash and/or equity. |
| 2.7.11 | The Compensation Committee and Board of Directors may decide to postpone the payment of the annual bonus or reduce the amount of the annual bonus to which the office holder is entitled, at their own discretion. |
| 2.7.12 | The Company may pay an office holder who has not completed a full year of employment, a proportionate share of the bonus according to the period of employment of the office holder. |
| 2.7.13 | The office holder shall repay to the Company that portion of the bonus he received, which was based on measurable targets, should it be determined that this component was paid to him on the basis of erroneous data and/or data that were restated in the Company’s financial statements, provided that the date of restatement of the financial statements does not fall later than three (3) years after the original approval of the relevant financial statements. |
| 2.8 | One-Time Bonus |
The Board of Directors, subject to the recommendation of the Compensation Committee and the officer’s direct supervisor, may decide to grant a one-time bonus (beyond the Annual Bonus, as described in Section 2.7 above), to an office holder, including an Active Chairperson and directors, in respect of special efforts performed by the officer and / or in respect of the significant contribution of the officer to the Company’s operations, special projects or extra ordinary achievements which are not in the Company’s general course of business, including but not limited to: IPO, completion of a merger or sale of operations, material agreement, etc. (the “One-Time Bonus”).
An approval of a One-Time Bonus to the CEO which is not a controlling shareholder, that meets the aforesaid conditions, shall not be subject to the approval of the General Meeting, as long as the aggregate amount of the all discretionary bonuses does not exceed 3 monthly salaries.
The aggregate amount of One-Time Bonus and annual bonus, other than the CEO, shall not exceed 11 monthly salaries. The One-Time Bonus is separate from the annual bonus.
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| 2.9 | Special Bonus- merger or sale or assignment by the Company of all or substantially all of its shares or assets. |
The Board of Directors, subject to the recommendation of the Compensation Committee and the officer’s direct supervisor, may decide to grant a special bonus (beyond the Annual Bonus and/or the One-Time bonus), as described in Section 2.7 and 2.8 above), to an Office Holder, including directors and chairperson, in case of a consummation of a merger, or sale or assignment by the Company of all or substantially all of the issued and outstanding shares of the Company and/or all or substantially all of the Company’s assets (the “Special Bonus”). The Special Bonus for all office holders together will be subject to a limit of 10% of the transaction value, and in accordance with applicable law (the “Special Bonus”).
The Special Bonus is separate from the One-Time Bonus and the Annual Bonus.
An approval of a Special Bonus to the CEO, that meets the aforesaid conditions, shall not be subject to the approval of the Company’s shareholders, as long as the aggregate amount of all discretionary bonuses does not exceed 3 monthly salaries.
| 2.10 | Commissions |
The CEO, may decide to grant Office holders that are providing services of sales and/or services of technical support of sales for the Company, with commissions, as shall be determined in their employment agreement (the “Sales Office holders” and “Commission”, respectively). The purpose of granting Commissions to Sales Office holders is to incentivize Sales Office holders to increase the amount of sales of Company’s products. For each Sales Office holder, the aggregate amount of Commissions paid by the Company in each calendar year shall be up to 5% from direct contribution to the Company’s income from sales, and in any case, the amount paid for each Sales Office holder shall not exceed $1,500,000. The Commissions will be paid on either a monthly, quarterly or annual basis. The maximum amount of Commissions shall be considered from time to time.
The Commission paid to a Sales Office holder shall be separate from the Annual Bonus and/or One-Time Bonus and/or Special Bonus given to them, or instead of Annual Bonus and/or One-Time Bonus and/or Special Bonus, as suggested by in each case by the CEO and approved by the Compensation committee.
| 2.11 | Long-term compensation |
| 2.9.1 | The purpose of granting long term compensation is to create an identity of interests between the company’s long term business results and the office holder’s compensation. In addition, granting long term compensation is a tool for preserving personnel. The principles for the long-term compensation are as follows: |
| 2.9.1.1 | The Company will provide equity-based compensation, which can include options, Restricted Share Units (“RSUs”) and or any other equity-based compensation in accordance with the Company’s [______] (the “Option Plan” and “Award” or “equity-based compensation”, respectively), to Office Holders, from time to time at the Board’s discretion. |
| 2.9.1.2 | Vesting Period- The vesting period will not be less than three (3) years, except in cases of acceleration, in accordance with the Policy, the employment agreement and / or services with the Office Holder and as will be from time to time, or in case the vesting depends on milestones. |
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| 2.9.1.3 | Acceleration Mechanism- The Board of directors (and in relation to the CEO or directors, as required by applicable law) may allow immediate acceleration for any unvested Award granted to office holders, upon a change of control event, as the term “control” is defined in accordance with the Companies Law, or following termination of employment or services of Office Holder, subject to the full discretion of the Board of Directors. |
| 2.9.1.4 | Exercise Price- The exercise price of the equity-based compensation shall not be less than (i) the share price at the date of grant; (ii) the average price of the last 7-30 trading days share price, prior to the grant date, as decided by the Compensation Committee and the Board of Directors. |
| 2.9.1.5 | Expiration date - up to ten (10) years from the date of grant. |
| 2.9.1.6 | The grant of equity-based compensation will be granted as possible under section 102 of the Income Tax Ordinance to employees employed in Israel (in cases of workers abroad under the existing law in those countries). |
| 2.9.1.7 | The maximum equity-based compensation value as specified below is for one-year term and shall be calculated on a linear basis: |
Maximum amounts as follows:
| Role | Active Chairperson | CEO | Subordinate Office holder | |||
| Maximum amount | NIS [__] | NIS [__] | NIS [__] |
| 2.9.1.8 | the maximum dilution rate of the Office Holders equity-based compensation at any time will not exceed a rate of 10% of the Company’s issued and outstanding share capital on a fully diluted basis at the time of grant. |
| 2.9.1.9 | Other conditions for long-term compensation will be in accordance with the Company’s Option Plan or any other long-term compensation plan that will be adopted by the Company or determined by the Compensation Committee and the Board of Directors. |
| 2.10.1.10 | Repricing and exchange equity-based compensation- With approval of the Compensation Committee and the Board of Directors (without further approval of the Company’s shareholders), the Company may decide to replace existing Options with RS or RSUs or existing Options with other Options, in different quantities of RS or RSUs and/or Options as well as with different vesting periods and/or exercise price or in different quantities of RS or RSUs and/or Options. |
| 2.9.2 | The Compensation Committee and the Board of Directors may decide to exchange accrued and unpaid cash salary given to office holders, including controlling shareholders and/ or relative of controlling shareholder (only in the event described in this section 2.9.2), with RSU or any other or any other equity-based compensation in accordance with the Company’s Option Plan (as defined in the Current Compensation Policy) (the “Exchanged equity-based compensation”). |
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The Exchanged equity compensation terms will be determined according to the following:
2.9.2.1. Vesting Period- will be no less than one month.
2.9.2.2 Share Price- will be calculated at the Board of Directors’ discretion granted in the minimum value per share and allowed under applicable law. In such case the calculation of the RS and RSU value in comparison to the basic salary will be times 1.25 of the basic salary for the relevant month.
All other relevant terms will be as specified in section 2.9.1 above.
| 2.12 | The ratio between the variable components and the basic salary component4 |
| Role | The percentage of the total variable
components out of the total annual compensation | |
| Active Chairperson of the Board of Directors | Up to 100% | |
| CEO* | Up to 100% | |
| Subordinate Office Holders, if any | Up to 100% | |
| Foreign Office holders | Up to 100% |
| * | Subject to applicable law. |
| 2.13 | Extending the term of existing agreements with Company office holders and making amendments to those agreements |
| 2.11.1 | Prior to extending the term of the services or employment agreement with a Company office holder (whether this involves changes to the terms of employment or not), the office holder’s existing compensation package will be assessed in relation to the parameters set out in section 2.3 above and bearing in mind the payroll review, which was conducted by the Company as per section 2.4 above. |
| 2.11.2 | Subject to the provisions of the law and the positions of the Israeli Securities Authority, as amended from time to time, immaterial changes (as defined below) made to the service or employment terms of the Company’s CEO (other than a CEO which is a controlling shareholder) will need to be approved by the Compensation Committee alone, if it approves that the changes are, indeed, immaterial and the change complies with the provisions of this Policy. |
| 2.11.3 | Subject to the provisions of the law and the positions of the Israeli Securities Authority, as amended from time to time, immaterial changes made to the service or employment terms of the Subordinate Office Holders (other than a Subordinate office holder which is a controlling shareholder) shall be approved by the Company’s CEO alone, and the approval of the Compensation Committee will not be required, provided that the service and employment terms of that office holder comply with the provisions of this Policy. |
In sections 2.11.2 and 2.11.3 above, “immaterial changes to the service and employment terms” are changes, the aggregate value of which does not exceed 10% of the overall annual cost of compensation of the office holder.
| 4 | For that purpose, the “variable components” include the annual bonus, one-time bonus, special bonus and annual value of the share-based payment. |
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| 2.14 | Compensation of directors |
| 2.12.1 | The directors of the Company will be entitled to annual compensation and participation compensation which will be determined in accordance with the provisions of the Companies Regulations (rules regarding remuneration and expenses for an external director), 2000 hereafter and the Companies Regulations (exemptions for dual companies), 2000 (“the compensation regulations”), as may be from time to time and according to the Company’s rank. |
| 2.14.3 | In addition, the directors of the Company will be entitled to compensation for travel and parking expenses. |
| 2.14.4 | The Company may grant equity-based compensation to directors, including external directors (if any) and independent directors, from time to time, all in accordance with applicable law. |
The fair value of securities at the grant date, as reflected in the Company’s financial statements, granted to external directors and independent directors and any other director in the Company, will be calculated on the basis of accepted valuation methods (such as Black & Scholes / Intermediate), and will not exceed NIS200,000 of the total annual compensation and participation compensation given to directors in the 12 months preceding grant date, subject to the limitations of the compensation regulations.
| 2.14.5 | All other provisions regarding the long-term compensation that apply to the Company’s Office Holders under this Policy, will also apply to the long-term compensation granted to directors. |
| 2.15 | Recoupment Policy |
The Company may seek reimbursement of all, or a portion of any compensation paid to an Office Holder based on financial data included in Company’s financial statements in any fiscal year that are found to be inaccurate and are subsequently restated.
In any such event, Company will seek reimbursement from the Office holders to the extent such Office Holders would not have been entitled to all or a portion of such compensation, based on the financial data included in the restated financial statements.
The Compensation Committee will be responsible for approving the amounts to be recouped and for setting terms for such recoupment from time to time.
| 2.16 | Exchange Rate |
Monetary amounts in this Policy that are quoted in $, subject to the applicable currency exchange rates or any exchange rate determined by the Board.
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| 2.17 | The ratio between the gross salary of office holders and the gross salary of all other Company employees as of the date of the compensation policy |
The ratio of the average and median gross salary between the officers to the other full-time employees (in practice as of the date of approval of the compensation policy):
| Role | Ratio to the average salary5 | Ratio to Median salary | ||
| CEO | [__] | [__] | ||
| Subordinate office holders | [__] | [__] |
As of the date of the compensation policy in the Company, there are [__] full-time employees who are not office holders. It is clarified that for the purpose of calculating the aforesaid ratios, only the employees of Silynxcom Ltd. were included.
At the time of approval of the compensation policy, the compensation committee examined the existing gaps between the officers and the other employees and found that in light of the nature and structure of the Company, the above ratios will not affect the existing employment relationship in the company. In addition, the compensation committee and the Board of Directors believe that these data have a limited effect on determining the salaries of the Company’s officers, given the structure of the Company.
| 3. | The powers of the Compensation Committee and the Company’s Board of Directors regarding the Policy |
| 3.1 | The Company’s Board of Directors is charged with the management of the Policy and all actions required for management thereof, including the power to interpret the provisions of the Policy where doubts arise as to the manner of its implementation. |
| 3.2 | The Company’s Compensation Committee and Board of Directors will assess, from time to time, the Policy and the need to adjust it, inter alia, in accordance with the considerations and principles set out in this policy, while taking into account the changes in the Company’s goals, market conditions, Company’s profits and revenues in previous periods in in real time and any other relevant information. |
| 3.3 | In order to assess the Company’s Policy, the Company’s Compensation Committee and its Board of Directors will monitor the implementation of the Policy in the Company. |
| 5 | The ratio to the average salary and the median salary refers to the gross salary cost of the employees of Silynxcom Ltd. only, and does not include the cost of the salaries of the officers. |
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