XTLB 20-F
Xtl Biopharmaceuticals Ltd (XTLB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
OR
OR
For the transition period from ____________to ___________.
Commission file number:
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s Name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer
Tel:
Fax:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| The | ||||
| (Title of Class) | Trading Symbol | (Name of each exchange on which registered) |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2024,
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Emerging growth company | |||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| US GAAP | ☐ | ☒ | Other ☐ |
If “Other” has been check in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
XTL BIOPHARMACEUTICALS LTD.
ANNUAL REPORT ON FORM 20-F
TABLE OF CONTENTS
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including matters discussed under the caption “Item 5. Operating and Financial Review and Prospects,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. In some instances, you can identify these forward-looking statements by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plan,” “potential,” “will,” “should,” “would,” or similar expressions, including their negatives. These forward-looking statements include, without limitation, statements relating to our expectations and beliefs regarding:
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our ability to continue operating as a going concern;
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| ● | fluctuations in the market price of our securities; |
| ● | the possibility that our securities could be delisted from The Nasdaq Capital Market or the Tel-Aviv Stock Exchange (“TASE”); |
| ● | potential dilution to the holders of our securities as a result of future issuances of our securities; |
| ● | fluctuations in our results of operations; | |
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the availability of capital to satisfy our working capital requirements;
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our current and future capital requirements and our ability to raise additional funds to satisfy our capital needs;
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| ● | our ability to identify potential acquisition targets or our ability to consummate such transactions; |
| ● | the integration and effects of our acquisitions, including the acquisition of The Social Proxy; |
| ● | the accuracy of our financial forecasts and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives; |
| ● | the timing and cost of the in-licensing, partnering and acquisition of new product opportunities; |
| ● | the Company’s offices are located in Israel and, therefore, the business, financial condition and results of operation may be adversely affected by political, economic and military instability in Israel and in the Middle East; |
| ● | our ability to obtain and maintain intellectual property protection for our core assets and the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and |
| ● | other risks and uncertainties described in this report. |
Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under “Item 3. Key Information-Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” and elsewhere in this report, as well as factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.
Forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed. Therefore, you should not place undue reliance on any forward-looking statement as a prediction of future results. Forward-looking statements made in this report and the documents incorporated by reference are made as of the date of the respective documents, and we undertake no obligation to update them in light of new information or future results. Except as required by law, we assume no responsibility for updating any forward-looking statements.
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PART I
Unless the context requires otherwise, references in this report to “XTL,” the “Company,” “we,” “us” and “our” refer to XTL Biopharmaceuticals Ltd, an Israeli company and our consolidated subsidiaries. We have prepared our consolidated financial statements in United States, or US, dollars and in accordance with International Financial Reporting Standards, or IFRS. All references herein to “dollars” or “$” are to US dollars, and all references to “Shekels” or “NIS” are to New Israeli Shekels.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization And Indebtedness
Not applicable.
C. Reasons For Offer And Use Of Proceeds
Not applicable.
D. Risk Factors
Before you invest in our ordinary shares or American Depositary Shares, you should understand the high degree of risk involved. You should carefully consider the risks described below and other information in this report, including our consolidated financial statements and related notes included elsewhere in this report, before you decide to purchase our ordinary shares or American Depositary Shares (“ADSs”). If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our ordinary shares or ADSs could decline and you could lose part or all of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties, not presently known to us or that we currently deem immaterial, may also adversely affect our business.
Risk Factors Summary
| ● | Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates. |
| ● | Management has concluded that there is 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.. |
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The Social Proxy’s limited operating history makes it difficult to evaluate its future prospects and the risks and challenges we may encounter. We expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability. | |
| ● | The data collection and proxy services markets are rapidly evolving within an increasingly challenging landscape. If the industry does not continue to develop as we anticipate, our sales will not grow as quickly as expected and our share price could decline. |
| ● | There is increasing regulatory scrutiny of web data collection and if we fail to ensure that our products and services are in compliance with such regulations or industry standards our business and financial results may be adversely affected. |
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Data localization and sovereignty laws may restrict our access to web data and increase compliance costs. |
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Growing anti-scraping mechanisms and technological barriers may limit our operations web scraping and automated data collection techniques are essential to our business. |
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| ● | We are engaged in on-going development of our current and future products. Our research and development efforts may not produce successful products or enhancements to our solution that result in significant revenue or other benefits in the near future, if at all | |
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We plan to eventually introduce improved as well as new products and services as working capital and cash flow may permit, and our business will be harmed if we are not successful in selling these improved as well as new products and services to our existing customers and new customers. |
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Our business is dependent upon data companies adopting The Social Proxy’s platform and if we fail to obtain broad adoption, our business will be adversely affected. | |
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If we are unable to acquire new customers, our future revenues and operating results will be harmed. |
| ● | If we are unable to sell additional products and services to our existing customers, our future revenues and operating results may be harmed. |
| ● | We face intense competition from other data collection service providers, some of which are larger and better known than we are, and we may lack sufficient financial or other resources to maintain or improve our competitive position. |
| ● | Our dependence on third-party internet service providers, or ISPs, proxy network providers, data center proxy providers and mobile carriers, exposes us to risks. |
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To the extent we experience management turnover, this will create uncertainties and could harm our business. | |
| ● | If we lose our key personnel or are unable to attract and retain additional personnel, our business could be harmed. |
| ● | Our Chief Financial Officer is not required to work exclusively for us, which could materially and adversely affect us and our business. |
| ● | If we do not effectively expand, train and retain our sales force, we may be unable to acquire new customers or sell additional products and services to existing customers, and our business will suffer. | |
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Growth in our business could strain our personnel resources and infrastructure; if we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed. |
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| ● | If we are unable to support demand for our platform or any of our future products or services, our business could suffer. | |
| ● | Any acquisitions we make may dilute your equity or require a significant amount of our available cash and may not be scientifically or commercially successful. We may not realize the benefits of these acquisitions. | |
| ● | Our business involves risks and uncertainties that may not be covered by our insurance. |
| ● | If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market. |
| ● | Litigation or third-party claims of intellectual property infringement could require us to spend substantial time, money and other resources defending such claims and adversely affect our ability to develop and commercialize our products. |
| ● | If we are unable to protect the confidentiality of our trade secrets and other proprietary information, our business and competitive position may be harmed. | |
| ● | The ADSs are traded in small volumes, limiting ability to sell ADSs that represent ordinary shares at a desirable price, if at all. |
| ● | Our stock price can be volatile, which increases the risk of litigation and may result in a significant decline in the value of your investment. |
| ● | Concentration of ownership of our ordinary shares among our principal stockholders may prevent new investors from influencing significant corporate decisions. |
| ● | Our ordinary shares and ADSs trade on two different markets, and this may result in price variations and regulatory compliance issues. |
| ● | Holders of our ordinary shares or ADSs who are U.S. citizens or residents may be required to pay additional income taxes. |
| ● | As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and the requirements of the Nasdaq Stock Market LLC (“Nasdaq”), which may result in less protection than is accorded to investors under rules applicable to domestic issuers. |
| ● | ADS holders are not shareholders and do not have shareholder rights. |
| ● | There are circumstances where it may be unlawful or impractical to make distributions to the holders of the ADSs. |
| ● | We may fail to remain in compliance with the continued listing standards of The Nasdaq Capital Market and a delisting of our ADSs could make it more difficult for investors to sell their shares | |
| ● | The Company’s offices are located in Israel and, therefore, the business, financial condition and results of operation may be adversely affected by political, economic and military instability in Israel and in the Middle East. |
| ● | Our results of operations may be adversely affected by inflation and foreign currency fluctuations. |
| ● | Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders. |
| ● | It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel. |
| ● | Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. |
| ● | Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies. |
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Risks Related to Our Financial Position and Capital Requirements
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional capital through a combination of private and public equity offerings, debt financing, strategic partnerships and alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Management has concluded that there is 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.
We have incurred significant losses and negative cash flows from operations and have an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Our audited consolidated financial statements for the year ended December 31, 2024 were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm has included a “going concern” explanatory paragraph in its report on our financial statements for the year ended December 31, 2024. If we are unable to improve our liquidity position, by, among other things, raising capital through public or private offerings or reducing our expenses, we may exhaust our cash resources and will be unable to continue our operations. If we cannot continue as a viable entity, our shareholders would likely lose most or all of their investment in us.
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Risks Related to our Business and Industry
The Social Proxy’s limited operating history makes it difficult to evaluate its future prospects and the risks and challenges we may encounter. We expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability.
The Social Proxy commenced its commercial operations only two years ago. Accordingly, The Social Proxy has a limited operating history in a rapidly evolving industry that may not develop in a manner favorable to its business. As a result of The Social Proxy’s limited operating history and ongoing changes in the evolving industry of data collection and proxy services, our ability to forecast The Social Proxy’s and our future results of operations is limited and subject to a number of uncertainties. For the year ended December 31, 2024, The Social Proxy has generated revenue of approximately $451 thousand.
We have encountered and expect to continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, such as the risks and uncertainties described herein. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace the anticipated revenue that we do not receive as a result of delays arising from these factors, and our results of operations in future reporting periods may be below the expectations of investors or analysts. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of investors or analysts, causing our business to suffer and the market price of our ADSs to decline.
Our expenses may continue to exceed revenues in the foreseeable future and we may not achieve profitability. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to expand or continue our business, and the value of our ADSs could be negatively impacted. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Furthermore, our historical performance may not be indicative of our future growth or financial results. We cannot assure you that we will be able to grow at the same rate as we did in the past or avoid any decline in the future. Our growth may slow down or become negative, and revenues may decline for a number of possible reasons, some of which are beyond our control, including decreasing user spending, increasing competition, declining growth of our overall market or industry, the emergence of alternative business models, decreasing demand for online groceries, and changes in rules, regulations, government policies or general economic conditions. In addition, our growth pace may also be impacted by our strategic shift of focus on sustainable growth. It is difficult to evaluate our prospects as we may not have sufficient experience in addressing the risks to which companies operating in rapidly evolving markets may be exposed. If our growth rate declines, investors’ perceptions of our business and prospects may be materially and adversely affected, and the market price of our ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating history may encounter.
The data collection and proxy services markets are rapidly evolving within an increasingly challenging landscape. If the industry does not continue to develop as we anticipate, our sales will not grow as quickly as expected and our share price could decline.
We operate in a rapidly evolving industry focused on providing organizations data collection services. Data collection is the process of gathering and measuring information from various sources. The web data collection and proxy services markets are intensely competitive, with established players such as Bright Data, Oxylabs, Smartproxy, and NetNut and many other small players offering similar services. It is therefore difficult to predict how large the markets will be for our solutions. If solutions such as ours are not viewed by organizations as necessary, or if business or customers do not recognize the benefit of our solution, then our revenues may not grow as quickly as expected, or may decline, and our share price could suffer.
There is increasing regulatory scrutiny of web data collection and if we fail to ensure that our products and services are in compliance with such regulations or industry standards our business and financial results may be adversely affected.
The regulatory landscape governing web data collection is evolving rapidly, with authorities across multiple jurisdictions imposing stringent legal and compliance requirements. Laws such as the European Union’s General Data Protection Regulation, or the GDPR, the California Consumer Privacy Act, or the CCPA, and the Computer Fraud and Abuse Act, or the CFAA, in the United States set forth complex rules on how businesses may collect, store, and use publicly available and proprietary web data.
In addition, in recent years we have seen a few cases in which corporations have tried to claim that craping publicly accessible data is a violation of the CFAA or have filed lawsuits against parties accused of scraping their platform without consent. Data scraping and data collection from websites is the process of automatically extracting information from web pages, typically using software tools known as web scrapers. For example, LinkedIn Corporation has sued HiQ Labs, a data analytics company, for scraping publicly available information from LinkedIn. In 2019, the Ninth Circuit Court of Appeals initially ruled in favor of HiQ Labs, stating that scraping publicly accessible data does not constitute “accessing a computer without authorization” under the CFAA. The Supreme Court later vacated the Ninth Circuit’s decision and demanded the case for further review. In 2022, the Ninth Circuit affirmed its original decision, holding that scraping publicly available data is not unlawful. However, as the web continues to evolve and there is an increasing reliance on the internet as a source of information, the debate between data accessibility and privacy is likely to intensify, especially concerning AI-powered software and evolving regulations that could affect solutions or the ability to provide such solutions.
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Compliance with these evolving regulations demands significant investments in legal, operational, and technological controls. The cost of compliance may increase as new requirements emerge, including enhanced consent mechanisms (i.e., systems or processes for obtaining user consent to collect or use their data in compliance with privacy laws), stricter data access limitations, and cross-border data transfer restrictions. Any failure to comply with existing or future regulatory obligations could result in substantial fines, injunctions, reputational harm, and business disruptions. Additionally, if regulators or courts determine that our data collection practices infringe upon the rights of website operators or data subjects, we may be forced to modify or cease certain operations, adversely affecting our business, financial condition, and prospects.
In addition, governments may also adopt new laws or regulations, or make changes to existing laws or regulations, that could impact whether our solution enables our customers to maintain compliance with such laws or regulations. If we are unable to adapt our solution to changing government regulations and industry standards in a timely manner, or if our solution fails to expedite our customers’ compliance initiatives, our customers may lose confidence in our products and could switch to products offered by our competitors, and our sales and financial results would be affected.
Data localization and sovereignty laws may restrict our access to web data and increase compliance costs.
In addition to privacy and cybersecurity regulations, data localization and sovereignty laws are increasingly affecting web data collection and processing. Many jurisdictions, including China, Russia, India, and the European Union, have enacted or proposed laws requiring that certain types of data be stored and processed within specific geographic boundaries. These laws aim to enhance national security and data protection but pose significant operational and legal challenges for companies engaged in global data collection.
Compliance with such regulations may require us to establish localized data centers, alter data routing and storage practices, or obtain specific regulatory approvals, all of which could increase costs and operational complexity. Additionally, localization mandates could restrict our ability to access and analyze publicly available data from key markets, potentially impairing our competitive position. Failure to comply with these laws could result in fines, restrictions on our services, or limitations on our ability to expand into certain jurisdictions.
As governments continue to introduce and enforce data sovereignty laws pursuant to their concept that information is subject to the laws of the country in which the data is generated or stored, our ability to collect, store, and transfer data across borders may be further constrained, which could adversely affect our business operations and financial performance.
Growing anti-scraping mechanisms and technological barriers may limit our operations web scraping and automated data collection techniques are essential to our business.
Many websites implement sophisticated anti-scraping mechanisms, i.e., technologies used by websites to prevent automated data extraction, such as bot detection, Completely Automated Public Turing test to tell Computers and Humans Apart (CAPTCHA) systems (a system used to determine whether the user is human), fingerprinting, and access blocking (i.e., restrictions on access to a network or service by denying traffic from specific Internet Protocol addresses). If these mechanisms become more advanced or widely adopted, our ability to collect publicly available data may be significantly restricted, affecting the effectiveness of our services and reducing demand from our customers.
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In addition, increased demand for ethical data practices may impact our business model. As businesses and regulators emphasize data ethics and responsible AI, there is a growing expectation for web scraping and proxy services to ensure compliance with strict privacy frameworks. Customers may demand greater transparency, consent-based data collection, and anonymization practices. If we fail to meet evolving ethical and compliance standards, we could lose business to competitors with stronger data governance frameworks which allows such competitors to better manage data integrity and ensure availability and security of the data across an organization.
We are engaged in on-going development of our current and future products. Our research and development efforts may not produce successful products or enhancements to our solution that result in significant revenue or other benefits in the near future, if at all.
We operate in a fast-evolving industry that demands continuous technological advancements. We regularly update and enhance our offerings to remain competitive and expect to continue to dedicate significant financial and other resources to our research and development efforts in order to continuously evolve the development of our products and maintain our competitive position. As a result, our business is significantly dependent on our ability to successfully complete the development of our next- generation products. Investing in research and development personnel, developing new products, and enhancing existing products is expensive and time consuming, and there is no assurance that such activities will result in successful development of our products, significant new marketable products or enhancements to our products, design improvements, cost savings, revenues or other expected benefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our business and results of operations may be materially and adversely affected.
We plan to eventually introduce improved as well as new products and services as working capital and cash flow may permit, and our business will be harmed if we are not successful in selling these improved as well as new products and services to our existing customers and new customers.
While The Social Proxy plans to eventually introduce improved as well as new products and services as working capital and cash flow may permit, we do not yet know whether any improved or new products and services will be well received and broadly adopted by the market or whether sales will be sufficient for us to offset the costs of development, implementation, support, operation, sales and marketing. Broad-based implementation of any improved or new products and services may require more support than we anticipate, which would further increase our expenses. Additionally, new products and services may subject us to additional risks of product performance, customer complaints and litigation. If sales of any improved or new products and services are lower than we expect, or if we expend additional resources to correct unforeseen problems and develop modifications, our operating margins are likely to decrease.
Our business is dependent upon data companies adopting The Social Proxy’s platform and if we fail to obtain broad adoption, our business will be adversely affected.
Our success will depend on our ability to bring awareness to the Social Proxy’s brand and educate data companies regarding the benefits of the Social Proxy’s platform over existing products and services. We do not know if the Social Proxy’s platform will be successful over the short, mid, or long term and market acceptance may be hindered if they are not presented with compelling data demonstrating the efficacy of the Social Proxy’s platform compared to alternative proxies or other related technologies. If data companies do not adopt and prescribe our platform, our revenue stream and financial condition will suffer as a result.
If we are unable to acquire new customers, our future revenues and operating results will be harmed.
Our success depends on our ability to acquire new customers. The number of customers that we add in a given period impacts both our short-term and long-term revenues. If we are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The markets we operate in are competitive and many of our competitors have substantial financial, personnel, and other resources that they utilize to develop products and attract customers. As a result, it may be difficult for us to add new customers to our customer base. Competition in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives. These factors may have a meaningful negative impact on future revenues and operating results.
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If we are unable to sell additional products and services to our existing customers, our future revenues and operating results will be harmed.
Our revenues are generated from sales to new and existing customers. Our future success depends, in part, on our ability to obtain recurring sales to our existing customers. However, we face customer retention challenges due to fierce competition in the market. We devote significant efforts to developing, marketing and selling additional products to existing customers and rely on these efforts for a portion of our revenues. These efforts require a significant investment in building and maintaining customer relationships, as well as significant research and development efforts in order to provide product upgrades and launch new products. The rate at which our existing customers purchase additional products and services depends on a number of factors, including, but not limited to, the perceived need for additional access services, the fit and efficacy of our solutions and the utility of our new offerings, whether proven or perceived, our customers’ budgets, general economic conditions, our customers’ overall satisfaction with the professional services we provide and the continued growth and economic health of our customer base to require incremental users and servers to be covered. If our efforts to sell additional products and services to our customers are not successful, our future revenues and operating results will be harmed.
In addition, a significant portion of our customers rely on AI-powered analytics and big data strategies. Big data refers to extremely large datasets that require advanced methods and technologies to store, process, and analyze for insights.
Any slowdown in artificial intelligence, or AI adoption, budget constraints in data-intensive industries (finance, e-commerce, marketing), or shifts in AI regulatory policies could reduce demand for our services. If AI-driven industries face downturns, our business may experience slower growth or declining revenues.
We face intense competition from other data collection service providers, some of which are larger and better known than we are, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The markets in which we operate are characterized by intense competition, constant innovation and evolving security threats. We compete with companies that offer web data collection products. Our current and potential future competitors include providers of data collection, such as Bright Data Ltd., or Bright Data, Oxylabs, NetNut. and others. Some of our competitors are large companies that have the technical and financial resources and broad customer bases needed to bring competitive solutions to the market and already have existing relationships as a trusted vendor for other products. Such companies may use these advantages to offer products and services that are perceived to be as effective as ours at a lower price or for free as part of a larger product package or solely in consideration for maintenance and services fees. They may also develop different products to compete with our current solutions and respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, or requirements. Additionally, from time to time we may compete with smaller regional vendors that offer products with a more limited range of capabilities that purport to perform functions similar to our solution. Such companies may enjoy stronger sales and service capabilities in their particular regions.
Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. Current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expand their product and service offerings more quickly than we do. Larger competitors with more diverse product offerings may reduce the price of products that compete with ours in order to promote the sale of other products or may bundle them with other products, which would lead to increased pricing pressure on our products and could cause the average sales prices for our products to decline.
We may not be able to successfully anticipate or adapt to changing technology or customer requirements on a timely basis, or at all. If we fail to keep up with technological changes or to convince our customers and potential customers of the value of our solution even in light of new technologies, our business, results of operations and financial condition could be materially and adversely affected.
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Our dependence on third-party ISPs, data center proxy providers and mobile carriers, and proxy network providers exposes us to risks.
Our business model relies on agreements with internet service providers (ISPs), proxy network providers, data centers proxy providers, and mobile carriers for access to residential, mobile, and rotating proxies. ISP provides individuals and organizations with internet access. Proxy Network uses proxy servers to route network traffic between a device and the internet. Data centers proxy is a type of proxy server that routes internet traffic through Internet Protocol addresses located in data centers rather than residential or ISP connections. Proxy servers are intermediary devices (hardware and software) that sit between a device (smartphones, other servers, other devices) and the internet. This exposes us to risks over which we may have little or no control. If these third parties terminate agreements, restrict services, or face legal and regulatory challenges, our ability to provide proxy-based data collection services may be impacted. Furthermore, our costs may increase if alternative suppliers impose higher pricing or restrictive terms. Additionally, as regulatory frameworks governing internet access, proxy services, and data collection are evolving, any non-compliance with these regulations could lead to penalties, service limitations, and legal liabilities.
We and our planned manufacturers/suppliers will depend on third-party vendors to manufacture and supply some of our/their components, which could make us and them vulnerable to supply shortages and price fluctuations that could harm our business.
We rely on third-party vendors, some of whom themselves may be single source suppliers, for components used in our devices, such as modems. Our reliance on third-party vendors subjects us and them to a number of risks, including:
| ● | inability to obtain adequate supply in a timely manner or on commercially reasonable terms; | |
| ● | interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations, including those caused by pandemics such as COVID-19 and its variants; | |
| ● | production delays related to the evaluation and testing of products from alternative suppliers; | |
| ● | miscommunication of design specifications due to errors/omissions by either a vendor or us, resulting in delayed delivery of acceptable products; | |
| ● | delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s failure to consistently produce quality components; | |
| ● | price fluctuations due to a lack of long-term supply arrangements with suppliers for key components; | |
| ● | inability to control the quality of products manufactured by third parties; and | |
| ● | delays in delivery by our suppliers due to changes in demand from us or their other customers. |
Any significant delay or interruption in the supply of components, or our suppliers’ inability to obtain substitute components, or materials from alternate sources, in the quantities we/they need at the quality we/they require at acceptable prices and in a timely manner could impair our ability to meet the demand for our platform and materially harm our business.
To the extent we experience management turnover, this will create uncertainties and could harm our business.
Changes to strategic or operating goals, which can often times occur with the appointment of new executives, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of our operations, and friction can result from changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. If we do not integrate new executives successfully and in a timely manner, we may be unable to manage and grow our business, and our financial condition and profitability may suffer as a result. Competition for top management is high, and it may take months to find a candidate that meets our requirements. If we are unable to attract and retain qualified management personnel, our business could suffer.
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If we lose our key personnel or are unable to attract and retain additional personnel, our business could be harmed.
We depend on the continuing services of our senior management team and other key personnel, and if we lose a member of our senior management or are unable to successfully retain, recruit and train key personnel, our ability to develop and market our products and services could be harmed. Our success depends upon the continuing services of members of our senior management team and various other key personnel. As of the date hereof, we have no employees and four service providers. Our subsidiaries have 10 full-time service providers and 2 full-time employees. To successfully develop our company and its products we need to be able to retain highly skilled personnel. The engagement and/or retention of their services cannot be guaranteed. Our failure to retain and/or recruit such professionals might impair our performance and materially affect our technological and product development capabilities and our product marketing ability.
Our Chief Financial Officer is not required to work exclusively for us, which could materially and adversely affect us and our business.
Itay Weinstein, our Chief Financial Officer, is not required to work exclusively for us and does not devote all of his time to our operations. Since serving as our Chief Financial Officer, he has devoted approximately 9 hours a week of his time to the operation of our business. He also serves as a Partner of the accounting firm Shimony C.P.A. It is possible that his pursuit of other activities may slow our operations and impact our ability to timely complete our financial statements.
If we do not effectively expand, train and retain our sales force, we may be unable to acquire new customers or sell additional products and services to existing customers, and our business will suffer.
We depend significantly on our sales force to attract new customers and expand sales to existing customers. As a result, our ability to increase our revenues depends in part on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. We expect to continue to expand our sales personnel and face a number of challenges in achieving our hiring and integration goals. There is an intense competition for individuals with sales training and experience. In addition, the training and integration of a large number of sales personnel in a short time requires the allocation of internal resources. We invest significant time and resources in training new sales force personnel to understand our solutions and growth strategy. Based on our past experience, it takes an average of a few months before a new sales force member operates at target performance levels. However, we may be unable to achieve or maintain our target performance levels with large numbers of new sales personnel as quickly as we have done in the past. Our failure to hire a sufficient number of qualified sales force members and train them to operate at target performance levels may materially and adversely impact our projected growth rate.
Growth in our business could strain our personnel resources and infrastructure; if we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.
Any growth that we may experience in the future will provide challenges to our organization, requiring us to expand our general and administrative infrastructure. In addition to the need to scale our operational and service capacity, future growth will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Rapid expansion in personnel could mean that less experienced persons market, sell and support our platform, which could result in inefficiencies and unanticipated costs, reduced quality in the products and services we provide, and disruptions to our platform operations. As we may seek to gain greater efficiencies in certain aspects of our operations, leading to productivity improvements in one or more areas, quality in one or more areas may be subject to compromise which could adversely affect the Company, its operations, and reputation. In addition, rapid and significant growth may strain our administrative and operational infrastructure. Our ability to manage our business and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed.
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If we are unable to support demand for our platform or any of our future products or services, our business could suffer.
As demand for The Social Proxy’s platform or any of its future products or services may increase, it will need to, among other things, scale its outsourced manufacturing capacity, vendor and supplier networks, expand customer service, billing and systems processes and enhance its internal quality assurance program. We cannot assure that with any increases in scale, required improvements will be successfully implemented, quality assurance will be maintained, or that appropriate personnel will be available to facilitate growth of our business. Failure to implement necessary procedures, transition to new processes or hire the necessary personnel could result in higher costs or inability to meet increased demand. If we encounter difficulty meeting market demand, quality standards or market expectations, our reputation could be harmed and our future prospects and business could suffer.
External and internal forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not increase at similar rates, if at all.
External and internal growth forecasts are subject to significant uncertainty, including the occurrence of future events and/or the timing of even foreseeable events not being readily foreseeable, and are based on assumptions and estimates that may not prove to be accurate. Any such external and internal forecasts relating to growth in our industry generally, and internal forecasts relating to growth in our business in particular may prove to be inaccurate, including materially inaccurate.
Our growth is subject to many factors, including the rate of market acceptance, or not, of The Social Proxy’s platform as compared to the products and services of our competitors, and our success in implementing our business strategies, each of which is subject to many risks and uncertainties. Accordingly, any of our forecasts of market opportunity should not be taken as indicative of our future growth.
Any acquisitions we make may dilute your equity or require a significant amount of our available cash and may not be scientifically or commercially successful. We may not realize the benefits of these acquisitions.
During 2024 we have acquired The Social Proxy, and as part of our business strategy, we may effect additional acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. If we complete one or more such transactions in which the consideration includes our ordinary shares or other securities, your equity may be significantly diluted. If we complete one or more such transactions in which the consideration includes cash, we may be required to use a substantial portion of our available cash.
Acquisitions also involve a number of operational risks, including:
| ● | difficulty and expense of assimilating the operations, technology, intellectual property and products of the acquitted company, or integrating new personnel of the new business; |
| ● | our inability to attract and retain management and key personnel necessary to conduct the business; |
| ● | our inability to maintain relationships with key third parties, such as alliance partners, associated with the business; |
| ● | exposure to legal claims for activities of the business prior to the acquisition; |
| ● | the diversion of our management’s attention from our other drug development businesses; | |
| ● | risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing technologies; | |
| ● | our inability to generate revenue from acquired company’s technologies or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; and |
| ● | the potential impairment of goodwill, adversely affecting our reported results of operations. |
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All of the foregoing risks may be magnified as the cost, size or complexity of an acquisition or acquired company increases, or where the acquired company’s products, market or business are materially different from ours, or where more than one integration is occurring simultaneously or within a concentrated period of time. We may also be required to pay third parties substantial transaction fees, in the form of cash or ordinary shares, in connection with such transactions. For those and other reasons, we may ultimately fail to consummate an acquisition, even if we announce the intended acquisition.
In addition, we may require significant financing to complete an acquisition or investment, whether through bank loans, raising equity or debt or otherwise. We cannot assure you that such financing options will be available to us on reasonable terms, or at all. If we are not able to obtain such necessary financing, it could have an impact on our ability to consummate a substantial acquisition or investment and execute a future growth strategy. Alternatively, we may issue a significant number of shares as consideration for an acquisition, which would have a dilutive effect on our existing shareholders. For example, in partial consideration for the acquisition of The Social Proxy, we agreed to issue to the shareholders of The Social Proxy 1,864,790 unregistered American Depositary Shares and 2,896,142 warrants, and as a result the Social Proxy’s previous shareholders own approximately 20% of our current issued and outstanding share capital on a non-diluted basis. Furthermore, if we undertake acquisitions, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization expenses.
A material breach in security relating to the Company’s information systems and regulation related to such breaches, cyber-attacks, or other disruptions could adversely affect the Company, expose us to liability and affect our business and reputation.
Information security risks have generally increased in recent years, in part because of the proliferation of new technologies and the use of the Internet, and the increased sophistication and activity of organized crime, hackers, terrorists, activists, cybercriminals and other external parties, some of which may be linked to terrorist organizations or hostile foreign governments. Cybersecurity attacks are becoming more sophisticated and include malicious software, ransomware, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data, substantially damaging the Company’s reputation. Any person who circumvents the security measures could steal proprietary or confidential customer information or cause interruptions in the Company’s operations.
We are increasingly dependent on our information technology systems and infrastructure for our business. As a company operating in the cybersecurity and data collection industry, we face significant risks from cyberattacks, data breaches, and fraudulent activities. Cybercriminals may attempt to compromise our proxy network, intercept sensitive customer data, or use our infrastructure for malicious purposes. We, our collaborators and our service providers collect, store, and transmit sensitive information including intellectual property, proprietary business information, and personal information in connection with our business operations. The secure maintenance of this information is critical to our operations and business strategy. Some of this information could be an attractive target of criminal attack by third parties with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” disgruntled former employees, nation-state and nation-state supported actors, and others. Cyber-attacks are of ever-increasing levels of sophistication, and despite our security measures, our information technology and infrastructure may be vulnerable to such attacks or may be breached, including due to employee error or malfeasance.
We have implemented information security measures to protect our systems, proprietary information, and sensitive data against the risk of inappropriate and unauthorized external use and disclosure and other types of compromise. However, despite these measures, and due to the ever-changing information cyber-threat landscape, we cannot guarantee that these measures will be adequate to detect, prevent or mitigate security breaches and other incidents and we may be subject to data breaches through cyber-attacks, malicious code (such as viruses and worms), phishing attacks, social engineering schemes, and insider theft or misuse. Any such breach could compromise our networks and the information stored there could be accessed, modified, destroyed, publicly disclosed, lost or stolen. If our systems become compromised, we may not promptly discover the intrusion.
Any security breach or other incident, whether real or perceived, could cause us to suffer reputational damage. Such incidents could result in costs to respond to, investigate and remedy such incidents, notification obligations to affected individuals, government agencies, credit reporting agencies and other third parties, legal claims or proceedings, and liability under our contracts with other parties and federal and state laws that protect the privacy and security of personal information. The Company’s failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm the Company’s reputation and business and financial results.
Our business involves risks and uncertainties that may not be covered by our insurance.
We maintain or intend to obtain insurance policies to cover certain business risks, including cybersecurity threats, data breaches, regulatory compliance liabilities, and operational disruptions. However, our insurance coverage may not adequately protect us against all potential losses. Cybersecurity threats continue to evolve, and insurance providers are increasingly imposing exclusions, higher deductibles, and restrictive terms, making it challenging to secure comprehensive coverage at reasonable rates. If we experience a significant cyberattack, data breach, or regulatory enforcement action that is not sufficiently covered by our insurance policies, we may be required to bear substantial costs, which could materially affect our financial condition and results of operations. Furthermore, our reliance on third-party vendors for data collection and proxy network services introduces additional risks. If any of these vendors experience security breaches or fail to meet regulatory compliance obligations, we could be exposed to legal claims and liabilities that may not be fully covered by our insurance. In addition, the unpredictability of the cyber insurance market may result in coverage limitations, unexpected policy exclusions, or increased premiums, further impacting our ability to manage risk effectively. If we are unable to maintain sufficient insurance coverage or if insurers deny claims, our business, reputation, and financial position could be adversely affected.
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We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in credit and capital markets.
Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets.
Furthermore, on April 2, 2025, President Trump announced that the United States would impose a 10% tariff on all countries, effective on April 5, 2025, and an individualized reciprocal higher tariff on countries with which the United States has the largest trade deficits. These policies have adversely affected the global economy and financial markets, such as significant declines in the global stock markets. We believe that such tariffs would not have a material imminent impact on our business operations, but as relevant policies are rapidly evolving, it may be difficult to evaluate their potential future impacts. Geopolitical conflicts like this may also lead to volatility in financial markets, fluctuations in currency exchange rates, increased procurement costs and declines in trading prices of the ADSs. In extreme cases, such conflicts could result in economic downturns that materially and adversely impact our operations.
Any of the abovementioned factors could affect our business, prospects, financial condition, and operating results. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this prospectus.
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We are subject to governmental export and import controls that could subject us to liability in the event of non-compliance or impair our ability to compete in international markets.
We are subject to U.S. and Israeli export control and economic sanctions laws, which prohibit the delivery and sale of certain products to embargoed or sanctioned countries, governments, and persons. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could require export licenses or result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations or cessation of export or sale of our products in sanctioned countries or to sanctioned persons. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition, and results of operations
Our relationships with business partners in existing and new international markets may subject us to an increased risk of litigation.
The Social Proxy operates internationally in a few countries and states. As of the date of this annual report, the Social Proxy operates in the United States (New York, Florida, and Texas), Europe (Germany, Austria, the United Kingdom) and Israel. If The Social Proxy cannot successfully manage the unique challenges presented by international markets and its relationships with existing and new business partners within those markets, our expansion activities may be adversely affected and we may become subject to an increased risk of litigation.
The Social Proxy may become involved in disputes relating to our products, services, contracts and business relationships. Such disputes could include, but not limited to, litigation against persons or entities whom The Social Proxy believe have infringed on its intellectual property, intellectual property infringement litigation filed against The Social Proxy, litigation against a competitor, litigation filed against The Social Proxy by a customers or litigation filed against The Social Proxy by websites claiming that The Social Proxy’s operations constitute illegal activities like web scraping, hacking, or violating terms of service. Any of these disputes may result in substantial costs to us, judgments, settlements, reputational damage and diversion of our management’s attention, which could adversely affect our business, financial condition or operating results. There is also a risk of adverse judgments, as the outcome of litigation in foreign jurisdictions or otherwise can be inherently uncertain.
Risks Related to Our Intellectual Property
If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market.
Our commercial success might depend in part on our ability to obtain and maintain patent protection on our products and technologies and successfully defend these patents and technologies against third-party challenges. As part of our business strategy, our policy is to actively file patent applications in the U.S. and internationally.
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Generally, patent applications in the U.S. are maintained in secrecy for a period of at least 18 months. Third parties or competitors may challenge or circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the U.S. that claim compounds or technology also claimed by us, we may be required to challenge competing patent rights, which could result in substantial cost, even if the eventual outcome is favorable to us.
We also rely on trade secrets to protect technology where we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to protect our trade secrets or other proprietary information adequately.
Litigation or third-party claims of intellectual property infringement could require us to spend substantial time, money and other resources defending such claims and adversely affect our ability to develop and commercialize our products.
Third parties may assert that we are using their proprietary technology without authorization. In addition, third parties may have or obtain patents in the future and claim that our products infringe their patents. If we are required to defend against patent suits brought by third parties, or if we sue third parties to protect our patent rights, we may be required to pay substantial litigation costs, and our management’s attention may be diverted from operating our business. In addition, any legal action against us that seeks damages or an injunction relating to the affected activities could subject us to monetary liability and/or require us to discontinue the affected technologies or obtain a license to continue use thereof.
In addition, there can be no assurance that our patents or patent applications will not become involved in opposition or revocation proceedings instituted by third parties. If such proceedings were initiated against one or more of our patents the defense of such rights could involve substantial costs and the outcome could not be predicted.
Competitors or potential competitors may have filed applications for, may have been granted patents for, or may obtain additional patents and proprietary rights that may relate to technologies competitive with ours. If patents are granted to other parties that contain claims having a scope that is interpreted to cover any of our products, there can be no assurance that we will be able to obtain licenses to such patents at reasonable cost, if at all, or be able to develop or obtain alternative technology.
If we are unable to protect the confidentiality of our trade secrets and other proprietary information, our business and competitive position may be harmed.
We will rely on trade secrets as well as invention assignments and confidentiality provisions in contracts with our employees, consultants, collaborators and others to protect The Social Proxy’s platform. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of these confidentiality agreements and other contractual restrictions. These agreements may not provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. There can be no assurance that all employees, consultants, vendors and clients will have executed such agreements or that they have not breached or will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. In addition, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology.
To the extent our intellectual property protection is incomplete, we are exposed to a greater risk of direct competition. A third party could, without authorization, copy or otherwise obtain and use The Social Proxy’s products or technology, or develop similar technology. The Social Proxy’s competitors could use The Social Proxy’s products and services and attempt to replicate some or all of the competitive advantages it derives from its development efforts or design around its protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially harm the value of our platform, brand and business.
It is possible that others will independently develop the same or similar technology or otherwise obtain access to the Social Proxy’s unpatented technology, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. If we fail to obtain or maintain trade secret protection, or if our competitors obtain our trade secrets or independently develop technology similar to ours or competing technologies, our competitive market position could be materially and adversely affected. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets, and agreement terms that address non-competition are difficult to enforce in many jurisdictions, and might not be enforceable in certain cases.
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Risks Related to our ADSs
We will need additional capital in the future. If additional capital is not available, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.
Our net cash used in operating activities for the year ended December 31, 2024 was $1,618 thousand. If we continue to use cash at this rate we will need significant additional financing, which we may seek to raise through, among other things, public and private equity offerings and debt financing. Any equity financings will likely be dilutive to existing stockholders, and any debt financings will likely involve covenants restricting our business activities. Additional financing may not be available on acceptable terms, or at all.
The ADSs are traded in small volumes, limiting ability to sell ADSs that represent ordinary shares at a desirable price, if at all.
The trading volume of the ADSs has historically been low. Even if the trading volume of the ADSs increases, we can give no assurance that it will be maintained or will result in a desirable stock price. As a result of this low trading volume, it may be difficult to identify buyers to whom shareholders can sell ADSs in desirable volume and shareholders may be unable to sell your ADSs at an established market price, at a price that is favorable, or at all. A low volume market also limits shareholders’ ability to sell large blocks of the ADSs at a desirable or stable price at any one time. Shareholders should be prepared to own the ADSs indefinitely.
Our stock price can be volatile, which increases the risk of litigation and may result in a significant decline in the value of your investment.
The trading price of the ADSs representing our ordinary shares is likely to be highly volatile and subject to wide fluctuations in price in response to various factors, many of which are beyond our control. These factors include:
| ● | announcements of technological innovations by us or our competitors; |
| ● | introductions or announcements of new products or services by us or our competitors; |
| ● | developments in the markets of the field of activities and changes in customer attributes; |
| ● | announcements by us of significant acquisitions, in/out license transactions, strategic partnerships, joint ventures or capital commitments; |
| ● | changes in financial estimates by securities analysts; |
| ● | actual or anticipated variations in interim operating results and near-term working capital as well as failure to raise required funds for the continued development and operations of the company; |
| ● | conditions or trends in the regulatory climate; |
| ● | failure to increase awareness of our products and services ; |
| ● |
changes in the market valuations of similar companies;
| |
| ● | geopolitical instabilities, including the war between Russia and Ukraine; and | |
| ● | additions or departures of key personnel. |
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In addition, equity markets have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. These broad market and industry factors may materially affect the market price of the ADSs, regardless of our development and operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources even if we prevail in the litigation, all of which could seriously harm our business.
Future issuances or sales of the ADSs could depress the market for the ADSs.
Future issuances of a substantial number of the ADSs, or the perception by the market that those issuances could occur, could cause the market price of our ordinary shares or ADSs to decline or could make it more difficult for us to raise funds through the sale of equity in the future. Also, if we make one or more significant acquisitions in which the consideration includes ordinary shares or other securities, your portion of shareholders’ equity in us may be significantly diluted.
Concentration of ownership of our ordinary shares among our principal stockholders may prevent new investors from influencing significant corporate decisions.
There is one shareholder (Mr. Alexander Rabinovitch, a director), who in the aggregate beneficially holds approximately 29.99% of our ordinary shares, as of April 30, 2025). As a result, this person may have the ability to significantly influence the outcome of all matters submitted to our shareholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, such persons, acting alone or together, may have the ability to effectively control our management and affairs. Accordingly, this concentration of ownership may depress the market price of our ordinary shares or ADSs.
Our ordinary shares and ADSs trade on two different markets, and this may result in price variations and regulatory compliance issues.
ADSs representing our ordinary shares are listed for trading on The Nasdaq Capital Market and our ordinary shares are traded on the TASE. Trading in our securities on these markets is made in different currencies and at different times, including as a result of different time zones, different trading days and different public holidays in the U.S. and Israel. Consequently, the effective trading prices of our securities on these two markets may differ. Any decrease in the trading price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.
Holders of our ordinary shares or ADSs who are U.S. citizens or residents may be required to pay additional income taxes.
There is a risk that we will be classified as a passive foreign investment company, or PFIC, for certain tax years. If we are classified as a PFIC, a U.S. holder of our ordinary shares or ADSs representing our ordinary shares will be subject to special federal income tax rules that determine the amount of federal income tax imposed on income derived with respect to the PFIC shares. We will be a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by value) that produce or are held for the production of passive income in a tax year is at least 50%. The risk that we will be classified as a PFIC arises because cash balances, are generally considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon the sources of our income and the relative values of passive and non-passive assets, including goodwill. A determination as to a corporation’s status as a PFIC must be made annually. We believe we may be a PFIC during 2024 and although we have not determined whether we will be a PFIC in 2025, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. Although we may not be a PFIC in any one year, the PFIC taint remains with respect to those years in which we were or are a PFIC and the special PFIC taxation regime will continue to apply.
In view of the complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as to our status as a PFIC.
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As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under Nasdaq for domestic issuers. For instance, we may follow home country practice in Israel with regard to, among other things, composition and function of the audit committee and other committees of our Board of Directors and certain general corporate governance matters. In addition, in certain instances we will follow our home country law, instead of Nasdaq, which requires that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. We comply with the director independence requirements of Nasdaq, including the requirement that a majority of the Board of Directors be independent. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on Nasdaq may provide less protection than is accorded to investors under Nasdaq applicable to domestic issuers.
In addition, as a foreign private issuer, we are exempt from the rules and regulations 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 domestic companies whose securities are registered under the Exchange Act.
ADS holders are not shareholders and do not have shareholder rights.
The Bank of New York Mellon, as depositary, executes and delivers the ADSs on our behalf. Each ADS is a certificate evidencing a specific number of ADSs. The ADS holders will not be treated as shareholders and do not have the rights of shareholders. The depositary will be the holder of the shares underlying the ADSs. Holders of the ADSs will have ADS holder rights. A deposit agreement among us, the depositary and the ADS holders, and the beneficial owners of ADSs, sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs. Our shareholders have shareholder rights prescribed by Israeli law. Israeli law and our Articles of Association, or Articles, govern such shareholder rights. The ADS holders do not have the same voting rights as our shareholders. Shareholders are entitled to our notices of general meetings and to attend and vote at our general meetings of shareholders. At a general meeting, every shareholder present (in person or by proxy, attorney or representative) and entitled to vote has one vote on a show of hands. Every shareholder present (in person or by proxy, attorney or representative) and entitled to vote has one vote per fully paid ordinary share on a poll. This is subject to any other rights or restrictions which may be attached to any shares. The ADS holders may instruct the depositary to vote the ordinary shares underlying their ADSs, but only if we ask the depositary to ask for their instructions. If we do not ask the depositary to ask for their instructions, the ADS holders are not entitled to receive our notices of general meeting or instruct the depositary how to vote. The ADS holders will not be entitled to attend and vote at a general meeting unless they withdraw the ordinary shares from the depository. However, the ADS holders may not know about the meeting far enough in advance to withdraw the ordinary shares. If we ask for the ADS holders’ instructions, the depositary will notify the ADS holders of the upcoming vote and arrange to deliver our voting materials and form of notice to them. The depositary will try, as far as is practical, subject to the provisions of the deposit agreement, to vote the shares as the ADS holders instruct. The depositary will not vote or attempt to exercise the right to vote other than in accordance with the instructions of the ADS holders. We cannot assure the ADS holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, there may be other circumstances in which the ADS holders may not be able to exercise voting rights.
The ADS holders do not have the same rights to receive dividends or other distributions as our shareholders. Subject to any special rights or restrictions attached to a share, the directors may determine that a dividend will be payable on a share and fix the amount, the time for payment and the method for payment (although we have never declared or paid any cash dividends on our ordinary stock and we do not anticipate paying any cash dividends in the foreseeable future). Dividends and other distributions payable to our shareholders with respect to our ordinary shares generally will be payable directly to them. Any dividends or distributions payable with respect to ordinary shares will be paid to the depositary, which has agreed to pay to the ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. The ADS holders will receive these distributions in proportion to the number of shares their ADSs represent. In addition, there may be certain circumstances in which the depositary may not pay to the ADS holders amounts distributed by us as a dividend or distribution.
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There are circumstances where it may be unlawful or impractical to make distributions to the holders of the ADSs.
The deposit agreement with the depositary allows the depositary to distribute foreign currency only to those ADS holders to whom it is possible to do so. If a distribution is payable by us in New Israeli Shekels, the depositary will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, the ADS holders may lose some of the value of the distribution.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. This means that the ADS holders may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for the depository to make such distributions available to them.
Shareholders’ percentage ownership in us may be diluted by future issuances of share capital, which could reduce their influence over matters on which shareholders vote.
Issuances of additional shares would reduce shareholders’ influence over matters on which our shareholders vote.
We may fail to remain in compliance with the continued listing standards of The Nasdaq Capital Market and a delisting of our ADSs could make it more difficult for investors to sell their shares
Our ADSs were approved for listing on The Nasdaq Capital Market in July 2013 where they continue to be listed. We are required to meet certain qualitative and financial tests (including having stockholders’ equity of at least $2.5 million, a market value of listed securities of $35 million or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the most recently completed fiscal years, to maintain the listing of our ADSs on The Nasdaq Capital Market as set forth in Nasdaq listing rule 5550(b)(1) the (“Stockholders’ Equity Requirement” or “Rule 5550(b)(1)”).
On October 18, 2023, the Company received a written notification (the “Notice”) from Nasdaq, notifying the Company that it was not in compliance with the minimum bid price requirement set forth in the Nasdaq Rules for continued listing on the Nasdaq.
Nasdaq Listing Rule 5550(a)(2) (the “Listing Rule”) requires listed securities to maintain a minimum bid price of US$1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s ADSs for the 30 consecutive business days from September 6, 2023, to October 17, 2023, the Company failed to meet the minimum bid price requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days, or until April 15, 2024, to regain compliance.
On April 2, 2024, the Company received formal notice from Nasdaq stating that the Company regained compliance with the minimum bid price requirement set forth in the Listing Rule. To regain compliance with the Listing Rule, the Company’s ADSs were required to maintain a minimum closing bid price of $1.00 or more for at least 10 consecutive business days, which was achieved from March 18, 2024 through April 1, 2024. Nasdaq has stated that this matter is now closed.
If we do not maintain compliance with the continued listing requirements for Nasdaq within specified periods and subject to permitted extensions, our ADSs may be recommended for delisting (subject to any appeal we would file). If our ADSs were delisted, it could be more difficult to buy or sell our ADSs and to obtain accurate quotations, and the price of our stock could suffer a material decline. Delisting would also impair our ability to raise capital.
If we fail to maintain compliance with Nasdaq’s continued listing standards, we may be delisted and our ADSs will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our ADSs could depress the price of our ADSs, substantially limit liquidity of our ADSs and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
Finally, delisting of our ADSs would likely result in our ADSs becoming a “penny stock” under the Exchange Act. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the shares but must trade it on an unsolicited basis. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares that become subject to those penny stock rules. Under such circumstances, shareholders may find it more difficult to sell, or to obtain accurate quotations, for our ADSs, and our ADSs would become substantially less attractive to certain purchasers such as financial institutions, hedge funds and other similar investors.
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Risks Relating to Operations in Israel
We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and its region.
Our headquarters are located in Israel and we conduct operations in Israel. Accordingly, political, economic and military conditions in the Middle East may affect our business directly. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as well as terrorist acts committed within Israel by hostile elements.
In particular, in October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and injuries, and Hamas additionally kidnapped many Israeli civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign against Hamas and these terrorist organizations in parallel continued rocket and terror attacks. As a result of the events of October 7, 2023 whereby Hamas terrorists invaded southern Israel and launched thousands of rockets in a widespread terrorist attack on Israel, the Israeli government declared that the country was at war and the Israeli military began to call-up reservists for active duty. Military service call ups that result in absences of personnel from us for an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations. As of the date hereof, we have no employees, and our management which provides services through a consultant agreement weren’t called for duty. Our subsidiaries have 10 full-time service providers and 2 full-time employees, none of whom were called for duty.
In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization) and southern border (with the Houthi movement in Yemen). It is possible that that other terrorist organizations, including Palestinian military organizations in the West Bank as well as other hostile countries, such as Iran, will join the hostilities. Such clashes may escalate in the future into a greater regional conflict. Further, in April and October 2024, Iran launched a direct attacks on Israel involving hundreds of drones, ballistic missiles and cruise missiles and may attack again. In addition, Iran is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any hostilities, armed conflicts, terrorist activities involving Israel or the interruption or curtailment of trade between Israel and its trading partners, or any political instability in the region could adversely affect business conditions and our results of operations and could make it more difficult for us to raise capital and could adversely affect the market price of our ordinary share. An escalation of tensions or violence might result in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Since the war broke out on October 7, 2023, our operations have not been adversely affected by this situation, and we have not experienced disruptions to our operations. If the war extends for a longer period of time or expands to other fronts, such as Lebanon, Syria and the West Bank, our operations may be adversely affected.
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Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
Further, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.
Finally, political conditions within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. Some of these initiatives were brought up again by the Israeli government, which may spark the extensive political debate and unrest once again. Actual or perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and growth prospects.
Our results of operations may be adversely affected by inflation and foreign currency fluctuations.
We hold most of our cash, cash equivalents and bank deposits in U.S. dollars. As we are located in Israel, a significant portion of our expenses are in New Israeli Shekels, or NIS, mainly due to payment to Israeli service providers and suppliers. Our investment in the shares of InterCure Ltd. is also in NIS. As a result, we could be exposed to the risk that the U.S. dollar will be devalued against the NIS or other currencies, and consequentially our financial results could be harmed. To protect against currency fluctuations, we may decide to hold a significant portion of our cash, cash equivalents, bank deposits and marketable securities in NIS, as well as to enter into currency hedging transactions. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the U.S. dollar or that the timing of any devaluation may lag behind inflation in Israel.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
As a company incorporated under the laws of the State of Israel, we are subject to Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and 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, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).
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Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. 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 actual disposition of the shares has occurred.
These and other similar 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.
It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.
Service of process upon us, since we are incorporated in Israel, and upon our directors and officers, who reside outside the U.S., may be difficult to obtain within the U.S. In addition, because substantially all of our assets and most of our directors and officers are located outside the U.S., any judgment obtained in the U.S. against us or any of our directors and officers may not be collectible within the U.S. There is a doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act pursuant to original actions instituted in Israel. Subject to particular time limitations and provided certain conditions are met, executory judgments of a U.S. court for monetary damages in civil matters may be enforced by an Israeli court.
Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.
We generally enter into non-competition agreements with our key consultants. These agreements prohibit our key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our key consultants work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
In addition, Chapter 8 to the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law, sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. As a result, it is unclear if, and to what extent, our research and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims are successful, which in turn could impact our future profitability.
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Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.
We are incorporated under Israeli law. The rights and responsibilities of the holders of our ordinary shares and ADSs are governed by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of 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 implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares and ADSs that are not typically imposed on shareholders of U.S. corporations.
Risks Relating to Weaknesses in Internal Accounting Control
Our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024 excluded the internal control over financial reporting of The Social Proxy, because the acquisition of The Social Proxy was completed in August 2024, which was close to the year end. We are in the process of integrating this business into our overall internal controls over financial reporting and plan to include it in our scope for the year ended December 31, 2025. Please refer to “Item 15. Controls and Procedures” for details on our internal control over financial reporting. Any failure to maintain effective internal control over financial reporting could harm our business, erode investor confidence in our financial statements, and negatively impact the trading price of our ordinary shares and ADSs. Furthermore, we may need to incur additional costs and use additional management and other resources in order to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
A. ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of XTL
We were established as a biopharmaceutical company engaged in the acquisition and development of pharmaceutical drugs for the treatment of autoimmune diseases. During 2024 we have expanded into the data collection industry after completing in August 2024 the acquisition of 100% of the share capital of The Social Proxy Ltd., or The Social Proxy, an innovating and leading AI web data company, which develops, operates and distributes a unique ethical, Internet Protocol based proxy data extraction platform for AI and for Business Intelligence, or BI, purposes, at scale.
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Company Information and History
Our legal and commercial name is XTL Biopharmaceuticals Ltd. We were established as a private company limited by shares under the laws of the State of Israel on March 9, 1993, under the name Xenograft Technologies Ltd. We re-registered as a public company on June 7, 1993, in Israel, and changed our name to XTL Biopharmaceuticals Ltd. on July 3, 1995.
We commenced operations to use and commercialize technology developed at the Weizmann Institute, in Rehovot, Israel. Since 1993, we have pursued therapeutic and pharmaceutical development programs for the treatment of a variety of indications including hepatitis B, hepatitis C, diabetic neuropathic pain, schizophrenia, SLE, and multiple myeloma, most of which have terminated. We are looking at additional assets in complementary fields as well as other fields.
We currently have two subsidiaries, The Social Proxy Ltd., a private AI web data company limited by shares under the laws of the State of Israel, which develops, operates and distributes a unique ethical, Internet Protocol based proxy data extraction platform for AI and for Business Intelligence purposes at scale, and Xtepo Ltd., a private company limited by shares under the laws of the State of Israel, which holds a license for the exclusive use of rHuEPO for the treatment of multiple myeloma (The Social Proxy Ltd., Xtepo Ltd., and the Company, the “Group”). As of December 31, 2024, we held approximately 1.04% of the issued and outstanding share capital of InterCure Ltd., a related party and former subsidiary of ours (subsidiary between mid-2012 and the beginning of 2015).
The ADSs are listed for trading on The Nasdaq Capital Market under the symbol “XTLB.” Our ordinary shares are traded on the TASE under the symbol “XTLB.” We operate under the laws of the State of Israel under the Israeli Companies Law, and in the U.S. under the Securities Act and the Exchange Act.
Our principal offices are located at 26 Ben-Gurion St., Ramat Gan 5112001, Israel, and our telephone number is (972) 3-6116600. Our primary internet address is www.xtlbio.com. None of the information on our website is incorporated by reference herein.
In August 2024 we completed our previously announced acquisition of The Social Proxy for consideration consisting of (i) 5,292,153 unregistered ADSs, representing immediately after such issuance, 44.6% of the issued and outstanding share capital of the Company, (ii) the payment of $430,000 to the former shareholders of The Social Proxy and (iii) warrants to purchase ADSs which may only be exercised upon reaching certain financial measured milestones within a period of up to three (3) years from the closing. In November 2024 we and the former shareholders of the Social Proxy agreed to reduce the number of ADSs and warrants issued to 1,864,790 and 2,896,142, respectively, and that the former shareholders shall be entitled to appoint one representative to our Board of Directors instead of two representatives as originally agreed upon. As a result, the Social Proxy’s previous shareholders own approximately 20% of our current issued and outstanding share capital on a non-diluted basis.
In March 2025, we announced that we entered into an Exclusive Sublicense Agreement with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”). Pursuant to this agreement we granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the resulting patents listed in the said agreement and all know-how including all clinical and pre-clinical data related to the product called Edratide, or the Product, trademarks, trade names, logos and labelling owned or controlled by us or our affiliates that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. Yeda was informed by us and by Biossil about the Exclusive Sublicense Agreement and has agreed to its execution. In consideration for granting the rights under this agreement the Company will be entitled to cumulative payments of up to approximately $11,500,000. At closing, Biossil paid us $137,500 as license issuing fee and up to an aggregate of $3,362,000 will be due upon the occurrence of certain regulatory milestones and up to an aggregate of $8,000,000 will be due upon the occurrence of certain commercial milestones.
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B. Business Overview
Introduction
We are an intellectual property based company, focusing on the development, management, and commercialization of intellectual property, and are engaged in AI web data collection through our wholly owned subsidiary The Social Proxy and in the biopharmaceutical industry, in which we hold a license from Yeda Research and Development Company Ltd., or Yeda, for hCDR1, a potential treatment for (1) systemic lupus erythematosus, or SLE and (2) Sjogren’s syndrome, or SS.
In March 2025, we announced that we entered into an Exclusive Sublicense Agreement with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”). Pursuant to this agreement we granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the resulting patents listed in the said agreement and all know-how including all clinical and pre-clinical data related to the product called Edratide, or the Product, trademarks, trade names, logos and labelling owned or controlled by us or our affiliates that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. Yeda was informed by us and by Biossil about the Exclusive Sublicense Agreement and has agreed to its execution. Thus, from such date we are no longer actively involved with the development of hCDR1 or with the development of any other drug candidate.
In June 2024, we announced that we entered into a share purchase agreement with the shareholders of The Social Proxy, an Israeli-based technology company specializing in the development and provision of advanced web proxy solutions and data extraction platforms tailored for AI and BI applications. Pursuant to this purchase agreement, we acquired all of the issued and outstanding share capital of The Social Proxy. This transaction closed in August 2024 and The Social Proxy has been operating since then as a wholly owned subsidiary of the Company. In November 2024, we announced that we entered into a settlement agreement with the chief executive officer of The Social Proxy and the previous shareholders of The Social Proxy, according to which the share purchase agreement between the Company, The Social Proxy and The Social Proxy Previous Shareholders dated June 5, 2024 will be amended such that the number of ADSs of the Company and the additional warrants, which may only be exercised upon the reaching of certain financial milestones, issuable to The Social Proxy Previous Shareholders, will each be reduced by approximately two-thirds. As a result, The Social Proxy Previous Shareholders own approximately 20% of our current issued and outstanding share capital on a non-diluted basis.
The Social Proxy
The Social Proxy operates within the data collection, web data scraping (for AI, BI and other purposes), and cybersecurity industries, offering ethical, secure, fast, reliable and cost-effective proxy services that enable businesses to access, collect, and analyze online data while ensuring compliance with privacy regulations. Proxy servers are intermediary devices (hardware and software) that sit between a device (smartphones, other servers, other devices) and the internet. The Social Proxy is dedicated to promoting the ideals of an open web by leveraging cutting-edge technologies to enhance its proxy solutions. The Social Proxy’s mission is to deliver unparalleled performance, unlocking the potential for general data and AI data gathering at scale, thereby empowering businesses and organizations to harness the full potential of web data.
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At the heart of The Social Proxy’s services are its proprietary 5G and 4G mobile private proxies, available as either dedicated or rotating solutions. These proxies, built on in-house hardware and proprietary software, provide businesses with an unlimited supply of Internet Protocol addresses (identical to those of real users) ensuring both anonymity and reliability during data extraction operations. Internet Protocol address is the unique numerical identifier assigned to each device connected to a network or the internet that allows information to be sent between devices on a network.
Data scraping and data collection from websites is the process of automatically extracting information from web pages, typically using software tools known as web scrapers. This process generally involves a device—such as a computer, server, or cloud-based virtual machine sending requests to a website to retrieve its content (or parts of its content). The scraper then parses this content and extracts specific data elements such as text, images, links, or tables. The online communication is between the device and the server hosting the website, as the website responds to the incoming requests and serves the page content.
As businesses operating in the data collection space navigate complex privacy frameworks such as the European Union’s General Data Protection Regulation, or GDPR, and the California Consumer Privacy Act, or CCPA, there is a growing demand for privacy-first, compliant proxy solutions. Market trends increasingly emphasize transparency, legal compliance, and cybersecurity resilience. Ethical proxy services have thus become essential in supporting secure, scalable, and regulation-compliant data access.
We believe that The Social Proxy is strategically positioned to support these needs, fostering ethical innovation through data-driven solutions.
The Social Proxy’s proprietary technology—encompassing both hardware and software—is engineered to ensure that no Internet Protocol addresses are sourced from end users. This unique approach reinforces the platform’s ethical foundation. By delivering an endless supply of Internet Protocol addresses and outperforming traditional solutions in speed and efficiency, The Social Proxy enhances data collection workflows significantly.
The Social Proxy maintains a robust and geographically diverse infrastructure, with proxy servers deployed across the United States (New York, Florida, and Texas), Europe (Germany, Austria, the United Kingdom) and Israel. A server is a computer system (hardware and software) that provides services, data, or resources to other computers, known as clients, over a network. A proxy server is a server that acts as a gateway between a user and the internet and in essence acts as an intermediary separating the end users from the websites they browse. This extensive network of proxy servers enables The Social Proxy to offer ethical, fast and reliable proxy services and data collection services to a diverse clientele across various regions and various needs. The Social Proxy aims to continue expanding its global footprint to serve a wide range of client requirements with speed, reliability, and regional relevance.
Web Data Collection and Proxy Services Background
In today’s business landscape, data is paramount, with data analysis driving decisions as companies increasingly prioritize evidence-based strategies for success. As markets become increasingly competitive, the ability to analyze large amounts of data in real time is crucial for businesses to make informed decisions and gain a competitive edge. In order to achieve that, companies across various sectors have been collecting data from internet websites, using various techniques.
In addition, the AI revolution that the world has experienced in recent years relies heavily on vast amounts of data to train AI models, enabling them to learn patterns, make predictions, and offer solutions. Companies that are involved with and develop AI applications and solutions need to collect a very large amount of data to do so. The growing demand for AI-driven analytics is fueling an unprecedented need for vast amounts of web data, as businesses and organizations strive to enhance decision-making, automation, and predictive capabilities. AI models, particularly in machine learning and deep learning, rely on extensive datasets to train algorithms, refine insights, and improve accuracy. Companies across industries, including finance, healthcare, e-commerce, and cybersecurity, are leveraging AI-driven analytics to detect patterns, forecast trends, and gain competitive advantages. As AI applications expand -ranging from personalized recommendations and fraud detection to real-time monitoring and sentiment analysis (the process of using natural language processing to determine the emotional tone behind words) - the volume, variety, and velocity of data required are escalating.
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However, accessing the data at scale presents significant challenges, including technical barriers, anti-scraping mechanisms (which are technologies used by websites to prevent automated data extraction, such as rate-limiting, bot detection, or Completely Automated Public Turing test to tell Computers and Humans Apart (CAPTCHA) system (a system used to determine whether the user is human)), and regulatory restrictions. The surge in demand for data raises ethical and legal concerns regarding data privacy, compliance with regulations like GDPR and CCPA, and fair usage of publicly available information. Data collection is also becoming more complex and difficult due to, in part, leading companies such as Google, Meta and X not sharing the data that they are collecting with third parties, and internet websites that change their displayed information based on user Internet Protocol address, location, and demographic attributes. In addition, direct involvement with data collection, which means expanding digital presence on the web, may increase the exposure of businesses and organizations to cyber and fraud threats. Furthermore, high-profile lawsuits and legal precedents, such as LinkedIn vs. HiQ Labs, have highlighted the risks associated with web scraping, reinforcing the necessity of lawful and ethical data acquisition methods.
To answer the above needs and challenges the web data collection market has grown rapidly, with more and more service providers enabling businesses and organizations to gather data from various online sources like websites, social media, and e-commerce platforms, by using different types of Internet Protocol addresses (residential, mobile, data center and others) from various locations worldwide.
Market Size and Growth Drivers to the Proxy and Data Collection Market and Proxy Market
Although the practice of data collection and analysis has existed for ages, the advent of AI and advanced analytics tools has revolutionized the industry, fostering an unprecedented data-driven culture. As both traditional and online businesses become increasingly more competitive, so does their need for larger amounts of empirical, statistical, anecdotal, behavioral, and projected data to be analyzed in real time in order to compete. Furthermore, AI-powered predictive analytics (the use of data, statistical algorithms, and machine learning to identify the likelihood of future outcomes), sentiment analysis, and market forecasting rely on vast amounts of structured and unstructured web data, sourced from news sites, financial reports, regulatory filings, social media, online reviews, and industry publications. In addition, the AI revolution that the world is experiencing in recent years necessitates a constant influx of diverse, high-quality data to train and refine models, leading to increased data collection efforts across various sectors. This data is crucial for many purposes such as pattern recognition, predictive capabilities, and personalized AI applications.
Using proxies for data collection offers advantages such as data accuracy, privacy and anonymity, combating challenges such as access blocking (i.e., restrictions on access to a network or service by denying traffic from specific Internet Protocol addresses), enhancing scraping speed, enabling secure data transmission, and reducing exposure to cyber threats making it a valuable tool for various purposes.
We believe that existing and new customers seek an ethical and end-to-end solution that will provide them with:
| a. | Ethical proxy – there is an increased demand for ethical and secure proxy services, and it is becoming more and more common for businesses and organizations to consider the ethical methods of their chosen services provider. By owning and operating its own hardware and devices, The Social Proxy ensures transparent and compliant data collection practices without relying on third-party devices or end user Internet Protocol addresses. |
| b. | More accurate data – The Social Proxy’s AI-empowered data collection service solutions were designed to automatically learn the design of websites, thus allowing fast and simple data collection, while ensuring the highest levels of data accuracy with the least human involvement in the process. |
| c. | Faster solution –The Social Proxy’s proprietary technology boasts unlimited Internet Protocol addresses and operates much faster than traditional solutions. |
| d. | Compliance with relevant laws and regulations - clients expect providers to have robust security measures in place to protect sensitive data and comply with relevant privacy regulations. |
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According to Grand View Research, The global data collection and labeling market size was valued at USD 3.77 billion in 2024 and is expected to grow at a CAGR of 28.4% from 2025 to 2030 to reach $17.1 billion by 2030.1
The Social Proxy Solution
Following our acquisition of The Social Proxy in June 2024, we are providing, through The Social Proxy, proprietary proxy services and data collection services.
The Social Proxy is dedicated to promoting the ideals of an open web by leveraging cutting-edge technologies to enhance our proxy solutions. Its mission is to deliver unparalleled performance, unlocking the potential for general data and AI data gathering at scale, thereby empowering businesses and organizations to harness the full potential of web data.
At the heart of The Social Proxy’s services are its proprietary 5G and 4G mobile private proxies, available as either dedicated or rotating solutions. These proxies, built on in-house hardware and proprietary software, provide businesses with an unlimited supply of Internet Protocol addresses (identical to those of real users) ensuring both anonymity and reliability during data extraction operations.
We believe that The Social Proxy’s main advantages over competitors include:
| ● | The Social Proxy’s ethical open web data collection platform. The Social Proxy platform offers new standards for ethical and compliant web data collection practices. Businesses that collect data from websites can now rely on our built on in-house hardware and proprietary software proxies owned and operated by The Social Proxy, with dedicated mobile modems and real-private Internet Protocol addresses from The Social Proxy’s partner internet service providers. The direct ownership model ensures that there is no reliance on third-party or end-user mobile devices, which is a key aspect of ethical data collection. We believe that reliance on third-party or end-user mobile devices, on the other hand, is unethical for a various reasons, such as that in many cases the third-party or end-user is not even aware of or does not consent to the use of its device, the data collection provider is using the end-user data plan and by that reducing the data that the third-party or end-user can use for its own uses, and that using the third-party or end-user mobile device can impact the device’s battery health and shorten its lifespan. |
| ● | The Social Proxy’s 5G and 4G mobile proxy network is the largest raw mobile proxy network (without using end-user mobile devices) in the world. The Social Proxy’s innovative approach eliminates the common bottleneck associated with proxies - slow internet speeds due to additional redirection and security layers. Thus, users do not have to worry about connection speed or latency issues. The Social Proxy uses stand-alone physical devices which are much faster than the industry standard proxy networks that rely on apps installed on end-user’s devices. |
| ● | The Social Proxy employs the cutting-edge Carrier-Grade Network Address Translation (CGNAT) technology, a technique to conserve Internet Protocol addresses and increase network privacy, which makes The Proxy Social’s solution unlockable and transparent. Because these proxies are real Internet Protocol legitimate addresses from actual mobile devices (modems), they offer a level of flexibility unmatched by many competitors. |
| ● | Unlimited Internet Protocol addresses rotation by reconnecting dedicated endpoints to the mobile network. |
| ● | The system operates within server farms, utilizing ultra-fast fiber optic infrastructure to ensure high speed and maximum available uptime. |
Competition in the Data Collection and Proxy Services Markets
The data collection, web scraping, and proxy services industry is highly competitive and rapidly evolving, driven by increasing demand for real-time data extraction, cybersecurity solutions, and AI-driven analytics. Our primary competitors include well-established companies such as Bright Data (formerly Luminati), Oxylabs, Smartproxy, and NetNut (a subsidiary of Alarum Technologies Ltd.). These companies have developed extensive proxy infrastructures, proprietary web scraping technologies, and strong market positions, enabling them to serve enterprise clients across various industries, including finance, e-commerce, and cybersecurity.
| 1 | https://www.grandviewresearch.com/industry-analysis/data-collection-labeling-market |
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Competitors in this industry differentiate themselves based on the scale and quality of their proxy networks, scraping efficiency, and compliance with data privacy regulations. Bright Data, a market leader, operates one of the most extensive residential proxy networks, positioning itself as a trusted provider for large-scale data collection. Oxylabs has focused on AI-driven scraping solutions and legal compliance, actively engaging in court cases to validate the legitimacy of web scraping practices. Smartproxy offers cost-effective proxy solutions tailored for smaller businesses and individual users, making it a popular alternative in the market. NetNut, leveraging its direct partnerships with internet service providers (ISPs), provides a unique infrastructure with high-speed and stable connections, distinguishing itself in enterprise proxy services.
Regulatory challenges and legal considerations also shape the competitive landscape. As governments enforce stricter data protection laws, including GDPR and CCPA, companies in this sector must navigate complex compliance requirements. Several competitors, including Bright Data and Oxylabs, have been involved in legal disputes over web scraping rights and data usage, influencing industry practices. Additionally, regulatory developments, such as the UK’s proposed AI content scraping framework, could impose new compliance hurdles that impact how companies collect and utilize web data. Competitors that fail to adapt to evolving legal standards may face operational restrictions, while those that proactively align with compliance frameworks will gain a competitive advantage.
Despite the intense competition, we believe that our proprietary technologies, specialized expertise, and commitment to ethical and scalable data collection position us favorably in the industry. By continuously enhancing our infrastructure, expanding our proxy network, and developing innovative AI-driven data extraction solutions, we aim to strengthen our market share. As demand for compliant and high-quality data collection grows, we remain committed to providing highly efficient, secure, and legally compliant services that meet the evolving needs of businesses worldwide.
Regulation of the Data Collection Market
Regulation in the data collection market still stands as a pivotal point of discussion and contention. Governments and regulatory bodies worldwide are working to establish frameworks that balance innovation with consumer protection, data privacy, and market fairness. These regulations typically focus on transparency, user consent, and limitations on data usage to prevent abuse, fraud, and anti-competitive practices. In jurisdictions like the European Union, the GDPR imposes strict guidelines on data collection, requiring companies to obtain explicit user consent, provide clear disclosures, and ensure data minimization. Similarly, in the United States, regulations such as the CCPA grant consumers more control over their data, including the right to opt out of data sales and request deletion.
In the proxy industry, which involves rerouting internet traffic through intermediary servers to anonymize users or bypass restrictions, regulation is particularly complex. Proxies can be used for legitimate purposes such as cybersecurity, web scraping for competitive intelligence, and accessing geo-restricted content. However, they can also facilitate malicious activities like fraud, unauthorized data scraping, and circumvention of digital rights management. Some governments have moved to regulate proxy providers by requiring them to maintain records, restrict access, or comply with content moderation laws. For instance, Russia and China impose strict regulations on proxy and Virtual Private Network (VPN) services, which extend a private network across a public network to provide secure data transmission, often requiring government approval and data-sharing agreements.
Regulations aim to instill transparency, accountability, and consent-based practices among entities involved in collecting and handling data, thereby fostering a more ethical and privacy-centric approach within the data collection market. However, the evolving nature of technology and the global scope of data make it an ongoing challenge to create comprehensive and adaptable regulatory frameworks that balance consumer protection with innovation and business needs.
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We believe that compliance with existing regulations is imperative for companies operating in the data collection market, necessitating robust data protection measures, clearer consent mechanisms, which are systems or processes for obtaining user consent to collect or use their data in compliance with privacy laws, and increased accountability to uphold consumer trust. Navigating the complex regulatory landscape of the data collection market is a priority we take seriously. Our approach hinges on proactive measures that ensure transparency, consent, and security. We outline data collection practices, ensuring clarity in our privacy policies and consent mechanisms. We maintain regular audits and assessments to keep us aligned with evolving regulatory standards, to ensure continuous compliance. We are committed to upholding the rights of individuals concerning their data, prioritizing their control and privacy while delivering top-tier data collection solutions in adherence to the evolving regulatory landscape.
Our Strategy
Our strategy is centered on creating long-term value by identifying, acquiring, and developing intellectual property and technology assets with high-impact potential in substantial and growing markets. Through strategic acquisitions, innovation, and operational excellence, we aim to enhance the scalability, efficiency, and market reach of our portfolio companies while driving sustainable growth and competitive differentiation.
The core pillars of our strategy are:
| ● | Identifying and Acquiring High-Potential Intellectual Property and Technology Assets |
We actively seek out proprietary technologies and unique assets with transformative potential, particularly in industries characterized by high data demand, AI advancements, and BI applications. Our approach prioritizes:
| o | Technological Differentiation – Identifying Intellectual Property-driven solutions that offer a clear competitive edge. |
| o | Market Opportunity – Targeting industries with strong growth trajectories and increasing reliance on AI, data extraction, and automation. |
| o | Scalability and Monetization – Ensuring that assets can be expanded and monetized through strategic partnerships and global market penetration. |
| ● | Developing and Enhancing Acquired Technologies |
We focus on optimizing, scaling, and expanding the capabilities of the assets we acquire. This involves:
| o | Investing in R&D – Enhancing proprietary technologies to maintain leadership in the market. |
| o | Expanding Infrastructure – Strengthening network capabilities to improve performance, security, and service reliability. | |
| o | Ensuring Ethical and Regulatory Compliance – Aligning our technologies with evolving legal and ethical standards, particularly in the data privacy, cybersecurity, and AI sectors. |
| ● | Leveraging Strategic Partnerships and Market Expansion |
We drive growth through strategic alliances, partnerships, and geographic expansion to maximize the commercial potential of our technologies. Key initiatives include:
| o | Global Network Expansion – Enhancing our presence in high-demand regions such as the United States, Europe, and Asia. |
| o | Enterprise and AI Integration – Aligning our data solutions with the needs of large enterprises, AI-driven businesses, and technology innovators. |
| o | Optimizing Commercial Models – Deploying subscription-based, Application Programming Interface, or API,-driven, and enterprise licensing models to enhance revenue streams. API is a set of rules for building and interacting with software applications. |
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| ● | Sustaining Long-Term Growth through Innovation |
We are committed to continuous technological advancement and value creation by:
| o | Anticipating Market Trends – Staying ahead of industry shifts in AI, data analytics, and privacy-focused web interactions. |
| o | Building Resilient and Adaptive Solutions – Ensuring that our platforms can adapt to evolving business needs and regulatory landscapes. |
| o | Maintaining an Ethical Approach to Data Utilization – Developing solutions that respect privacy, transparency, and ethical AI principles. |
By identifying, acquiring, and developing cutting-edge intellectual property and technology assets, we aim to unlock new business opportunities, maximize investment returns, and strengthen our leadership in the proxy, AI data extraction, and business intelligence markets along with other markets. Our scalable, secure, and high-performance solutions enable organizations to harness the power of the open web while ensuring compliance and ethical data usage. This approach positions us to capitalize on the growing demand for privacy-conscious, and scalable data solutions, driving sustained value creation for our stakeholders and long-term industry impact in this domain.
Recent Developments
On March 4, 2025, we announced that we have entered into an Exclusive Sublicense Agreement with Biossil. Pursuant to this agreement we have granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the resulting patents listed in the said agreement and all know-how including all clinical and pre-clinical data related to the product called Edratide (the “Product”), trademarks, trade names, logos and labelling owned or controlled by us or our affiliates that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. Thus, from such date, we are no longer actively involved with the development of hCDR1 or with the development of any other drug candidate.
On April 7, 2025, we announced that Mr. Noam Band was appointed the Chief Executive Officer of the Company, and that Mr. Band replaces Shlomo Shalev who will continue to serve as the Chairman of the Company’s Board of Directors. In accordance with the Israeli Companies Law, Mr. Band’s compensation is subject to shareholder approval.
Drug Candidates
hCDR1 for the Treatment of Systemic Lupus Erythematosus
As mentioned above, in March 2025, we announced that we entered into an Exclusive Sublicense Agreement with Biossil, pursuant to which we have granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide hCDR1. Thus, from such date, we are no longer actively involved with the development of hCDR1.
rHuEPO for the Treatment of Multiple Myeloma
As our focus has changed, we do not anticipate conducting material research and development activities for rHuEPO.
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Development of our Proxy and Data Extraction Technologies
As part of our commitment to delivering cutting-edge solutions, we continue to develop and enhance our proxy and data extraction technologies to better serve the evolving needs of AI, BI, and data-driven applications. Our proprietary 5G and 4G mobile proxy solutions remain at the core of our offering, providing users with highly secure, high-speed, and ethically sourced Internet Protocol addresses for seamless and efficient data collection. With a strong foundation in scalability, speed, and security, we are continuously refining our infrastructure to expand the geographic coverage, performance, and automation capabilities of our proxy network to meet growing global demand.
To further optimize our solutions, we are investing in advanced API integrations and automation features, ensuring seamless compatibility with AI and large-scale data collection workflows. Our AI-powered scrapers and data API feeds, including the Professional Data API, Social Scraper API, and SERP API, remain critical tools for seeking real-time, structured, and high-quality data for analysis. As part of our ongoing development efforts, we are focusing on enhancing the accuracy, efficiency, and compliance of our data extraction tools while ensuring continued adherence to ethical data practices.
Looking ahead, we are dedicated to expanding our product ecosystem by integrating emerging technologies that align with evolving regulatory frameworks and the increasing sophistication of AI-driven data applications. Our development roadmap includes, but not limited to, improvements in proxy rotation mechanisms, security enhancements, and expanded global reach, reinforcing our position as a leader in ethical, high-performance data collection solutions. By staying at the forefront of technological innovation, we aim to support businesses in navigating the ever-changing digital landscape while maximizing the value of web data for AI and business intelligence applications.
Intellectual Property
Patents
General
Patents and other proprietary rights may be very important to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We intend to seek and maintain patent and trade secret protection for our drug candidates and our proprietary technologies. As part of our business strategy, our policy is to file patent applications in the U.S. and internationally. We also rely on trade secret information, technical know-how, innovation and agreements with third parties to continuously expand and protect our competitive position. At this stage The Social Proxy does not have registered patents, it relies on specific rare know-how, internal developments of hardware and software.
Generally, patent applications in the U.S. are maintained in secrecy for a period of at least 18 months. Third parties or competitors may challenge or circumvent our patents or patent applications, if issued. Granted patents can be challenged and ruled invalid at any time, therefore the grant of a patent is not of itself sufficient to demonstrate our entitlement to a proprietary right. The disallowance of a claim or invalidation of a patent in any one territory can have adverse commercial consequences in other territories.
If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may choose to challenge competing patent rights, which could result in substantial cost, even if the eventual outcome is favorable to us. While we have the right to defend patent rights related to our licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort.
If a patent is issued to a third party containing one or more preclusive or conflicting claims, and those claims are ultimately determined to be valid and enforceable, we may be required to obtain a license under such patent or to develop or obtain alternative technology. In the event of a litigation involving a third party claim, an adverse outcome in the litigation could subject us to significant liabilities to such third party, require us to seek a license for the disputed rights from such third party, and/or require us to cease use of the technology. We also may need to commence litigation to enforce any patents issued to us or to determine the scope, validity and/or enforceability of third-party proprietary rights. Litigation would involve substantial costs.
hCDR1 for the Treatment of SLE and SS
We have exclusively licensed from Yeda, three families of patents relating to hCDR1. These three families of patents were sublicensed to Biossil pursuant to the Exclusive Sublicense Agreement that we have entered into with Biossili.
| ● | A basic patent family entitled “Synthetic Human Peptides and Pharmaceutical Compositions Comprising Them” for the Treatment of Systemic Lupus Erythematosus” that covers the active pharmaceutical agent, the Edratide peptide. |
| ● | A patent family for the formulation entitled “Parenteral Formulations of Peptides for the Treatment of Systemic Lupus Erythematosus” that covers a very specific pharmaceutical composition comprising Edratide. | |
| ● | A patent family for treatment of Sjögren’s syndrome with Edratide and similar peptides was filed on January 4, 2018. |
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Licensing Agreements and Collaborations
hCDR1
On January 7, 2014, we entered into a license agreement with Yeda, as amended on September 6, 2015, which grants us the exclusive worldwide right to research, develop, and commercialize hCDR1 for all indications. Yeda is the commercial arm of the Weizmann Institute of Science.
In March 2025, we announced that we have entered into an Exclusive Sublicense Agreement with Biossil. Pursuant to this agreement we have granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the resulting patents listed in the said agreement and all know-how including all clinical and pre-clinical data related to the Product, trademarks, trade names, logos and labelling owned or controlled by us or our affiliates that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. Yeda was informed by us and by Biossil about the Exclusive Sublicense Agreement and has agreed to its execution.
Employees
As of the date hereof we have no employees and four service providers. Our subsidiaries have 10 full-time service providers and 2 full-time employees. We and Israeli employees who might be employed by us, are subject, by an extension order of the Israeli Ministry of Welfare, to certain provisions of collective bargaining agreements between the Histadrut, the General Federation of Labor Unions in Israel and the Coordination Bureau of Economic Organizations, including the Industrialists Associations. Our part-time service providers are not subject to these collective bargaining agreements. These provisions principally address cost of living increases, recreation pay, travel expenses, vacation pay and other conditions of employment. We provide our employees with benefits and working conditions equal to or above the required minimum. Other than those provisions, our employees are not represented by a labor union.
Organizational structure
Our legal and commercial name is XTL Biopharmaceuticals Ltd. We were established as a private company limited by shares under the laws of the State of Israel on March 9, 1993, under the name Xenograft Technologies Ltd. We re-registered as a public company on June 7, 1993, in Israel, and changed our name to XTL Biopharmaceuticals Ltd. on July 3, 1995.
We commenced operations to use and commercialize technology developed at the Weizmann Institute, in Rehovot, Israel. Since 1993 we pursued therapeutic and pharmaceutical development programs for the treatment of a variety of indications including hepatitis B, hepatitis C, diabetic neuropathic pain, schizophrenia, SLE and multiple myeloma, most of which have terminated.
We currently have two subsidiaries, The Social Proxy Ltd. a private company and Xtepo Ltd., a private company limited by shares under the laws of the State of Israel. As of April 28, 2025, we hold approximately 0.51% of the issued and outstanding share capital of InterCure Ltd., a related party and former subsidiary of ours.
The ADSs are listed for trading on The Nasdaq Capital Market under the symbol “XTLB.” Our ordinary shares are traded on the TASE under the symbol “XTLB.” We operate under the laws of the State of Israel under the Israeli Companies Law, and in the U.S. under the Securities Act and the Exchange Act.
Our principal offices are located at 26 Ben-Gurion St., Ramat Gan 5112001, Israel, and our telephone number is (972) 3-6116600. Our primary internet address is www.xtlbio.com. None of the information on our website is incorporated by reference herein.
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ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis in conjunction with our audited consolidated financial statements, including the related notes, prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (“IFRS Accounting standards” or “IFRS”) for the years ended December 31, 2024, 2023 and 2022, and as of December 31, 2024 and 2023, contained in “Item 18. Consolidated Financial Statements” and with any other selected financial data included elsewhere in this annual report.
The tables below present selected financial data for the fiscal years ended as of December 31, 2024, 2023 and 2022. We have derived this selected financial data from our audited consolidated financial statements, included elsewhere in this report and prepared in accordance with IFRS. You should read the selected financial data in conjunction with “Item 3. Key Information” and “Item 8. Financial Information” and “Item 18. Consolidated Financial Statements.”
Consolidated Statements of Comprehensive Income (Loss):
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands (except per share data) | ||||||||||||
| Continuing operations: | ||||||||||||
| Revenues | 451 | - | - | |||||||||
| Cost of service | (448 | ) | - | - | ||||||||
| Gross profit | 3 | - | - | |||||||||
| Research and development expenses | (98 | ) | (31 | ) | (30 | ) | ||||||
| Sales and Marketing expenses | (487 | ) | - | - | ||||||||
| General and administrative expenses | (1,601 | ) | (734 | ) | (850 | ) | ||||||
| Operating loss | (2,172 | ) | (765 | ) | (880 | ) | ||||||
| Change in fair value of financial instruments | 926 | - | 1,054 | |||||||||
| Change in fair value of marketable securities | 167 | (1,022 | ) | (1,531 | ) | |||||||
| Other finance income | 34 | 41 | 36 | |||||||||
| Other finance expenses | (112 | ) | (36 | ) | (27 | ) | ||||||
| Finance income (expenses), net | 1,015 | (1,017 | ) | (468 | ) | |||||||
| Loss before income taxes | (1,157 | ) | - | - | ||||||||
| Income taxes benefit | 130 | - | - | |||||||||
| Total income (loss) for the year | (1,027 | ) | (1,782 | ) | (1,348 | ) | ||||||
| Total comprehensive loss for the year | (1,027 | ) | (1,782 | ) | (1,348 | ) | ||||||
| Basic loss per share (in U.S. dollars): | (0.002 | ) | (0.003 | ) | (0.002 | ) | ||||||
| Diluted loss per share (in U.S. dollars): | (0.003 | ) | (0.003 | ) | (0.002 | ) | ||||||
| Weighted average number of issued ordinary shares | 673,044,737 | 544,906,149 | 544,906,149 | |||||||||
| Diluted weighted average number of ordinary shares | 704,163,099 | 544,906,149 | 544,906,149 | |||||||||
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Consolidated Statements of Financial Position Data:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S Dollars in thousands | ||||||||
| Cash and cash equivalents | 371 | 1,401 | ||||||
| Working capital (deficit) | (867 | ) | 1,840 | |||||
| Total assets | 8,550 | 2,426 | ||||||
| Long term liabilities | 908 | - | ||||||
| Total shareholders’ equity | 5,435 | 2,220 | ||||||
Overview
We are an Intellectual Property based company engaged in proxy and data collection, through our wholly owned subsidiary, The Social Proxy, and in the biopharmaceutical industry, in which we hold a license from Yeda for hCDR1, a potential treatment for SLE and SS.
We were established as a corporation under the laws of Israel in 1993, and commenced operations to use and commercialize technology developed at the Weizmann Institute, in Rehovot, Israel. Since commencing operations, our activities have been primarily devoted to developing our technologies and drug candidates, acquiring pre-clinical and clinical-stage compounds, raising capital, purchasing assets for our facilities, and recruiting personnel. We have had no drug product sales to date. Our major sources of working capital have been proceeds from various private and public offerings of our securities and option and warrant exercises.
In March 2025, we announced that we have entered into an Exclusive Sublicense Agreement with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”). Pursuant to this agreement we have granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the resulting patents listed in the said agreement and all know-how including all clinical and pre-clinical data related to the product called Edratide (the “Product”), trademarks, trade names, logos and labelling owned or controlled by us or our affiliates that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. Thus, from such date, we are no longer actively involved with the development of hCDR1 or with the development of any other drug candidate.
In June 2024, we announced that we have entered into a share purchase agreement with the shareholders of The Social Proxy, a web data company, developing and powering a unique ethical, internet protocol based, proxy and data extraction platform for AI and BI Applications at scale. Pursuant to this purchase agreement, we have acquired all of the issued and outstanding share capital of The Social Proxy. This transaction was closed in August 2024 and Social Proxy is operating as a wholly owned subsidiary of the Company.
The Company has incurred net loss of $1,027 thousands for the year ended December 31, 2024. As of December 31, 2024, the Company’s accumulated deficit was $159,009 thousands. We have incurred negative cash flow from operations each year since our inception and we anticipate incurring negative cash flows from operating activities for the foreseeable future.
We expect to incur additional losses through the end of 2025 and beyond arising from research and development activities, testing additional technologies and operating activities, which will be reflected in negative cash flows from operating activities. In order for us to continue our operations, we will require additional funds over the next 12 months. While we hope we will be able to generate funds necessary to maintain our operations, without additional funds there might not be enough resources to maintain our operations. Our ability to obtain such additional financing and to achieve our operating goals is uncertain. In the event that we do not obtain additional capital or are not able to increase cash flow through the increase in revenues, there is a substantial doubt about our being able to continue as a going concern.
The Company is constantly looking to identify additional assets to add to XTL’s portfolio.
Our revenues derive from The Social Proxy platform and consist of licensing cloud-enabled services subscriptions.
Our cost of service expenses consist primarily of hosting and carriers services, subcontractors and amortization of intangible assets.
Our sales and marketing derive from The Social Proxy and consist primarily of salaries, subcontractors, advertisement and from recording amortization of intangible assets.
Our general and administrative expenses consist primarily of management fees, consultant fees, and related expenses for executive, finance and other administrative personnel, professional fees, director fees and other corporate expenses, including investor relations, business development costs and facilities related expenses. We expense our general and administrative costs as incurred.
Our results of operations include non-cash compensation expense as a result of the grants of XTL stock options. Compensation expense for awards of options granted to key service providers and directors represents the fair value of the award (measured using the Black-Scholes valuation model) recorded over the respective vesting periods of the individual stock options (see details below.)
For awards of options to consultants and other third-parties, according to IFRS 2, the treatment of such options is the same as employee options compensation expense (see note 14 to the consolidated financial statements for the year ended December 31, 2024). We record compensation expense based on the fair value of the award at the grant date according to the Black-Scholes valuation model. According to IFRS 2, in non-performance-based options, we recognize options expenses using the graded vesting method (accelerated amortization). Graded vesting means that portions of a single option grant will vest on several dates, equal to the number of tranches. We treat each tranche as a separate share option grant; because each tranche has a different vesting period, and hence the fair value of each tranche is different. Therefore, under this method the compensation cost amortization is accelerated to earlier periods in the overall vesting period.
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A. Results of Operations
Year ended December 31, 2024 compared to the year ended December 31, 2023
Revenues. Revenues in the years ended December 31, 2024 and 2023 totaled approximately $451 thousand and nil, respectively. Revenues in 2024 represent Company’s revenues which were generated by The Social Proxy.
Cost of Revenues. Cost of Revenues in the years ended December 31, 2024 and 2023 totaled approximately $448 thousand and nil, respectively. Cost of Revenues in 2024 represents expenses which were generated by Social Proxy and from recording amortization of intangible assets of technology which the Company recorded as part of The Social Proxy acquisition.
Research and Development Expenses. Research and development expenses in the years ended December 31, 2024 and 2023 totaled approximately $98 thousand and $31 thousand, respectively. In 2023 Research and development expenses were comprised mainly of expenses related to maintenance of our intangible assets. The increase in 2024 compared to 2023 is mainly from employees and service providers of The Social Proxy.
Sales and Marketing Expenses. Sales and marketing expenses in the years ended December 31, 2024, and 2023 totaled approximately $487 thousand and nil, respectively. Sales and marketing expenses derive from The Social Proxy and from recording amortization of intangible assets of brand which the Company recorded as part of The Social Proxy acquisition.
General and Administrative Expenses. General and administrative expenses for the years ended December 31, 2024 and 2023 totaled approximately $1,590 thousand and $734 thousand, respectively. The increase in 2024 compared to 2023 is mainly from the acquisition of The Social Proxy, increase in professional services and options granted to our directors and executives under its share option plan.
Impairment of intangible assets. The Company is required to determine, at least on an annual basis and as of year-end, whether the fair value of its unamortized intangible assets exceeds their book value. As of December 31, 2024 and 2023, the Company recognized no impairments. For further information, see also Note 9 of the consolidated financial statements for the year ended December 31, 2024.
Finance income (expenses), net. Finance income, net for the year ended December 31, 2024 totaled approximately $1,015 thousand compared to finance expenses, net in the amount of $1,017 thousand in 2023. The difference primarily derives from revaluation of marketable securities and warrants to purchase ADS’s which were issued in 2024.
Year ended December 31, 2023 compared to the year ended December 31, 2022
Refer to Form 20-F of December 31, 2023.
Material Accounting Policies
We describe our material accounting policies in Note 3 to our consolidated financial statements for the year ended December 31, 2024.
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Impact of Inflation and Currency Fluctuations
While a substantial amount of our operating expenses are in US dollars, we incur a portion of our expenses in New Israeli Shekels. In addition, we also pay for some of our services and supplies in the local currencies of our suppliers. As a result, we are exposed to the risk that the US dollar will be devalued against the New Israeli Shekel or other currencies, and as result our financial results could be harmed if we are unable to protect against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. The Company’s treasury’s risk management policy is to hold NIS-denominated cash and cash equivalents and short-term deposits in the amount of the anticipated NIS-denominated liabilities for six consecutive months from time to time in line with the directives of the Company’s Board. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the US Dollar or that the timing of any devaluation may lag behind inflation in Israel.
As of December 31, 2024, had the Group’s functional currency strengthened by 10% against the NIS with all other variables remaining constant, loss for the year would have been $46 thousand lower (2023 loss would have been approximately $144 thousand lower; 2022 - loss approximately $152 thousand lower), mainly as a result of exchange rate changes on translation of other accounts receivable, net and exchange rate changes on NIS-denominated cash and cash equivalents and marketable securities – investment in InterCure Ltd.
Governmental Economic, Fiscal, Monetary or Political Policies that Materially Affected or Could Materially Affect Our Operations
Tax rates applicable to the Company:
| ● | Since the tax year 2018, the taxable income of the Company and XTEPO is subject to a corporate tax rate of 23%. |
| ● | Benefits granted to a Preferred Enterprise include reduced tax rates. As part of the Economic Efficiency Law (Legislative Amendments for Accomplishment of Budgetary Targets for Budget Years 2017-2018), 5777-2016, the tax rate is 12% for all areas other than Development Area A (which is 7.5%). |
| ● | Company’s management believe the Company’s subsidiary, The Social Proxy, will be entitled to beneficial tax rate of 12% according to a preferred technology enterprise (“PTE”). In order to comply with the PTE, the Company must meet certain criteria which include – investment in research and development, development of products that are innovative and high-value, significant revenues from sales outside of Israel, income derives from IP developed in Israel and used for exports. Company’s management believe the Company’s subsidiary Social Proxy meets these requirements. |
| ● | The Social Proxy Inc and Social Proxy LDA are subject to a corporate tax rate of 21% applicable in United states and Portugal |
As of December 31, 2024, XTL Biopharmaceuticals Ltd. did not have any taxable income. As of December 31, 2024, our net operating loss carries forwards for Israeli tax purposes registered on behalf of XTL Biopharmaceuticals Ltd. amounted to approximately $39 million and approximately $23 million capital loss carryforward which may be offset against future capital gain. Under Israeli law, these net-operating losses may be carried forward indefinitely and offset within XTL Biopharmaceuticals Ltd only, against future taxable income, including capital gains from the sale of assets used in the business, with no expiration date.
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B. Liquidity and Capital Resources
The Company has incurred net loss of $1,027 thousands for the year ended December 31, 2024. As of December 31, 2024, the Company’s accumulated deficit was $159,009 thousands.
We expect to incur additional losses through the end of 2025 and beyond arising from research and development activities, testing additional technologies and operating activities, which will be reflected in negative cash flows from operating activities. In order for us to continue our operations, we will require additional funds over the next 12 months. While we hope we will be able to generate funds necessary to maintain our operations, without additional funds there might not be enough resources to maintain our operations. Our ability to obtain such additional financing and to achieve our operating goals is uncertain. In the event that we do not obtain additional capital or are not able to increase cash flow through the increase in revenues, there is a substantial doubt about our being able to continue as a going concern.
We have financed our operations from inception primarily through various proceeds from various private and public offerings of our securities and option and warrant exercises. As of December 31, 2024, we received net proceeds of approximately $87.4 million from various private placement transactions, public offerings and exercises of warrants.
As of December 31, 2024, we had approximately $371 thousand in cash and cash equivalents, compared to approximately $1,401 thousand on December 31, 2023. The decrease is mainly from the general and administrative expenses of 2024 and the acquisition of The Social Proxy.
Net cash used in operating activities for the year ended December 31, 2024 was $1,618 thousand, compared to net cash used in operating activities of $707 thousand for year ended December 31, 2023. The increase in net cash used in operating activities is mainly from the general and administrative expenses of 2024.
Net cash used in investing activities for the year ended December 31, 2024 was $844 thousand compared to net cash provided by investing activities of $41 thousand for the year ended December 31, 2023. The change is due to the acquisition of The Social Proxy and the loan granted to The Social Proxy prior to the acquisition.
Net cash provided by financing activities for the year ended December 31, 2024 was $1,447, mainly from the fund-raising event prior to The Social Proxy acquisition. No net cash provided by financing activities for the year ended December 31, 2023.
We have incurred continuing losses and depend on outside financing resources to continue our activities. We have decided to stop our research and development expenditures in connection with execution of our clinical trials. In parallel, we will look to identify additional assets to add to our portfolio.
C. Research and Development, Patents and Licenses
Research and development costs in 2024 substantially derives from costs following the acquisition of The Social Proxy. Research and development costs in 2023 and 2022 substantially derived from costs related to the hCDR1 and, to a lesser degree, development plans. In 2024 there are also expenses for employees and service providers of The Social Proxy and expenses related to the engagement of regulatory and clinical consultants for the hCDR1 development.
hCDR1 for the Treatment of SLE
In March 2025, we announced that we have entered into an Exclusive Sublicense Agreement with Biossil and that pursuant to this agreement we have granted Biossil, for the term of the agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense through multiple tiers, to our novel synthetic peptide, hCDR1. Therefore, from such date, we are not actively involved with the development of hCDR1.
rHuEPO for the Treatment of Multiple Myeloma
We have decided to concentrate our efforts and resources on the development of hCDR1 and therefore do not expect to initiate any activities related to rHuEPO.
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The following table sets forth the research and development costs for the years 2024, 2023 and 2022 including all costs related to the clinical-stage projects, our pre-clinical activities, and all other research and development. We in-licensed hCDR1 in January 2014 and started preparations for clinical development of this asset during the year. We started preparations for rHuEPO clinical development in the last quarter of 2010 (after the completion of the Bio-Gal transaction on August 2010). We in-licensed SAM-101 in November 2011 and in June 2015, the Company terminated the license agreement and all rights in and to the licensed technology reverted to MinoGuard. Whether or not and how quickly we commence and complete development of our clinical stage projects is dependent on a variety of factors, including the rate at which we are able to engage clinical trial sites and the rate of enrollment of patients. As such, the costs associated with the development of our drug candidates will probably increase significantly.
| Research and development Expenses in thousand US$ | ||||||||||||
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| hCDR1 | 16 | 31 | 30 | |||||||||
| Social Proxy | 82 | |||||||||||
| Total Research and Development | 98 | 31 | 30 | |||||||||
D. Trend Information
The trends impacting us are described elsewhere in this annual report on Form 20-F, including in Items 3.D., 4.B., and 5.A. and B.
E. Critical Accounting Estimates
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
| ● | Critical accounting estimates and assumptions |
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.
| ● | Accounting for business combination |
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, based upon their estimated fair values at the acquisition date. These fair values are typically estimated with assistance from independent valuation specialists.
The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration arrangements, and pre-acquisition contingencies.
Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
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Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
| ● | future expected cash flows from product sales or other customer contracts; |
| ● | expected costs of fulfillment including marketing, warehousing and product sales; |
| ● | the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; |
| ● | EBIT margins; |
| ● | revenues growth rates; |
| ● | Royalty rate; |
| ● | cost of capital and discount rates; and |
| ● | estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize. |
Refer to Note 5, Subsidiaries, to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 20-F
| ● | Intangible assets |
These assets are reviewed for impairment once a year and whenever there are indicators of a possible impairment, in accordance with the provisions of IAS 36, Impairment of Assets. The amortization of an asset on a straight-line basis over its useful life begins when the development procedure is completed, and the asset is available for use.
Non-financial assets that sustained impairment are reviewed for possible reversal of the impairment at each date of the statement of financial position. An impairment is tested at least every year. In addition, discretion is exercised as to whether there is an indication to examine impairment more frequently.
| ● | Issuance of warrants |
The exercise price of the warrants issued at the Social Proxy Transaction is in NIS (different than the functional currency) and therefore these warrants are classified as a liability. The warrants issued at the fund-raising have a cashless exercise mechanism and therefore, in accordance with International Accounting Standard 32: “Financial Instruments: Presentation”, are also a financial liability.
The Company has initially recognized them at fair value as of the date of issuance (measured through third-party appraiser, using a Black-Scholes model).
The warrants are carried at fair value. On each reporting period, the changes in their fair value are recognized in profit or loss.
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F. Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
Directors and Senior Management
The following sets forth information with respect to our directors and executive officers as of the date hereof.
| Name | Age | Position | ||
| Noam Band | 54 | Chief Executive Officer | ||
| Itay Weinstein | 54 | Chief Financial Officer | ||
| Shlomo Shalev | 63 | Non-Executive Director and Chairman of the Board | ||
| Osnat Hillel Fain | 59 | Non-Executive and External Director | ||
| Iris Shapira Yalon | 57 | Non-Executive and External Director | ||
| Alexander Rabinovich | 54 | Non-Executive Director | ||
| Doron Turgeman | 57 | Non-Executive Director |
Noam Band was appointed to serve as Chief Executive Officer of the Company in April 2025. Most recently, Mr. Band has served as the Chief Executive Officer of Monitor2Heart. From 2020 through its acquisition in 2023 he served as a board advisor to 7digital Group plc (formerly AIM: 7DIG), contributing to its strategic direction and corporate governance. Mr. Band served as the Chairman and Chief Executive Officer of Gix Internet Ltd. (formerly Algomizer Ltd.) (TASE:GIX) from 2013 to 2020 and as a Chairman of Viewbix Inc. (OTCMKTS: VBIX) from 2018 to 2020. Additionally, Mr. Band has served as the Chief Executive Officer of Timest, Mobillion, and Dotomi (acquired by ValueClick). Mr. Band holds an MBA and a B.A. in Economics from The Hebrew University of Jerusalem, Israel.
Itay Weinstein was appointed our Chief Financial Officer in July, 2017. Mr. Itay Weinstein is a Partner at Shimony C.P.A. and has been employed there since 1999. Mr. Weinstein served as the Controller of Can-Fite BioPharma Ltd. since 2003 and as the Chief Financial Officer of Ophthalix Inc. from November 2011 through November 2017. Prior to joining Shimony C.P.A, Mr. Weinstein served as an auditor at Oren Horowitz. Mr. Weinstein is also a board member of Weinstein CPA company. Mr. Weinstein holds a B.A. in economics and accounting from the Tel Aviv University, Israel, and has been a licensed CPA since 1999.
Shlomo Shalev joined our Board of Directors in December 2014. In April 2025, Mr. Shalev was appointed to serve as Chairman, a position filled by him between August 2015, and June 2018 as well. From May 2020 through April 2025 Mr. Shalev served as the company’s CEO. Previosley he served as Executive Chairman of the Board of Intercure, a TASE and Nasdaq listed company. In addition to serving as a board member on a number of Nasdaq and TASE listed companies. Mr. Shalev was the Senior Vice President of Investments for Ampal. He has also worked on a number of transactions in mergers and acquisitions and initial public offerings. With an educational background in economics, Mr. Shalev was Israel’s Consul for Economic Affairs and the Economic Advisor to the Director General, Ministry of Industry and Trade. Mr. Shalev holds an MBA from the University of San Francisco and a B.A. degree in Economics from the University of Ben Gurion, Beer Sheva, Israel. We believe Mr. Shalev’s extensive company strategy and oversight experience, along with his board experience makes him well-qualified to serve as a Director of our Board of Directors.
Osnat Hillel Fain joined our Board of Directors in March 2015. Ms. Fain served as Founder, Director and Managing Partner of Newton Propulsion Technologies LTD from 2003 to 2016. Since 2017, Ms. Fain has served as Consultant, Strategy and Business Development at Adi Shefaram Management LTD where she locates, examines and screens economic feasibility for ventures in various fields and provides business development assistance among other duties. In addition, Ms. Fain serves as a board member on a number of TASE listed companies, including Tigi, Alrov Real Estate and Mehadrin and a former director of TASE listed companies such as DIC Discount Investment Corporation, Elron, PBC Group, ICB, Priortech LTD, E.T.VIEW, Aran R&D, Leumi Start LTD. Ms. Fain was the Business Development Manager at Giora Eiland Ltd., a representative of the Cheyne Capital Group in Israel, General Director of InterVision, Managing Partner at Aran Medical Ventures Hedge Fund, Marketing Manager at Datasphere Ltd. and a marketing consultant for TCB, Elgan Office Supplies, the Haifa Theatre, Adar (software house). Ms. Fain earned a BA in Humanities and Executive MBA from Tel Aviv University and completed a one year course in Management at the Tel Aviv campus of the College of Management. We believe Ms. Fain’s extensive management and board experience makes her well-qualified to serve as a member of our Board of Directors.
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Iris Shapira Yalon was appointed a director on January 29, 2020. Ms. Yalon serves as External Director of Shufersal Ltd (The leading Israeli retail chain)., as well as Director of Rotem Industries Ltd. (Israeli government-owned company), Mei Avivim, (a water corporation of Tel Aviv) and in several associations for the benefit of the public and as a Lecturer of Director’s course. Prior to that, Ms. Yalon served as Board member on a number of TASE listed companies, including Electra real estate Ltd., Computer Direct Group Ltd. and on a dual listed company such as TAT Technologies Ltd., Ms. Yalon served as the Chief Financial Officer of multiple companies such as Kryon Systems Ltd., Haldor Advanced Technologies Ltd., Mofet Technology Fund Ltd., and Cloverleaf Media Ltd., which was acquired in 2010 by Dot Hill. Moreover, Ms. Yalon has served as Audit Team Manager at Ernest & Young. She earned a BA in Economics and Accounting (cum laude) at Tel Aviv University and she is licensed accountant. We believe Ms. Yalon’s extensive board experience makes her well-qualified to serve as a member of our Board of Directors.
Alexander Rabinovich joined our Board of Directors in April 2017. Mr. Rabinovich has served on the board of directors of Intercure Ltd. since October 2018, and as Chairman of Intercure’s Board since February 2025 and is also the Chief Executive Officer of InterCure. He has significant public company experience with both Nasdaq and TASE listed companies. Mr. Rabinovich is currently also the Chief Executive Officer and director of Green Fields Capital Ltd., a public company listed on the TASE, engaged in investments in renewable energies. Mr. Rabinovich also served until 2014, on the board of directors of Pilat Media Global PLC, a public company listed on TASE and on the Alternative Investment Market of the London Stock Exchange. Mr. Rabinovich holds a B.A. degree in economics and accounting from the University of Haifa, Israel.
Doron Turgeman joined our Board of Directors in December 2014 and was appointed Chief Executive Officer on January 29, 2020. On May 19, 2020, Mr. Turgeman resigned as Chief Executive Officer. Mr. Turgeman remains on the board following his resignation as Chief Executive Officer. He has served as Chairman of our Board of Directors from July 2018 until April 2025. Mr. Turgeman has significant public company experience with both Nasdaq and TASE listed companies. He has gained considerable experience in mergers and acquisitions involving both debt and equity. Mr. Turgeman holds a B.A. degree in Economics and Accounting from the Hebrew University of Jerusalem and is a certified public accountant in Israel. We believe Mr. Turgeman’s extensive company strategy experience and technical background makes him well-qualified to serve as a Director of our Board of Directors.
B. Compensation
The aggregate compensation paid by us to all persons who served as directors or officers for the year 2024 was approximately $605 thousand.
All members of our Board of Directors who are not our employees are reimbursed for their expenses for each meeting attended, save for Alexander Rabinovich, who is a significant shareholder of our Company. Our directors are eligible to receive stock options under our stock option plans. Non-executive directors do not receive any remuneration from us other than fees for their services as members of the board or committees of the board and expense reimbursement, save for one director who is eligible for fees for consulting services provided to the Company.
In 2017, we fixed the monetary compensation for non-executive directors as follows: annual consideration of NIS 29 thousand (to be paid in 4 equal quarterly payments), payments of NIS 1,460 for attendance at each board or committee meeting in person, NIS 876 for meetings held by teleconference, NIS 730 for unanimous written board resolutions and reimbursement of reasonable out-of-pocket expenses.
For further details regarding share options granted to our directors and service providers, see Note 14 to the consolidated financial statements for the year ended December 31, 2024.
Employment Agreements
Noam Band
Our Chief Executive Officer, Noam Band, was appointed on April 7, 2025. Mr. Band will receive compensation as follows:
| 1. | Monthly retainer – Mr. Band shall be entitled to a fixed gross monthly fee of NIS 50,000 (approximately USD 13,744), excluding value added tax. |
| 2. | Options - subject to the approval of the Board of Directors of the Company, and applicable law, Mr. Band shall be granted: |
| ● | Time Based Option - 42,300,000 options to acquire up to 42,300,000 ordinary shares of the Company NIS 0.1 nominal value each of the Company, represented by 423,000 ADSs of the Company. These options shall vest equally on a quarterly basis over a period of forty-eight (48) months following the date of the agreement. The exercise price for each such option being USD 1.40 per ADS. |
| ● | Milestone Based Option - 42,300,000 options to acquire up to 42,300,000 ordinary shares, represented by 423,000 ADSs. Upon the occurrence within a period of twenty-four (24) months as of the date of the grant of these options (i) reaching positive EBITDA (based on financial statement audited by the Company’ auditors), 300,000 options shall vest and (ii) closing of a strategic transaction (as defined by the Board), additional 123,000 options shall vest, provided however that on the date of achievement of the relevant Milestone, the Service Provider continues to provide services to the Company. The exercise price for each such option being USD 1.60 per ADS. |
In the event of termination of this agreement: (i) The options shall stop vesting upon the termination notice (as defined in the agreement); and (ii) any options already vested may be exercisable within 90 days following the date of the termination notice.
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In accordance with the Israeli Companies Law, Mr. Band’s compensation is subject to shareholder approval.
Shlomo Shalev
Our Chairman of the Board, Shlomo Shalev. Mr. Shalev, who served as our chief executive officer until April 2025 and who is now serving as our Chairman of the Board, will receive compensation as follows:
| 1. | Monthly retainer – Mr. Shalev shall be entitled to a fixed gross monthly fee of NIS 30,000 (approximately USD 8,264), excluding value added tax. |
| 2. | Working Hours – Mr. Shalev shall be employed at a 50% capacity. |
| 3. | Social Benefits – Mr. Shalev shall be entitled to receive monthly car expense payments of NIS 3,000 (approximately USD 933). |
| 4. | Options – Mr. Shalev was issued in (1) in the year 2016 with 1,500,000 options to purchase, under the approved ESOP plan of the Company, 1,500,000 ordinary shares of the Company, at an exercise price of NIS 0.6 (approximately USD 0.16) per Option. These Options are fully vested; (2) in the year 2016 with 10,000,000 options to purchase, under the approved ESOP plan of the Company, 10,000,000 ordinary shares of the Company, at an exercise price of NIS 0.09 (approximately USD 0.03) per option. These options are fully vested; and (3) During the year 2024 with 10,000,000 options to purchase, under the approved ESOP plan of the Company, 10,000,000 ordinary shares of the Company, at an exercise price of NIS 0.0438 (approximately USD 0.01) per option. These options were fully vested on grant date. |
Itay Weinstein
In July 2017, we entered into a service agreement with Mr. Itay Weinstein pursuant to which he serves as our Chief Financial Officer on a part time basis. Mr. Weinstein is entitled to a monthly gross payment of NIS 15,000 (NIS 180,000 annually).
In addition, we pay Shimony C.P.A, the accounting firm of which Mr. Weinstein is a Partner, monthly fees of NIS 15,000 for controller and bookkeeping services.
In March 2024, Mr. Itay Weinstein was issued with 1,000,000 options to purchase, under the approved ESOP plan of the Company, 1,000,000 ordinary shares of the Company, at an exercise price of NIS 0.0438 (approximately USD 0.01) per Option. The options vest on a quarterly basis until March 2027.
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Jonathan Schapiro
We entered into a consulting agreement dated January 1, 2015 with Dr. Jonathan Schapiro, a former director. Commencing on such date, Dr. Schapiro served as a consultant to us for a monthly fee of $2,000 increasing to $3,000 upon the successful completion of a cash fund raising of at least $3 million in a public offering or private placement of equity securities, including securities convertible or exercisable into equity by us or any entity in our control. In addition, under the consulting agreement, on December 30, 2014, Dr. Schapiro was granted options to purchase 150,000 ordinary shares at an exercise price of NIS 0.4915 per share (in addition to the options granted to him as a director on the same day as described below). One third of the options vested on the twelve-month anniversary of the grant date, and the remaining two thirds vested on a quarterly basis over the following two years. The options had a term of ten years and expired December 30, 2024.
Since August 2024, Dr. Schapiro is no longer serving as a director of the Company and is not receiving any compensation from the Company. His consulting agreement has been terminated.
In accordance with the requirements of Israeli Law, we determine our directors’ compensation in the following manner:
| ● | first, our compensation committee reviews the proposal for compensation. |
| ● | second, provided that the compensation committee approves the proposed compensation, the proposal is then submitted to our Board of Directors for review, except that a director who is the beneficiary of the proposed compensation does not participate in any discussion or voting with respect to such proposal; and |
| ● | finally, if our Board of Directors approves the proposal, it must then submit its recommendation to our shareholders, which is usually done in connection with our shareholders’ general meeting. |
The approval of a majority of the shareholders voting at a duly convened shareholders’ meeting is required to implement any such compensation proposal.
C. Board Practices
Election of Directors and Terms of Office
Our Board of Directors currently consists of five members. The nomination of our directors is proposed by our Board of Directors or a designated nomination committee composed of three members of our Board of Directors, whose proposal is then approved by the board. Our board, following receipt of a proposal of the nomination committee, has the authority to add additional directors up to the maximum number of 12 directors allowed under our Articles. Such directors appointed by the board serve until the next annual general meeting of the shareholders. Unless they resign before the end of their term or are removed in accordance with our Articles, all of our directors, other than our external directors, will serve as directors until our next annual general meeting of shareholders.
None of our directors or officers has any family relationship with any other director or officer.
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Our Articles permit us to maintain directors’ and officers’ liability insurance and to indemnify our directors and officers for actions performed on behalf of us, subject to specified limitations. We maintain a directors and officers insurance policy which covers the liability of our directors and officers as allowed under Israeli Companies Law.
There are no service contracts or similar arrangements with any director that provide for benefits upon termination of a directorship.
External and Independent Directors
The Israeli Companies Law requires Israeli companies with shares that have been offered to the public either in or outside of Israel to appoint two external directors. No person may be appointed as an external director if that person or that person’s relative, partner, employer or any entity under the person’s control, has or had, on or within the two years preceding the date of that person’s appointment to serve as an external director, any affiliation with the company or any entity controlling, controlled by or under common control with the company. The term affiliation includes:
| ● | an employment relationship; |
| ● | a business or professional relationship maintained on a regular basis; |
| ● | control; and |
| ● | service as an office holder, other than service as an officer for a period of not more than three months, during which the company first offered shares to the public. |
No person may serve as an external director if that person’s position or business activities create, or may create, a conflict of interest with that person’s responsibilities as an external director or may otherwise interfere with his/her ability to serve as an external director. If, at the time external directors are to be appointed, all current members of the Board of Directors are of the same gender, then at least one external director must be of the other gender. A director in one company shall not be appointed as an external director in another company if at that time a director of the other company serves as an external director in the first company. In addition, no person may be appointed as an external director if he/she is a member or employee of the Israeli Security Authority, and also not if he/she is a member of the Board of Directors or an employee of a stock exchange in Israel.
External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:
| ● | the majority of shares voted at the meeting, including at least one-half of the shares held by non-controlling shareholders or other shareholders who have a personal interest in such election voted at the meeting, vote in favor of election of the director, with abstaining votes not being counted in this vote; or |
| ● | the total number of shares held by non-controlling shareholders voted against the election of the director does not exceed two percent of the aggregate voting rights in the company. |
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The initial term of an external director is three years and may be extended for two additional three-year terms. Notwithstanding, pursuant applicable articles of the Companies Regulations (Reliefs for Israeli companies whose securities are listed for trading on a stock exchange outside of Israel), promulgated under the Companies Law and as amended from time to time, following the Audit Committee and the Board of Directors recommendation, the Company shareholders may re-elect an external director for additional terms. An external director may be removed only by the same percentage of shareholders as is required for their election, or by a court, and then only if such external director ceases to meet the statutory qualifications for their appointment or violates his or her duty of loyalty to the company. Both external directors must serve on every committee that is empowered to exercise one of the functions of the Board of Directors.
An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with service provided as an external director.
Osnat Hillel Fain and Iris Shapira Yalon serve as external directors pursuant to the provisions of the Israeli Companies Law. They both serve on our audit committee, our committee for the approval of financial statements, our nomination committee and our compensation committee.
Audit Committee
The Israeli Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include identifying irregularities in the management of the company’s business and approving related party transactions as required by law. An audit committee must consist of at least three directors, including all of its external directors. The chairman of the Board of Directors, any director employed by or otherwise providing services to the company, and a controlling shareholder or any relative of a controlling shareholder, may not serve as members of the audit committee. An audit committee may not approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two external directors are serving as members of the audit committee and at least one of the external directors was present at the meeting in which an approval was granted.
Our audit committee is currently comprised of three independent non-executive directors. The audit committee is chaired by Osnat Hillel Fain, who serves as the audit committee financial expert, Iris Shapira Yalon and Doron Turgeman as members. The audit committee meets at least four times a year and monitors the adequacy of our internal controls, accounting policies and financial reporting. It regularly reviews the results of the ongoing risk self-assessment process, which we undertake, and our interim and annual reports prior to their submission for approval by the full Board of Directors. The audit committee oversees the activities of the internal auditor, sets its annual tasks and goals and reviews its reports. The audit committee reviews the objectivity and independence of the external auditors and also considers the scope of their work and fees.
We have adopted a written charter for our audit committee, setting forth its responsibilities as outlined by the regulations of the SEC. In addition, our audit committee has adopted procedures for the receipt, retention and treatment of complaints we may receive regarding accounting, internal accounting controls, or auditing matters and the submission by our key consultants of concerns regarding questionable accounting or auditing matters. In addition, SEC rules mandate that the audit committee of a listed issuer consist of at least three members, all of whom must be independent, as such term is defined by rules and regulations promulgated by the SEC. We are in compliance with the independence requirements of the SEC rules.
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Financial Statement Examination Committee
According to regulations promulgated under the Companies law and since we are considered as a “Small Corporation” under the Israeli Securities law Regulation, we are not required to appoint a financial statement examination committee, therefore our financial statements are examined and approved by our board of directors.
Compensation Committee
Under the Companies Law, the board of directors of any public company must establish a compensation committee and to adopt a compensation policy with respect to its officers, or the Compensation Policy. In addition, the Companies Law sets forth the approval process required for a public company’s engagement with its officers (with specific reference to a director, a non-director officer, a chief executive officer and controlling shareholders and their relatives who are employed by the company).
The compensation committee shall be nominated by the board of directors and be comprised of its members. The compensation committee must consist of at least three members. All of the external directors must serve on the compensation committee and constitute a majority of its members. The remaining members of the compensation committee must be directors who qualify to serve as members of the audit committee (including the fact that they are independent) and their compensation should be identical to the compensation paid to the external directors of the company. The approval of the compensation committee is required in order to approve terms of office and/or employment of office holders. The Company’s Compensation Policy was duly approved on January 7, 2021.
Similar to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or any director employed by the company, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to the company, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its relatives. Individuals who are not permitted to be compensation committee members may not participate in the committee’s meetings other than to present a particular issue; provided, however, that an employee that is not a controlling shareholder or relative may participate in the committee’s discussions, but not in any vote, and the company’s legal counsel and corporate secretary may participate in the committee’s discussions and votes if requested by the committee.
The roles of the compensation committee are, among other things, to: (i) recommend to the board of directors the Compensation Policy for office holders and recommend to the board once every three years the extension of a Compensation Policy that had been approved for a period of more than three years; (ii) recommend to the directors any update of the Compensation Policy, from time to time, and examine its implementation; (iii) decide whether to approve the terms of office and of employment of office holders that require approval of the compensation committee; and (iv) decide, in certain circumstances, whether to exempt the approval of terms of office of a chief executive officer from the requirement of shareholder approval.
The Compensation Policy requires the approval of the general meeting of shareholders with a “Special Majority”, which requires a majority of the shareholders of the company who are not either a controlling shareholder or an “interested party” in the proposed resolution, or the shareholders holding less than 2% of the voting power in the company voted against the proposed resolution at such meeting. However, under special circumstances, the board of directors may approve the Compensation Policy without shareholder approval, if the compensation committee and thereafter the board of directors decided, based on substantiated reasons after they have reviewed the compensation policy again, that the Compensation Policy is in the best interest 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 knowledge, skills, expertise and accomplishments of the relevant director or executive; |
| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her; |
| ● | the relationship between the terms offered and the average and median compensation of the key consultants of the company; |
| ● | 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:
| ● | the link between variable compensation and long-term performance and measurable criteria; |
| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation; |
| ● | the conditions under which 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 and maximum limits for severance compensation.
Osnat Hillel Fain is the chairman of our compensation committee. Doron Turgeman and Iris Shapira Yalon serve as the other members of our compensation committee.
Approval of Compensation to Our Officers
The Israeli Companies Law prescribes that compensation to officers must be approved by a company’s board of directors.
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The responsibilities of the compensation committee are to set our overall policy on executive remuneration and to decide the specific remuneration, benefits and terms of employment for directors, officers and the Chief Executive Officer.
The objectives of the compensation committee’s policies are that such individuals should receive compensation which is appropriate given their performance, level of responsibility and experience. Compensation packages should also allow us to attract and retain executives of the necessary caliber while, at the same time, motivating them to achieve the highest level of corporate performance in line with the best interests of shareholders. In order to determine the elements and level of remuneration appropriate to each executive director, the compensation committee reviews surveys on executive pay, obtains external professional advice and considers individual performance.
Internal Auditor
Under the Israeli Companies Law, the board of directors must appoint an internal auditor, nominated by the audit committee. Our internal auditor is Daniel Spira. The role of the internal auditor is to examine, among other matters, whether the company’s actions comply with the law and orderly business procedure. Under the Israeli Companies Law, an internal auditor may not be:
| ● | a person (or a relative of a person) who holds more than 5% of the company’s shares; |
| ● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
| ● | an executive officer or director of the company; or |
| ● | a member of the company’s independent accounting firm. |
We comply with the requirement of the Israeli Companies Law relating to internal auditors. Our internal auditors examine whether our various activities comply with the law and orderly business procedure. Our internal auditor is not our employee, but the managing partner of a firm which specializes in internal auditing.
D. Employees
As of the date hereof, we have no employees and four service providers. Our subsidiaries have 10 full-time service providers and 2 full-time employees. We and Israeli employees who might be employed by us, are subject, by an extension order of the Israeli Ministry of Welfare, to certain provisions of collective bargaining agreements between the Histadrut, the General Federation of Labor Unions in Israel and the Coordination Bureau of Economic Organizations, including the Industrialists Associations. Our part-time service providers are not subject to these collective bargaining agreements. These provisions principally address cost of living increases, recreation pay, travel expenses, vacation pay and other conditions of employment. We provide our employees with benefits and working conditions equal to or above the required minimum. Other than those provisions, our employees are not represented by a labor union.
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E. Share Ownership
The following table sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of April 30, 2025, by the members of our senior management, board of directors, individually and as a group, and each person who we know beneficially owns 5% or more of our outstanding ordinary shares. The beneficial ownership of ordinary shares is based on 881,385,176 ordinary shares outstanding as of April 30, 2025 and is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power. For purposes of the table below, we deem shares subject to options or warrants that are currently exercisable or exercisable within 60 days of April 30, 2025, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
| Name of Beneficial Owner | Number of
Ordinary Shares | Percentage of
Class* | ||||||
| Senior Management and Directors | ||||||||
| Noam
Band Chief Executive Officer | - | - | ||||||
| Shlomo
Shalev Chairman of the Board | 24,909,309 | (1) | 2.75 | % | ||||
| Osnat
Hillel Fain Director | 416,667 | (2) | * | |||||
| Iris
Shapira Yalon Director | 504,167 | (3) | * | |||||
| Alexander
Rabinovich Director | 288,288,887 | (4) | 29.99 | % | ||||
| Doron
Turgeman Director | 1,173,333 | (5) | * | |||||
| Itay
Weinstein Chief Finance Officer | 416,667 | (6) | * | |||||
| Directors and Senior Management as a group (7 persons) | 315,709,030 | 32.96 | % | |||||
| Beneficial owners of 5% or more | ||||||||
| Alexander Rabinovitch | 288,288,887 | (4) | 29.99 | % | ||||
| Tal Klinger | 86,229,088 | (7) | 9.78 | % | ||||
| Roy Klinger | 86,229,088 | (7) | 9.78 | % | ||||
| Yaron Yaacobi | 90,000,000 | (8) | 9.72 | % | ||||
| * |
Denotes less than 1%
|
| (1) | Includes (i) 3,409,309 ordinary shares, (ii) 1,500,000 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.6 per share exercisable until March 30, 2026, and (iii) 10,000,000 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.09 per share exercisable until July 6, 2030, and (iv) 10,000,000 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0438 per share exercisable until March 17, 2029. |
| (2) | Includes 416,667 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0438 per share exercisable until March 17, 2029. |
| (3) | Includes (i) 150,000 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0495 per share exercisable until March 1, 2033, and (ii) 354,167 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0438 per share exercisable until March 17, 2029. |
| (4) | Includes (i) 62,149,487 ordinary shares, (ii) 1,461,394 ADSs representing 146,139,400 ordinary shares and (iii) 80,000,000 warrants exercisable into 80,000,000 ordinary shares at an exercise price of $1.20, exercisable until August 17, 2029. |
| (5) | Includes (i) 340,000 ordinary shares represented by 3,400 ADSs, and (ii) 833,333 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0438 per share exercisable until March 17, 2029. |
| (6) | Includes 416,667 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.0438 per share exercisable until March 17, 2029. |
| (7) | Includes 86,229,088 ordinary shares represented by 862,291ADSs. |
| (8) | Includes (i) 45,000,000 ordinary shares represented by 450,000 ADSs, and (ii) 45,000,000 ordinary shares issuable upon the exercise of warrants at an exercise price of $1.20 per share, exercisable until August 17, 2029. |
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Share Option Plans
We maintain the following share option plans for our and our subsidiary’s directors and consultants. In addition to the discussion below, see note 14 of our consolidated financial statements for the year ended December 31, 2024.
Our Board of Directors administers our share option plans and has the authority to designate all terms of the options granted under our plans including the grantees, exercise prices, grant dates, vesting schedules and expiration dates, which may be no more than ten years after the grant date. Options may not be granted with an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined by our Board of Directors.
As of December 31, 2024, we have granted to directors and consultants options that are outstanding to purchase up to 27,100,000 ordinary shares under two share option plans.
2011 Share Option Plan
On August 29, 2011, our Board of Directors approved the adoption of an employee stock option scheme for the grant of options exercisable into shares of the Company according to section 102 to the Israeli Tax Ordinance, or the 2011 Plan, and to reserve up to 10 million ordinary shares in the framework of the 2011 Plan, for options allocation to employees, directors and consultants.
During 2020 it was decided to enlarge the reserve to 30 million options.
The 2011 Plan shall be subject to section 102 of the Israeli Tax Ordinance. According to the Capital Gain Track, which was adopted by us and the abovementioned section 102, we are not entitled to receive a tax deduction that relates to remuneration paid to employees, including amounts recorded as salary benefit for options granted to employees in the framework of the 2011 Plan, except the yield benefit component, if available, that was determined on the grant date. The terms of the options which will be granted according to the 2011 Plan, including option period, exercise price, vesting period and exercise period, shall be determined by our Board of Directors on the date of the actual allocation. On March 14, 2023, Company’s Board of Directors approved to extend retroactively the expiration date of the 2011 Plan by additional 5 years to August 29, 2026.
As of December 31, 2024, we have granted options to purchase 27,100,000 ordinary shares under the 2011 Plan at exercise prices between $0.01 and $0.17 per ordinary share.
For further details regarding share options granted to our directors and service providers, see note 14 to the consolidated financial statements for the year ended December 31, 2024.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
As of April 28, 2025, there were 9,897,235 ADSs outstanding, held by approximately 15 DTC participants and a registered shareholder, whose holdings represented approximately 78.90% of the total outstanding ordinary shares.
The following table sets forth the number of our ordinary shares owned by any person known to us to be the beneficial owner of 5% or more of our ordinary shares as of the date hereof. The information in this table is based on 881,385,176 outstanding ordinary shares as of such date. The number of ordinary shares beneficially owned by a person includes ordinary shares subject to options held by that person that were currently exercisable. None of the holders of the ordinary shares listed in this table have voting rights different from other holders of the ordinary shares.
| Name | Number of shares owned | Percent of ordinary shares | ||||||
| Alexander Rabinovitch | 288,288,887 | 29.99 | % | |||||
| Tal Klinger | 86,229,088 | 9.78 | % | |||||
| Roy Klinger | 86,229,088 | 9.78 | % | |||||
| Yaron Yaacobi | 90,000,000 | 9.72 | % | |||||
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B. Related Party Transactions
The following is a description of the transactions with related parties to which we, or our subsidiaries, are party, and which were in effect within the past three fiscal years. The descriptions provided below are summaries of the terms of such agreements, do not purport to be complete and are qualified in their entirety by the complete agreements.
We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third parties. We are required by Israeli law to ensure that all future transactions between us and our officers, directors and principal shareholders and their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and that they are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.
Employment and Consulting Agreements
We have or have had employment, consulting or related agreements with our senior management. See Item 6 - Compensation-Employment Agreements”.
Indemnification Agreements
Israeli law permits a company to insure an office holder in respect of liabilities incurred by him or her as a result of an act or omission in the capacity of an office holder for:
| ● | a breach of the office holder’s duty of care towards the company or towards another person; |
| ● | a breach of the office holder’s fiduciary duty to the company, provided that he or she acted in good faith and had reasonable cause to believe that the act would not prejudice the company; and |
| ● | a financial liability imposed upon the office holder in favor of another person. |
| ● | A financial liability imposed on the office holder’s for all victims of the violation in an Administrative Proceeding. |
| ● | Expenses incurred by the office holder’s in connection with an Administrative Proceeding conducted in his or her case, including litigation expenses and reasonable legal fees. |
Moreover, a company can indemnify an office holder for any of the following obligations or expenses incurred in connection with the acts or omissions of such person in his or her capacity as an office holder:
| ● | monetary liability imposed upon him or her in favor of a third party by a judgment, including a settlement or an arbitral award confirmed by the court; and |
| ● | reasonable litigation expenses, including legal fees, actually incurred by the office holder or imposed upon him or her by a court, in a proceeding brought against him or her by or on behalf of the company or by a third party, or in a criminal action in which he or she was acquitted, or in a criminal action which does not require criminal intent in which he or she was convicted; furthermore, a company can, with a limited exception, exculpate an office holder in advance, in whole or in part, from liability for damages sustained by a breach of duty of care to the company. |
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| ● | financial liability imposed on the office holder for all victims of the violation in an Administrative Proceeding. |
| ● | expenses incurred by the office holder in connection with an Administrative Proceeding conducted in his or her case, including litigation expenses and reasonable legal fees. |
Our Articles of Association allow for insurance, exculpation and indemnification of office holders to the fullest extent permitted by law. We have entered into indemnification, insurance and exculpation agreements with our directors and executive officers, following shareholder approval of these agreements. We have directors’ and officers’ liability insurance covering our officers and directors for a claim imposed upon them as a result of an action carried out while serving as an officer or director, for (a) the breach of duty of care towards us or towards another person, (b) the breach of fiduciary duty towards us, provided that the officer or director acted in good faith and had reasonable grounds to assume that the action would not harm our interests, and (c) a monetary liability imposed upon him in favor of a third party.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Our audited consolidated financial statements appear in this annual report on Form 20-F. See “Item 18. Financial Statements.”
Significant Changes
None.
ITEM 9. THE OFFER AND LISTING
Markets and Share Price History
Our ordinary shares have been trading on the Tel Aviv Stock Exchange, or TASE, since July 2005. Our ordinary shares currently trade on the TASE under the symbol “XTLB”.
On June 1, 2012, the Company filed an application for relisting its ADSs on The Nasdaq Capital Market. On July 10, 2013, the Company received a notice from Nasdaq stating that the admission committee had approved the Company’s application to relist its ADSs for trading on The Nasdaq Capital Market. Accordingly, on July 15, 2013, the Company’s ADSs began trading on The Nasdaq Capital Market under the ticker symbol “XTLB”.
ITEM 10. ADDITIONAL INFORMATION
Memorandum and Articles of Association
Objects and Purposes of the Company
Pursuant to Part B, Section 3 of our Articles of Association, we may undertake any lawful activity.
Powers and Obligations of the Directors
Pursuant to the Israeli Companies Law and our Articles of Association, a director is not permitted to vote on a proposal, arrangement or contract in which he or she has a personal interest. Also, the directors may not vote on compensation to themselves or any members of their body, as that term is defined under Israeli law, without the approval of our audit committee and our shareholders at a general meeting. The power of our directors to enter into borrowing arrangements on our behalf is limited to the same extent as any other transaction by us.
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The Israeli Companies Law codifies the fiduciary duties that office holders, including directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care generally requires an office holder to act with the same level of care as a reasonable office holder in the same position would employ under the same circumstances. The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and such person’s personal affairs, avoiding any competition with the company, avoiding exploiting any corporate opportunity of the company in order to receive personal advantage for such person or others, and revealing to the company any information or documents relating to the company’s affairs which the office holder has received due to his or her position as an office holder.
Indemnification of Directors and Officers; Limitations on Liability
Israeli law permits a company to insure an office holder in respect of liabilities incurred by him or her as a result of an act or omission in the capacity of an office holder for:
| ● | a breach of the office holder’s duty of care towards the company or towards another person; |
| ● | a breach of the office holder’s fiduciary duty to the company, provided that he or she acted in good faith and had reasonable cause to believe that the act would not prejudice the company; and |
| ● | a financial liability imposed upon the office holder in favor of another person. |
| ● | A financial liability imposed on the office holder’s for all victims of the violation in an Administrative Proceeding. |
| ● | Expenses incurred by the office holder’s in connection with an Administrative Proceeding conducted in his or her case, including litigation expenses and reasonable legal fees. |
Moreover, a company can indemnify an office holder for any of the following obligations or expenses incurred in connection with the acts or omissions of such person in his or her capacity as an office holder:
| ● | monetary liability imposed upon him or her in favor of a third party by a judgment, including a settlement or an arbitral award confirmed by the court; and |
| ● | reasonable litigation expenses, including legal fees, actually incurred by the office holder or imposed upon him or her by a court, in a proceeding brought against him or her by or on behalf of the company or by a third party, or in a criminal action in which he or she was acquitted, or in a criminal action which does not require criminal intent in which he or she was convicted; furthermore, a company can, with a limited exception, exculpate an office holder in advance, in whole or in part, from liability for damages sustained by a breach of duty of care to the company. |
| ● | financial liability imposed on the office holder for all victims of the violation in an Administrative Proceeding. |
| ● | expenses incurred by the office holder in connection with an Administrative Proceeding conducted in his or her case, including litigation expenses and reasonable legal fees. |
Our Articles of Association allow for insurance, exculpation and indemnification of office holders to the fullest extent permitted by law. We have entered into indemnification, insurance and exculpation agreements with our directors and executive officers, following shareholder approval of these agreements. We have directors’ and officers’ liability insurance covering our officers and directors for a claim imposed upon them as a result of an action carried out while serving as an officer or director, for (a) the breach of duty of care towards us or towards another person, (b) the breach of fiduciary duty towards us, provided that the officer or director acted in good faith and had reasonable grounds to assume that the action would not harm our interests, and (c) a monetary liability imposed upon him in favor of a third party.
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Approval of Related Party Transactions under the Israeli Companies Law
Fiduciary duties of the office holders
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care of an office holder is based on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:
| ● | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
| ● | All other important information pertaining to these actions. |
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes the duty to:
| ● | refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs; |
| ● | refrain from any activity that is competitive with the business of the company; |
| ● | refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
We may approve an act performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses his or her personal interest, as described below.
Disclosure of personal interests of an office holder and approval of acts and transactions
The Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obligated to disclose such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.
The term personal interest is defined under the Israeli Companies Law to include the personal interest of a person in an action or in the business of a company, including the personal interest of such person’s relative or the interest of any corporation in which the person is an interested party, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is not, however, obligated 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.
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Under the Israeli Companies Law, an extraordinary transaction which requires approval is defined any of the following:
| ● | a transaction other than in the ordinary course of business; |
| ● | a transaction that is not on market terms; or |
| ● | a transaction that may have a material impact on the company’s profitability, assets or liabilities. |
Under the Israeli Companies Law, once an office holder has complied with the disclosure requirement described above, a company may approve a transaction between the company and the office holder or a third party in which the office holder has a personal interest, or approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the office holder in good faith.
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, a transaction with a third party in which the office holder has a personal interest, and an action of an office holder that would otherwise be deemed a breach of duty of loyalty requires approval by the board of directors. Our Articles of Association do not provide otherwise. If the transaction or action considered is (i) an extraordinary transaction, (ii) an action of an office holder that would otherwise be deemed a breach of duty of loyalty and may have a material impact on a company’s profitability, assets or liabilities, (iii) an undertaking to indemnify or insure an office holder who is not a director, or (iv) for matters considered an undertaking concerning the terms of compensation of an office holder who is not a director, including, an undertaking to indemnify or insure such office holder, then approval by the audit committee is required prior to approval by the board of directors. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the audit committee, board of directors and shareholders, in that order.
A director who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may generally not be present at the meeting or vote on the matter, unless a majority of the directors or members of the audit committee have a personal interest in the matter or the chairman of the audit committee or board of directors, as applicable, determines that he or she should be present to present the transaction that is subject to approval. If a majority of the directors have a personal interest in the matter, such matter would also require approval of the shareholders of the company.
Disclosure of personal interests of a controlling shareholder and approval of transactions
Under the Israeli Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of engagement 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, 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, such 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. |
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
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Duties of shareholders
Under the Israeli Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:
| ● | an amendment to the articles of association; |
| ● | an increase in the company’s authorized share capital; |
| ● | a merger; |
| ● | an increase in the company’s authorized share capital; 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 discriminating against 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 discrimination against other shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
ORDINARY SHARES
Rights Attached to Ordinary Shares
Through March 18, 2009, our authorized share capital was NIS 10,000,000 consisting of 500,000,000 ordinary shares, par value NIS 0.02 per share. On March 18, 2009, pursuant to a shareholder’s meeting, the share capital of our company was consolidated and re-divided so that each five (5) shares of NIS 0.02 nominal value was consolidated into one (1) share of NIS 0.1 nominal value so that following such consolidation and re-division, our authorized share capital consisted of 100,000,000 ordinary shares, par value NIS 0.10 per share. In addition, the authorized share capital of our company was increased from NIS 10,000,000 to NIS 70,000,000 divided into 700,000,000 ordinary shares, NIS 0.10 nominal value. The share consolidation was effected on June 22, 2009. Effective August 3, 2017, the authorized share capital of the company increased from NIS 70,000,000 divided into 700,000,000 ordinary shares to NIS 145,000,000 divided into 1,450,000,000 ordinary shares.
Holders of ordinary shares have one vote per share, and are entitled to participate equally in the payment of dividends and share distributions and, in the event of our liquidation, in the distribution of assets after satisfaction of liabilities to creditors. No preferred shares are currently authorized. All outstanding ordinary shares are validly issued and fully paid.
Transfer of Shares
Fully paid ordinary shares are issued in registered form and may be freely transferred under our Articles of Association unless the transfer is restricted or prohibited by another instrument or applicable securities laws.
Dividend and Liquidation Rights
We may declare a dividend to be paid to the holders of ordinary shares according to their rights and interests in our profits. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings.
This right may be affected by the grant of preferential dividend or distribution rights, to the holders of a class of shares with preferential rights that may be authorized in the future. Under the Israeli Companies Law, the declaration of a dividend does not require the approval of the shareholders of the company, unless the company’s articles of association require otherwise. Our Articles provide that the Board of Directors may declare and distribute dividends without the approval of the shareholders.
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Annual and Extraordinary General Meetings
We must hold our annual general meeting of shareholders each year and no later than 15 months from the last annual meeting, at a time and place determined by the Board of Directors, upon at least 21 days’ prior notice to our shareholders, to which we need to add an additional three days for notices sent outside of Israel. A special meeting may be convened by request of two directors, 25% of the directors then in office, one or more shareholders holding at least 5% of our issued share capital and at least 1% of our issued voting rights, or one or more shareholders holding at least 5% of our issued voting rights. Notice of a general meeting must set forth the date, time and place of the meeting. Such notice must be given at least 21 days but not more than 45 days prior to the general meeting. The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least one-third of the voting rights in the company. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place (with no need for any notice to the shareholders) or until such other later time if such time is specified in the original notice convening the general meeting, or if we serve notice to the shareholders no less than seven days before the date fixed for the adjourned meeting. If at an adjourned meeting there is no quorum present half an hour after the time set for the meeting, any number participating in the meeting shall represent a quorum and shall be entitled to discuss the matters set down on the agenda for the original meeting. All shareholders who are registered in our registrar on the record date, or who will provide us with proof of ownership on that date as applicable to the relevant registered shareholder, are entitled to participate in a general meeting and may vote as described in “Voting Rights” and “Voting by Proxy and in Other Manners,” below.
Voting Rights
Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power represented at a shareholders meeting in which a quorum is present have the power to elect all of our directors, except the external directors whose election requires a special majority.
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Shareholders may vote in person or by proxy. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Under the Israeli Companies Law, unless otherwise provided in the Articles of Association or by applicable law, all resolutions of the shareholders require a simple majority. Our Articles of Association provide that all decisions may be made by a simple majority. See “Approval of Related Party Transactions” above for certain duties of shareholders towards the company.
Voting by Proxy and in Other Manners
Our Articles of Association enable a shareholder to appoint a proxy, who need not be a shareholder, to vote at any shareholders meeting. We require that the appointment of a proxy be in writing signed by the person making the appointment or by an attorney authorized for this purpose, and if the person making the appointment is a corporation, by a person or persons authorized to bind the corporation. In the document appointing a proxy, each shareholder may specify how the proxy should vote on any matter presented at a shareholders meeting. The document appointing the proxy shall be deposited in our offices or at such other address as shall be specified in the notice of the meeting not less than 48 hours before the time of the meeting at which the person specified in the appointment is due to vote.
The Israeli Companies Law and our Articles of Association do not permit resolutions of the shareholders to be adopted by way of written consent, for as long as our ordinary shares are publicly traded.
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Limitations on the Rights to Own Securities
The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our Articles of Association or the laws of the State of Israel, except that nationals of countries which are, or have been, in a state of war with Israel may not be recognized as owners of ordinary shares.
Anti-Takeover Provisions under Israeli Law
The Israeli Companies Law permits merger transactions with the approval of each party’s board of directors and shareholders. In accordance with the Israeli Companies Law, a merger may be approved at a shareholders meeting by a majority of the voting power represented at the meeting, in person or by proxy, and voting on that resolution. In determining whether the required majority has approved the merger, shares held by the other party to the merger, any person holding at least 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, or the relatives or companies controlled by these persons, are excluded from the vote.
Under the Israeli Companies Law, a merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 30 days have passed from the time the merger was approved in a general meeting of each of the merging companies, and at least 50 days have passed from the time that a merger proposal was filed with the Israeli Registrar of Companies.
Israeli corporate law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of such acquisition, the purchaser would become a 25% or greater shareholder of the company. This rule does not apply if there is already another shareholder with 25% or greater shares in the company. Similarly, Israeli corporate law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser’s shareholdings would entitle the purchaser to over 45% of the shares in the company, unless there is a shareholder with 45% or more of the shares in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received the approval of the company’s shareholders; (2) was from a 25% or greater shareholder of the company which resulted in the purchaser becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder of the company which resulted in the acquirer becoming a 45% or greater shareholder of the company. These rules do not apply if the acquisition is made by way of a merger. Regulations promulgated under the Israeli Companies Law provide that these tender offer requirements do not apply to companies whose shares are listed for trading external of Israel if, according to the law in the country in which the shares are traded, including the rules and regulations of the stock exchange or which the shares are traded, either:
| ● | there is a limitation on acquisition of any level of control of the company; or |
| ● | the acquisition of any level of control requires the purchaser to do so by means of a tender offer to the public. |
The Israeli Companies Law provides specific rules and procedures for the acquisition of shares held by minority shareholders, if the majority shareholder holds more than 90% of the outstanding shares. If, as a result of an acquisition of shares, the purchaser will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the purchaser offered to purchase will be transferred to it. The Israeli Companies Law provides for appraisal rights if any shareholder files a request in court within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the purchaser may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares of the company. Israeli tax law treats specified acquisitions, including a stock-for-stock swap between an Israeli company and a foreign company, less favorably than does U.S. tax law. These laws may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.
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Rights of Shareholders
Under the Israeli Companies Law, our shareholders have the right to inspect certain documents and registers including the minutes of general meetings, the register of shareholders and the register of substantial shareholders, any document held by us that relates to an act or transaction requiring the consent of the general meeting as stated above under “Approval of Related Party Transactions” our Articles of Association and our financial statements, and any other document which we are required to file under the Israeli Companies Law or under any law with the Registrar of Companies or the Israeli Securities Authority, and is available for public inspection at the Registrar of Companies or the Securities Authority, as the case may be.
If the document required for inspection by one of our shareholders relates to an act or transaction requiring the consent of the general meeting as stated above, we may refuse the request of the shareholder if in our opinion the request was not made in good faith, the documents requested contain a commercial secret or a patent, or disclosure of the documents could prejudice our good in some other way.
The Israeli Companies Law provides that with the approval of the court any of our shareholders or directors may file a derivative action on our behalf if the court finds the action is a priori, to our benefit, and the person demanding the action is acting in good faith. The demand to take action can be filed with the court only after it is serviced to us, and we decline or omit to act in accordance to this demand.
Enforceability of Civil Liabilities
We are incorporated in Israel and most of our directors and officers named in this report reside outside the U.S. Service of process upon them may be difficult to effect within the U.S. Furthermore, because substantially all of our assets, and those of our non-U.S. directors and officers and the Israeli experts named herein, are located outside the U.S., any judgment obtained in the U.S. against us or any of these persons may not be collectible within the U.S.
We have been informed by our legal counsel in Israel, Doron Tikotsky Kantor Gutman & Amit Gross, that there is doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act, pursuant to original actions instituted in Israel. However, subject to particular time limitations, executory judgments of a U.S. court for monetary damages in civil matters may be enforced by an Israeli court, provided that:
| ● | the judgment was obtained after due process before a court of competent jurisdiction, that recognizes and enforces similar judgments of Israeli courts, and the court had authority according to the rules of private international law currently prevailing in Israel; |
| ● | adequate service of process was effected and the defendant had a reasonable opportunity to be heard; |
| ● | the judgment is not contrary to the law, public policy, security or sovereignty of the State of Israel and its enforcement is not contrary to the laws governing enforcement of judgments; |
| ● | the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; |
| ● | the judgment is no longer appealable; and |
| ● | 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. |
Foreign judgments enforced by Israeli courts generally will be payable in Israeli currency. 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 render judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment. Under existing Israeli law, a foreign judgment payable in foreign currency may be paid in Israeli currency at the rate of exchange for the foreign currency published on the day before date of payment. Current Israeli exchange control regulations also permit a judgment debtor to make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily may be linked to Israel’s consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at that time. Judgment creditors must bear the risk of unfavorable exchange rates.
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AMERICAN DEPOSITORY SHARES
We have issued and deposited ordinary shares with Bank Hapoalim B.M., The Bank of New York’s custodian in Tel Aviv, Israel. The Bank of New York in turn issued American Depositary Shares, or ADSs, representing American Depositary Shares, or ADSs. One ADS represents an ownership interest in one hundred of our ordinary shares. Each ADS also represents securities, cash or other property deposited with The Bank of New York but not distributed to ADS holders. The Bank of New York’s Corporate Trust Office is located at 101 Barclay Street, New York, NY 10286, U.S.A. Their principal executive office is located at One Wall Street, New York, NY 10286, U.S.A.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.
Because The Bank of New York will actually hold the ordinary shares, you must rely on it to exercise the rights of a shareholder. The obligations of The Bank of New York are set out in a deposit agreement among us, The Bank of New York and you, as an ADS holder. The agreement and the ADSs are generally governed by New York law.
The following is a summary of the agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire agreement and the ADS. Directions on how to obtain copies of these are provided in the section entitled “Where You Can Find More Information.”
Share Dividends and Other Distributions
The Bank of New York has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.
Cash. The Bank of New York will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the U.S. If that is not possible or if any approval from any government or agency thereof is needed and cannot be obtained, the agreement allows The Bank of New York to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for the interest.
Before making a distribution, any withholding taxes that must be paid under U.S. law will be deducted. The Bank of New York will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when The Bank of New York cannot convert the foreign currency, you may lose some or all of the value of the distribution.
Shares. The Bank of New York may distribute new ADSs representing any shares we may distribute as a dividend or free distribution, if we furnish it promptly with satisfactory evidence that it is legal to do so. The Bank of New York will only distribute whole ADSs. It will sell shares which would require it to use a fractional ADS and distribute the net proceeds in the same way as it does with cash. If The Bank of New York does not distribute additional ADSs, each ADS will also represent the new shares.
Rights to receive additional shares. If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, The Bank of New York may make these rights available to you. We must first instruct The Bank of New York to do so and furnish it with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or give these instructions, and The Bank of New York decides it is practical to sell the rights, The Bank of New York will sell the rights and distribute the proceeds, in the same way as it does with cash. The Bank of New York may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them. If The Bank of New York makes rights available to you, upon instruction from you, it will exercise the rights and purchase the shares on your behalf. The Bank of New York will then deposit the shares and issue ADSs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.
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U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. For example, you may not be able to trade the ADSs freely in the U.S. In this case, The Bank of New York may issue the ADSs under a separate restricted deposit agreement, which will contain the same provisions as the agreement, except for the changes needed to put the restrictions in place.
Other Distributions. The Bank of New York will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, The Bank of New York has a choice. It may decide to sell what we distributed and distribute the net proceeds in the same way as it does with cash or it may decide to hold what we distributed, in which case the ADSs will also represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distribution we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
The Bank of New York will issue ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees. The Bank of New York will register the appropriate number of ADSs in the names you request and will deliver the ADSs at its office to the persons you request.
You may turn in your ADSs at The Bank of New York’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New York will deliver (1) the underlying shares to an account designated by you and (2) any other deposited securities underlying the ADS at the office of the custodian; or, at your request, risk and expense, The Bank of New York will deliver the deposited securities at its office.
Voting Rights
You may instruct The Bank of New York to vote the shares underlying your ADSs but only if we ask The Bank of New York to ask for your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.
If we ask for your instructions, The Bank of New York will notify you of the upcoming vote and arrange to deliver our voting materials to you. The materials will (1) describe the matters to be voted on and (2) explain how you, on a certain date, may instruct The Bank of New York to vote the shares or other deposited securities underlying your ADSs as you direct. For instructions to be valid, The Bank of New York must receive them on or before the date specified. The Bank of New York will try, as far as practical, subject to Israeli law and the provisions of our Articles of Association, to vote or to have its agents vote the shares or other deposited securities as you instruct. The Bank of New York will only vote or attempt to vote as you instruct. However, if The Bank of New York does not receive your voting instructions, it will deem you to have instructed it to give a discretionary proxy to vote the shares underlying your ADSs to a person designated by us provided that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform The Bank of New York that (x) we do not wish such proxy given, (y) substantial opposition exists, (z) such matter materially affects the rights of the holders of the shares underlying the ADSs.
We cannot assure you that you will receive the voting materials in time to ensure that you can instruct The Bank of New York to vote your shares. In addition, The Bank of New York and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.
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Rights of Non-Israeli Shareholders to Vote
The ADSs may be freely held and traded pursuant to the General Permit and the Currency Control Law. The ownership or voting of ADSs by non-residents of Israel is not restricted in any way by our Articles of Association or by the laws of the State of Israel.
Fees and Expenses
| ADS holders must pay: | For: | |
| $5.00 (or less) per 100 ADSs (or portion thereof) |
Each issuance of an ADS, including as a result of a distribution of shares or rights or other property.
Each cancellation of an ADS, including if the agreement terminates. | |
| $0.05 (or less) per ADS | Any cash payment. | |
| Registration or Transfer Fees | Transfer and registration of shares on the share register of the Foreign Registrar from your name to the name of The Bank of New York or its agent when you deposit or withdraw shares. | |
| Expenses of The Bank of New York |
Conversion of foreign currency to U.S. dollars.
Cable, telex and facsimile transmission expenses.
Servicing of shares or deposited securities. | |
| $0.02 (or less) per ADS per calendar year (if the depositary has not collected any cash distribution fee during that year) | Depositary services. | |
| Taxes and other governmental charges | As necessary The Bank of New York or the Custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes. | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders. |
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities underlying your ADSs. The Bank of New York may refuse to transfer your ADSs or allow you to withdraw the deposited securities underlying your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities underlying your ADSs to pay any taxes owed and you will remain liable for any deficiency. If it sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.
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Reclassifications, Recapitalizations and Mergers
| If we: | Then: | |
|
Change the nominal or par value of our shares;
|
The cash, shares or other securities received by The Bank of New York will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. The Bank of New York may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also issue new ADSs or ask you to surrender your outstanding ADSs in exchange for new ADSs, identifying the new deposited securities. | |
| Reclassify, split up or consolidate any of the deposited securities; | ||
| Distribute securities on the shares that are not distributed to you; or | ||
| Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action. |
Amendment and Termination
We may agree with The Bank of New York to amend the agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses, or prejudices an important right of ADS holders, it will only become effective thirty days after The Bank of New York notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADS, to agree to the amendment and to be bound by the ADSs and the agreement is amended.
The Bank of New York will terminate the agreement if we ask it to do so. The Bank of New York may also terminate the agreement if The Bank of New York has told us that it would like to resign and we have not appointed a new depositary bank within ninety days. In both cases, The Bank of New York must notify you at least ninety days before termination.
After termination, The Bank of New York and its agents will be required to do only the following under the agreement: (1) advise you that the agreement is terminated, and (2) collect distributions on the deposited securities and deliver shares and other deposited securities upon cancellation of ADSs. After termination, The Bank of New York will, if practical, sell any remaining deposited securities by public or private sale. After that, The Bank of New York will hold the proceeds of the sale, as well as any other cash it is holding under the agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and will have no liability for interest. The Bank of New York’s only obligations will be to account for the proceeds of the sale and other cash. After termination our only obligations will be with respect to indemnification and to pay certain amounts to The Bank of New York.
Limitations on Obligations and Liability to ADS Holders
The agreement expressly limits our obligations and the obligations of The Bank of New York, and it limits our liability and the liability of The Bank of New York. We and The Bank of New York:
| ● | are only obligated to take the actions specifically set forth in the agreement without negligence or bad faith; |
| ● | are not liable if either is prevented or delayed by law or circumstances beyond their control from performing their obligations under the agreement; |
| ● | are not liable if either exercises discretion permitted under the agreement; |
| ● | have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the agreement on your behalf or on behalf of any other party; and |
| ● | may rely upon any documents they believe in good faith to be genuine and to have been signed or presented by the proper party. |
In the agreement, we and The Bank of New York agree to indemnify each other under certain circumstances.
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Requirements for Depositary Actions
Before The Bank of New York will issue or register transfer of an ADS, make a distribution on an ADS, or make a withdrawal of shares, The Bank of New York may require payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the:
| ● | transfer of any shares or other deposited securities; |
| ● | production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary, and |
| ● | compliance with regulations it may establish, from time to time, consistent with the agreement, including presentation of transfer documents. |
The Bank of New York may refuse to deliver, transfer, or register transfers of ADSs generally when the books of The Bank of New York or our books are closed, or at any time if The Bank of New York or we think it advisable to do so. You have the right to cancel your ADSs and withdraw the underlying shares at any time except:
| ● | when temporary delays arise because: (1) The Bank of New York or we have closed its transfer books; (2) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on the shares; or |
| ● | when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities. |
This right of withdrawal may not be limited by any other provision of the agreement.
Pre-Release of ADSs
In certain circumstances, subject to the provisions of the agreement, The Bank of New York may issue ADSs before deposit of the underlying shares. This is called a pre-release of the ADS. The Bank of New York may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to The Bank of New York. The Bank of New York may receive ADSs instead of shares to close out a pre-release. The Bank of New York may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made must represent to The Bank of New York in writing that it or its customer owns the shares or ADSs to be deposited; (2) the pre-release must be fully collateralized with cash or other collateral that The Bank of New York considers appropriate; and (3) The Bank of New York must be able to close out the pre-release on not more than five business days’ notice. In addition, The Bank of New York will limit the number of ADSs that may be outstanding at any time as a result of prerelease, although The Bank of New York may disregard the limit from time to time, if it thinks it is appropriate to do so.
Inspection of Books of the Depositary
Under the terms of the agreement, holders of ADSs may inspect the transfer books of the depositary at any reasonable time, provided that such inspection shall not be for the purpose of communicating with holders of ADSs in the interest of a business or object other than either our business or a matter related to the deposit agreement or ADSs.
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Book-Entry Only Issuance - The Depository Trust Company
The Depository Trust Company, or DTC, New York, New York, will act as securities depository for the ADSs. The ADSs will be represented by one global security that will be deposited with and registered in the name of Cede & Co. (DTC’s partnership nominee), or such other name as may be requested by an authorized representative of DTC. This means that we will not issue certificates to you for the ADSs. One global security will be issued to DTC, which will keep a computerized record of its participants (for example, your broker) whose clients have purchased the ADSs. Each participant will then keep a record of its clients. Unless it is exchanged in whole or in part for a certificated security, a global security may not be transferred. However, DTC, its nominees, and their successors may transfer a global security as a whole to one another. Beneficial interests in the global security will be shown on, and transfers of the global security will be made only through, records maintained by DTC and its participants.
DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the United States Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants (direct participants) deposit with DTC. DTC also records the settlement among direct participants of securities transactions, such as transfers and pledges, in deposited securities through computerized records for direct participant’s accounts. This eliminates the need to exchange certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations.
DTC’s book-entry system is also used by other organizations such as securities brokers and dealers, banks and trust companies that work through a direct participant. The rules that apply to DTC and its participants are on file with the SEC.
DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation, or DTCC. DTCC is, in turn, owned by a number of DTC’s direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
When you purchase ADSs through the DTC system, the purchases must be made by or through a direct participant, who will receive credit for the ADSs on DTC’s records. Since you actually own the ADSs, you are the beneficial owner and your ownership interest will only be recorded on the direct (or indirect) participants’ records. DTC has no knowledge of your individual ownership of the ADSs. DTC’s records only show the identity of the direct participants and the amount of ADSs held by or through them. You will not receive a written confirmation of your purchase or sale or any periodic account statement directly from DTC. You will receive these from your direct (or indirect) participant. Thus the direct (or indirect) participants are responsible for keeping accurate account of the holdings of their customers like you.
We will wire dividend payments to DTC’s nominee, and we will treat DTC’s nominee as the owner of the global security for all purposes. Accordingly, we will have no direct responsibility or liability to pay amounts due on the global security to you or any other beneficial owners in the global security.
Any redemption notices will be sent by us directly to DTC, who will in turn inform the direct participants, who will then contact you as a beneficial holder.
It is DTC’s current practice, upon receipt of any payment of dividends or liquidation amount, to credit direct participants’ accounts on the payment date based on their holdings of beneficial interests in the global securities as shown on DTC’s records. In addition, it is DTC’s current practice to assign any consenting or voting rights to direct participants whose accounts are credited with preferred securities on a record date, by using an omnibus proxy. Payments by participants to owners of beneficial interests in the global securities, and voting by participants, will be based on the customary practices between the participants and owners of beneficial interests, as is the case with the ADSs held for the account of customers registered in “street name.” However, payments will be the responsibility of the participants and not of DTC or us.
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ADSs represented by a global security will be exchangeable for certificated securities with the same terms in authorized denominations only if:
| ● | DTC is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under applicable law and a successor depositary is not appointed by us within 90 days; or |
| ● | we determine not to require all of the ADSs to be represented by a global security. |
If the book-entry only system is discontinued, the transfer agent will keep the registration books for the ADSs at its corporate office.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources we believe to be reliable, but we take no responsibility for the accuracy thereof.
Exchange Controls
There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, except or otherwise as set forth under Taxation.
Taxation
The following discussion summarizes certain Israeli and U.S. federal income tax consequences that may be material to our shareholders, but is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations that may be relevant to holders of our ordinary shares. This discussion is based on existing law, judicial authorities and administrative interpretations, all of which are subject to change or differing interpretations, possibly with retroactive effect. This summary does not purport to be a complete analysis of all potential tax consequences of owning our ordinary shares. In particular, this discussion does not take into account the specific circumstances of any particular holder or holders who may be subject to special rules, such as tax-exempt entities, broker-dealers, shareholders subject to Alternative Minimum Tax, shareholders that actually or constructively own 10% or more of our voting securities, shareholders that hold ordinary shares or ADSs as part of straddle or hedging or conversion transaction, traders in securities that elect mark to market, banks and other financial institutions or partnerships or other pass-through entities. The following tax considerations are not relevant to employees of the company or any controlling shareholders. The tax aspects do not include reference to the Encouragement of Capital Investments Law and the Encouragement of Industry Taxes Law.
We urge shareholders to consult their own tax advisors as to the potential U.S., Israeli, or other tax consequences of the purchase, ownership and disposition of ordinary shares and ADSs, including, in particular, the effect of any foreign, state or local taxes. For purposes of the entire Taxation discussion, we refer to ordinary shares and ADSs collectively as ordinary shares.
Israeli Tax Considerations and Government Programs
The following is a brief summary of the material Israeli tax laws applicable to us and certain Israeli Government programs that benefit us. This section also contains a discussion of material Israeli tax consequences concerning the ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
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General Corporate Tax Structure in Israel
Israeli resident (as defined below) companies, such as us, are generally subject to corporate tax at the rate of 23% since 2018. However, the effective tax rate imposed on a company that derives income from a Preferred Enterprise or a Preferred Technology Enterprise (as discussed below) may be considerably lower. Capital gains derived by an Israeli company are generally subject to tax at the prevailing corporate tax rate.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969 (the “Industry Encouragement Law”), grants several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, other than income deriving from defense loans, and 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 (and several other activities listed in the said law, and are associated with industrial production).
The following corporate tax benefits, among others, are available to Industrial Companies:
| ● | amortization over an eight-year period of the cost of patents and/or rights to use a patent and know-how which were purchased in good faith and/or are used for the development or advancement of the Industrial Enterprise over an eight-year period; |
| ● | deduction of expenses incurred in connection with the issuance and listing of shares on a stock market over a three-year period; and |
| ● | under certain conditions, an election to file its tax returns along with related Israeli Industrial Companies. |
There can be no assurance that we currently qualify, or will continue to qualify, as an Industrial Company or that the benefits described above will be available in the future.
Law for the Encouragement of Capital Investments, 5719-1959
Tax Benefits for Income from Preferred Enterprise
The Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”), currently provides certain tax benefits for income generated by “Preferred Companies” from their “Preferred Enterprises.” The definition of a Preferred Company includes, inter alia, a company incorporated in Israel and that is not wholly owned by a governmental entity, which:
| ● | owns a Preferred Enterprise, which is defined as an “Industrial Enterprise” (as defined under the Investment Law) that is classified as either a “Competitive Enterprise” (as defined under the Investment Law) or a “Competitive Enterprise in the Field of Renewable Energy” (as defined under the Investment Law); |
| ● | is controlled and managed from Israel; |
| ● | is not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective community) as defined under the Income Tax Ordinance; |
| ● | keeps acceptable ledgers and files reports in accordance with the provisions of the Investment Law and the Income Tax Ordinance; and |
| ● | was not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the tax year with respect to which benefits are being claimed. |
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As of January 1, 2017, a Preferred Company is currently 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 development area A, in which case the rate is currently 7.5% (our operations are currently not located in development area A).
Dividends paid out of income attributed to a Preferred Enterprise are generally subject to tax 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, such dividends should be exempt from tax (although, if such dividends are subsequently distributed to non-Israeli individuals or a non-Israeli company, tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply).
If in the future we generate taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction of the benefits available under the Investment Law could materially increase our tax liabilities.
Tax Benefits for Income from Preferred Technology Enterprise
An amendment to the Investment Law was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and entered into effect as of January 1, 2017 (the “2017 Amendment”). The 2017 Amendment provides additional tax benefits to Preferred Companies for “Technology Enterprises,” as described below, and is in addition to the Preferred Enterprise regime provided under the Investment Law.
The 2017 Amendment provides that a technology company satisfying certain conditions will qualify as a “Preferred Technology Enterprise” and may thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development area A. In addition, a Preferred Technology Enterprise may enjoy a reduced capital gains tax rate of 12% on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, pending that the sale receives is pre-approved by the IIA.
Dividends distributed by a Preferred Technology Enterprise that are paid out of Preferred Technology Income are subject to tax at the rate of 20%, but if they are distributed to a foreign company and at least 90% of the shares of the distributing company are held by foreign resident companies then the tax rate may be as low as 4%, subject to the fulfillment of certain conditions.
As we have not yet generated taxable income, there is no assurance that we qualify as a Preferred Technology Enterprise or that the benefits described above will be available to us in the future.
If in the future we generate taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction of the benefits available under the Investment Law could materially increase our tax liabilities.
The Encouragement of Research, Development and Technological Innovation in the Industry Law 5744
Under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Law for the Encouragement of Research and Development in Industry 5744-1984) (“Innovation Law”), and the regulations and guidelines promulgated thereunder, research and development programs which meet specified criteria and are approved by a committee of the IIA, are eligible for grants. The grants awarded are typically up to 50% of the project’s expenditures, as determined by the research committee. The grantee is required to pay royalties to the State of Israel from the sale of products developed under the program. Regulations under the Innovation Law generally provide for the payment of royalties of 3% to 6% on income generated from products and services based on technology developed using grants, until 100% of the grant, linked to the dollar and bearing interest at the LIBOR rate, is repaid. In July 2017, new regulations came into force. According to the new regulations, the royalties range between 1.3-5% depending on the company’s size and sector. The terms of the IIA participation also require that products developed with IIA grants be manufactured in Israel and that the know-how developed thereunder may not be transferred outside of Israel, unless approval is received from the IIA and additional payments are made to the IIA. However, this does not restrict the export of products that incorporate the funded know-how. The royalty repayment ceiling can reach up to three times the amount of the grant received (plus interest) if manufacturing is transferred outside of Israel, and repayment of up to six times the amount of the grant (plus interest) may be required if the technology itself is transferred outside of Israel or license to use it was granted to a foreign entity.
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Taxation of our Shareholders
Capital Gains Tax
Israeli law generally imposes a capital gains tax (i) on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and (ii) on the sale of capital assets located in Israel, including shares of Israeli companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index or a foreign currency exchange rate between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Israeli Residents
Generally, as of January 1, 2012 and thereafter, the tax rate applicable to real capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “substantial shareholder” (SSH) at the time of the sale or at any time during the 12-month period preceding such sale, the tax rate will be 30%. A “substantial shareholder” is defined as one who holds, directly or indirectly, alone or “together with another” (i.e., together with a relative, or together with someone who is not a relative but with whom, according to an agreement, there is regular cooperation in material matters of the company, directly or indirectly), directly or indirectly, at least 10% of any of the “means of control” in the company. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or instruct someone who holds any of the aforementioned rights regarding the manner in which such rights are to be exercised. However, different tax rates will apply to dealers in securities. Israeli companies are subject to capital gains tax at the regular corporate tax rate (i.e., 23% for the tax year 2018 and thereafter) on real capital gains derived from the sale of listed shares.
As of January 1, 2024, Israeli resident shareholders who are individuals with taxable income that exceeds NIS 721,560 in a tax year (linked to the Israeli consumer price index each year) will be subject to an additional tax at the rate of 3% on the portion of their taxable income for such tax year that is in excess of NIS 721,560 (linked to the Israeli consumer price index each year). For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable income from dividend distributions.
In some instances where our shareholders are liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
Non-Israeli Residents
A non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel will be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli resident corporations will not be entitled to the foregoing exemption if (i) an Israeli resident has a controlling interest, directly or indirectly, alone, “together with another” (as defined above), or together with another Israeli resident, of more than 25% in one or more of the “means of control” (as defined above) in such non-Israeli resident corporation, or (ii) Israeli residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli resident corporation, whether directly or indirectly.
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In addition, 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, pursuant to the provisions of the Convention between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended (the “U.S.-Israel Tax Treaty”), capital gains arising from the sale, exchange or disposition of our ordinary shares by (i) a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty, (ii) who holds the shares as a capital asset, and (iii) who is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty generally is generally exempt from Israeli capital gains tax. Such exemption will not apply if: (i) such person holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange, or disposition, subject to particular conditions; (ii) the capital gains from such sale, exchange, or disposition are attributable to a permanent establishment in Israel; or (iii) such person is an individual and was present in Israel for 183 days or more during the relevant tax year. In such case, the capital gain arising from the sale, exchange, or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the taxpayer may be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange, or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to refrain from withholding at source at the time of sale.
It should be noted that in the event that the real capital gain realized by an individual shareholder is not exempt from tax in Israel, the tax rates applicable to Israeli resident individual shareholders should generally apply.
In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
Taxation of Dividend Distributions
Israeli Residents
Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, other than bonus shares (share dividends). As of January 1, 2012 and thereafter, the tax rate applicable to such dividends is generally 25%. With respect to a person who is a “substantial shareholder” (as defined above) at the time the dividend is received or at any time during the preceding 12-month period, the applicable tax rate is 30%. Dividends paid from income derived from Preferred Enterprises and Preferred Technology Enterprises will generally be subject to income tax at a rate of 20%.
As of January 1, 2024, Israeli resident shareholders who are individuals with taxable income that exceeds NIS 721,560 in a tax year (linked to the Israeli consumer price index each year) will be subject to an additional tax at the rate of 3% on the portion of their taxable income for such tax year that is in excess of NIS 721,560 (linked to the Israeli consumer price index each year). For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable income from dividend distributions.
Dividends paid to an Israeli resident individual shareholder on our ordinary shares will generally be subject to withholding tax at the rates corresponding with the income tax rates detailed above unless we are provided in advance with a withholding tax certificate issued by the Israel Tax Authority stipulating a different rate.
Notwithstanding the above, dividends paid to an Israeli resident “substantial shareholder” (as defined above) on publicly traded shares, like our ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities Law), are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
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If the dividend is attributable partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly to other sources of income, the tax rate will be a blended rate reflecting the relative portions of the various types of income. We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability.
Israeli resident companies are generally exempt from tax on the receipt of dividends paid on our ordinary shares.
Non-Israeli Residents
Unless a tax relief is provided by a treaty between Israel and the shareholder’s country of residence, non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%. With respect to a person (including a corporation) who is a “substantial shareholder” (as defined above) at the time of receiving the dividend or at any time during the preceding 12-month period, absent treaty relief as mentioned above, the applicable Israeli income tax rate is 30%. Notwithstanding the above, dividends paid from income derived from Preferred Enterprises will be subject to Israeli income tax at a rate of 20%. In addition, dividends distributed by a Preferred Technology Enterprise that are paid out of Preferred Technology Income are subject to tax at the rate of 20%, but if they are distributed to a foreign company and at least 90% of the shares of the distributing company are held by foreign resident companies then the tax rate may be as low as 4%, subject to the fulfillment of certain conditions.
In this regard, dividends paid to a non-Israeli resident shareholder on our ordinary shares will generally be subject to withholding tax at the rates corresponding with the income tax rates detailed above unless we are provided in advance with a withholding tax certificate issued by the Israel Tax Authority stipulating a different rate (e.g., in accordance with the provisions of an applicable tax treaty).
Notwithstanding the above, dividends paid to a non-Israeli resident “substantial shareholder” (as defined above) on publicly traded shares, like our ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities Law), are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
In addition, it should be noted that an additional 3% tax might be applicable to individual shareholders if certain conditions are met.
Under the U.S.-Israel Tax Treaty, the maximum Israeli tax on dividends paid to a holder of ordinary shares who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty is 25%. Such tax rate is generally reduced to 12.5% if: (i) the shareholder is a U.S. corporation and holds at least 10% of the outstanding shares of our voting stock during the part of our tax year that precedes the date of payment of the dividends and during the whole of our prior tax year; (ii) not more than 25% of our gross income in the tax year preceding the payment of the dividends consists of interest or dividends, other than dividends or interest received from subsidiary corporations 50% or more of the outstanding shares of voting stock of which is owned by us at the time such dividends or interest are received by us; and (iii) the dividends are not sourced from income derived during a period for which we were entitled to the reduced tax rate applicable to a Preferred Enterprise under the Investment Law. If the dividends are sourced from income derived during a period for which we are entitled to the reduced tax rate applicable to a Preferred Enterprise or a Preferred Technology Enterprise under the Investment Law, to the extent that the first two conditions detailed above are met, the Israeli tax rate applicable to such dividends should be 15%.
If the dividend is attributable partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly to other sources of income, the tax rate will be a blended rate reflecting the relative portions of the various types of income. We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability.
Estate and gift tax
Israeli law presently does not impose estate tax.
Israeli law also does not presently impose gift taxes upon the transfer of assets to Israeli resident individuals so long as it is demonstrated to the satisfaction of the Israel Tax Authority that the transfer was executed in good faith.
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U.S. Federal Income Tax Considerations
TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, PROSPECTIVE HOLDERS OF ORDINARY SHARES ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS OF ORDINARY SHARES FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH HOLDERS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”); (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE HOLDERS OF ORDINARY SHARES SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
The following discussion applies only to a holder of our ordinary shares who qualifies as a “U.S. holder”. For purposes of this discussion a “U.S. holder” is a beneficial owner of our ordinary shares that is for U.S. federal income tax purposes:
| ● | an individual who is a U.S. citizen or U.S. resident alien; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) that was created or organized under the laws of the U.S., any state thereof or the District of Columbia; |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust (i) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more “United States persons” (as defined in the Code) have the authority to control all substantial decisions of the trust, or (ii) if the trust has a valid election in effect under applicable Treasury Regulations to be treated as a “United States person.” |
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, current and proposed Treasury regulations promulgated under the Code, and administrative and judicial decisions as of the date of this report, all of which are subject to change or differing interpretation, possibly on a retroactive basis. This discussion does not address any aspect of state, local or non-U.S. tax laws. Except where noted, this discussion addresses only those holders who hold our shares as capital assets. This discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to U.S. holders entitled to special treatment under U.S. federal income tax laws, for example, financial institutions, insurance companies, tax-exempt organizations and broker/dealers, and it does not address all aspects of U.S. federal income taxation that may be relevant to any particular shareholder based on the shareholder’s individual circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax, or the special U.S. federal income tax rules applicable in special circumstances, including to U.S. holders who:
| ● | have elected mark-to-market accounting; |
| ● | hold our ordinary shares as part of a straddle, hedge or conversion transaction with other investments; |
| ● | own directly, indirectly or by attribution at least 10% of our voting power; |
| ● | are tax exempt entities; |
| ● | are persons who acquire shares in connection with employment or other performance of services; and |
| ● | have a functional currency that is not the U.S. dollar. |
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Additionally, this discussion does not consider the tax treatment of partnerships or persons who hold ordinary shares through a partnership or other pass-through entity or the possible application of U.S. federal gift or estate taxes.
EACH PROSPECTIVE SHAREHOLDER IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF OWNERSHIP AND DISPOSITION OF OUR SHARES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY OTHER RELEVANT FOREIGN, STATE, LOCAL, OR OTHER TAXING JURISDICTION.
Taxation of Distributions Paid on Ordinary Shares
Subject to the description of the passive foreign investment company rules below, a U.S. holder will be required to include in gross income as ordinary income from sources outside of the U.S. the amount of any distribution paid on ordinary shares, including any Israeli taxes withheld from the amount paid, to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of these earnings and profits will be applied against and will reduce the U.S. holder’s basis in the ordinary shares and, to the extent in excess of this basis, will be treated as gain from the sale or exchange of ordinary shares. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. holder should expect that the entire amount of any distribution generally will be reported as dividend income.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the TCJA. The TCJA provides a 100% deduction for the foreign-source portion of dividends received from “specified 10-percent owned foreign corporations” by U.S. corporate holders, subject to a one-year holding period. No foreign tax credit, including Israeli withholding tax (or deduction for foreign taxes paid with respect to qualifying dividends) would be permitted for foreign taxes paid or accrued with respect to a qualifying dividend. Deduction would be unavailable for “hybrid dividends.” The dividend received deduction enacted under the TCJA may not apply to dividends from a passive foreign investment company, as discussed below.
Certain dividend income may be eligible for a reduced rate of taxation. Dividend income will be taxed to a non-corporate holder at the applicable long-term capital gains rate if the dividend is received from a “qualified foreign corporation,” and the shareholder of such foreign corporation holds such stock for more than 60 days during the 121 day period that begins on the date that is 60 days before the ex-dividend date for the stock. The holding period is tolled for any days on which the shareholder has reduced his risk of loss with respect to the stock. A “qualified foreign corporation” is either a corporation that is eligible for the benefits of a comprehensive income tax treaty with the U.S. or a corporation whose stock, the shares of which are with respect to any dividend paid by such corporation, is readily tradable on an established securities market in the United States (including, for this purpose, ADSs traded on a securities market in the United States with respect to the foreign corporation’s shares). However, a foreign corporation will not be treated as a “qualified foreign corporation” if it is a passive foreign investment company (as discussed below) for the year in which the dividend was paid or the preceding year. Distributions of current or accumulated earnings and profits paid in foreign currency to a U.S. holder will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the distribution is received by the U.S. holder (or, in the case of ADSs, on the day the distribution is received by the depository). A U.S. holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
As described above, we will generally be required to withhold Israeli income tax from any dividends paid to holders who are not residents of Israel. See “- Israeli Tax Considerations—Taxation of Dividends” above.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends may be taxed at the lower capital gain rates applicable to “qualified dividend income,” provided (1) our ordinary shares are readily tradable on an established securities market in the United States (such as Nasdaq), (2) we are neither a PFIC nor treated as such with respect to you (as discussed above) for either the taxable year in which the dividend was paid or the preceding taxable year, (3) certain holding period requirements are met and (4) you are not under an obligation to make related payments with respect to positions in substantially similar or related property. As discussed above under “Passive foreign investment company,” there is a significant risk that we will be a PFIC for U.S. federal income tax purposes, and, as a result, the qualified dividend rate may be unavailable with respect to dividends we pay.
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The amount of any distribution paid in a currency other than U.S. dollars will be equal to the U.S. dollar value of such currency on the date such distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars at that time. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Any dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ordinary shares will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
If Israeli withholding taxes apply to any dividends paid to you with respect to our ordinary shares, subject to certain conditions and limitations, such withholding taxes may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. Instead of claiming a credit, you may elect to deduct such taxes in computing taxable income, subject to applicable limitations. If a refund of the tax withheld is available under the applicable laws of Israel or under the Israel-U.S. income tax treaty (the “Treaty”), the amount of tax withheld that is refundable will not be eligible for such credit against your U.S. federal income tax liability (and will not be eligible for the deduction against your U.S. federal taxable income). The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor regarding the availability of a foreign tax credit in your particular circumstances, including the effects of the Treaty.
Special rules, described below, apply if we are a passive foreign investment company.
Taxation of the Disposition of Ordinary Shares
Subject to the description of the passive foreign investment company rules below, upon the sale, exchange or other disposition of our ordinary shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder’s basis in the ordinary shares, which is usually the cost of those shares, and the amount realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more than one year is long-term capital gain and is eligible for a reduced rate of taxation for non-corporate holders. In general, gain realized by a U.S. holder on a sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. holder on the sale, exchange or other disposition of ordinary shares is generally allocated to U.S. source income. However, regulations require the loss to be allocated to foreign source income to the extent certain dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized the loss. The deductibility of a loss realized on the sale, exchange or other disposition of ordinary shares is subject to limitations for both corporate and individual shareholders.
A U.S. holder that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received from a sale of ordinary shares as of the date that the sale settles, and will generally have no additional foreign currency gain or loss on the sale, while a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss, unless the U.S. holder has elected to use the settlement date to determine its proceeds of sale for purposes of calculating this foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of our ordinary shares and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
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Tax Consequences if we are a Passive Foreign Investment Company
Special federal income tax rules apply to the timing and character of income received by a U.S. holder of a PFIC. We will be a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by value) that produce or are held for the production of passive income in a tax year is at least 50%. The IRS has indicated that cash balances, even if held as working capital, are considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon the sources of our income, and the relative values of passive and non- passive assets, including goodwill. Furthermore, because the goodwill of a publicly-traded corporation is largely a function of the trading price of its shares, the valuation of that goodwill is subject to significant change throughout each year. A determination as to a corporation’s status as a PFIC must be made annually. We believe we may be a PFIC during 2024 and although we have not determined whether we will be a PFIC in 2025, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. Although we may not be a PFIC in any one year, the PFIC taint remains with respect to those years in which we were or are a PFIC and the special PFIC taxation regime will continue to apply.
If we are classified as a PFIC, a special tax regime would apply to both (a) any “excess distribution” by us (generally, the U.S. holder’s ratable share of distributions in any year that are greater than 125% of the average annual distributions received by such U.S. holder in the three preceding years or its holding period, if shorter) and (b) any gain recognized on the sale or other disposition of your ordinary shares. Under this special regime, any excess distribution and recognized gain would be treated as ordinary income and the federal income tax on such ordinary income would be determined as follows: (i) the amount of the excess distribution or gain would be allocated ratably over the U.S. holder’s holding period for our ordinary shares; (ii) U.S. federal income tax would be determined for the amounts allocated to the first year in the holding period in which we were classified as a PFIC and for all subsequent years (except the year in which the excess distribution was received or the sale occurred) by applying the highest applicable tax rate in effect in the year to which the income was allocated; (iii) an interest charge would be added to this tax, calculated by applying the underpayment interest rate to the tax for each year determined under the preceding sentence from the due date of the income tax return for such year to the due date of the return for the year in which the excess distribution or sale occurs; and (iv) amounts allocated to a year prior to the first year in the U.S. holder’s holding period in which we were classified as a PFIC or to the year in which the excess distribution or the disposition occurred would be taxed as ordinary income but without the imposition of an interest charge.
A U.S. holder may generally avoid the PFIC “excess distribution” regime by electing to treat his PFIC shares as a “qualified electing fund.” If a U.S. holder elects to treat PFIC shares as a qualified electing fund, also known as a “QEF Election,” the U.S. holder must include annually in gross income (for each year in which PFIC status is met) his pro rata share of the PFIC’s ordinary earnings and net capital gains, whether or not such amounts are actually distributed to the U.S. holder. A U.S. holder may make a QEF Election with respect to a PFIC for any taxable year in which he was a shareholder. A QEF Election is effective for the year in which the election is made and all subsequent taxable years of the U.S. holder. Procedures exist for both retroactive elections and the filing of protective statements. A U.S. holder making the QEF Election must make the election on or before the due date, as extended, for the filing of the U.S. holder’s income tax return for the first taxable year to which the election will apply.
A QEF Election is made on a shareholder-by-shareholder basis. A U.S. holder must make a QEF Election by completing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to the holder’s timely filed U.S. federal income tax return.
Alternatively, a U.S. holder may also generally avoid the PFIC regime by making a so-called “mark-to-market” election. Such an election may be made by a U.S. holder with respect to ordinary shares owned at the close of such holder’s taxable year, provided that we are a PFIC and the ordinary shares are considered “marketable stock.” The ordinary shares will be marketable stock if they are regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, or the national market system established pursuant to section 11A of the Exchange Act, or an equivalent regulated and supervised foreign securities exchange.
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If a U.S. holder were to make a mark-to-market election with respect to ordinary shares, such holder generally will be required to include in its annual gross income the excess of the fair market value of the PFIC shares at year-end over such shareholder’s adjusted tax basis in the ordinary shares. Such amounts will be taxable to the U.S. holder as ordinary income, and will increase the holder’s tax basis in the ordinary shares. Alternatively, if in any year, a United States holder’s tax basis exceeds the fair market value of the ordinary shares at year-end, then the U.S. holder generally may take an ordinary loss deduction to the extent of the aggregate amount of ordinary income inclusions for prior years not previously recovered through loss deductions and any loss deductions taken will reduce the shareholder’s tax basis in the ordinary shares. Gains from an actual sale or other disposition of the ordinary shares with a “mark-to-market” election will be treated as ordinary income, and any losses incurred on an actual sale or other disposition of the ordinary shares will be treated as an ordinary loss to the extent of any prior “unreversed inclusions” as defined in Section 1296(d) of the Code.
The mark-to-market election is made on a shareholder-by-shareholder basis. The mark-to-market election is made by completing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to the holder’s timely filed U.S. federal income tax return for the year of election. Such election is effective for the taxable year for which made and all subsequent years until either (a) the ordinary shares cease to be marketable stock or (b) the election is revoked with the consent of the IRS.
In view of the complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as to our status as a PFIC.
Information Reporting and Back-Up Withholding
U.S. holders generally are subject to information reporting requirements with respect to dividends paid in the U.S. on ordinary shares. Existing regulations impose information reporting and back-up withholding on dividends paid in the U.S. on ordinary shares and on proceeds from the disposition of ordinary shares unless the U.S. holder provides IRS Form W-9 or otherwise establishes an exemption.
Prospective investors should consult their tax advisors concerning the effect, if any, of these Treasury regulations on an investment in ordinary shares. Back-up withholding is not an additional tax. The amount of any back-up withholding will be allowed as a credit against a holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that specified required information is furnished to the IRS on a timely basis.
Documents on Display
We file reports and other information with the SEC under the Exchange Act and the regulations thereunder applicable to foreign private issuers. You may inspect and copy reports and other information filed by us with the SEC at the SEC’s public reference facilities described below. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as U.S. companies, we generally announce publicly our interim and year-end results promptly on a voluntary basis and will file that periodic information with the SEC under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and other provisions in Section 16 of the Exchange Act.
You can review our SEC filings by accessing the SEC’s internet site at http://www.sec.gov.
We also maintain a website at http://www.xtlbio.com, but information contained on our website does not constitute a part of this report and is not incorporated by reference into this report.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The primary objective of our investment activities is to preserve principal while maximizing our income from investments and minimizing our market risk. We invest in bank deposits and marketable securities in accordance with our investment policy. As of December 31, 2024, our portfolio of financial instruments consists of cash and cash equivalents and marketable securities. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments.
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Foreign Currency and Inflation Risk. We hold most of our cash, cash equivalents and bank deposits in U.S. dollars. While a substantial amount of our operating expenses are in U.S. dollars, we incur a portion of our expenses in New Israeli Shekels. In addition, we also pay for some of our services and supplies in the local currencies of our suppliers, as our head office is located in Israel. As a result, we are exposed to the risk that the U.S. dollar will be devalued against the New Israeli Shekel or other currencies, and as a result our financial results could be harmed if we are unable to guard against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. The Company’s treasury risk management policy is to hold NIS-denominated cash and cash equivalents and short-term deposits in the amount of the anticipated NIS-denominated liabilities for six consecutive months from time to time and this in line with the directives of the Company’s Board. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the dollar or that the timing of any devaluation may lag behind inflation in Israel.
As of December 31, 2024, had the Group’s functional currency strengthened by 10% against the NIS with all other variables remaining constant, loss for the year would have been $46 thousand lower (2023 - loss would have been $144 thousand lower; 2022 - loss approximately $152 thousand lower), mainly as a result of exchange rate changes on translation of other accounts receivable and exchange rate changes on NIS-denominated cash and cash equivalents.
Credit Risk. Credit risks are managed at the Group level. The Group has no significant concentrations of credit risk. The Group has a policy to ensure collection through sales of its products to wholesalers with an appropriate credit history and through retail sales in cash or by credit card.
Liquidity Risk. Cash flow forecasting is performed by the Group’s management both in the entities of the Group and aggregated by the Group. The Group’s management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operations. The Group currently does not use credit facilities. Forecasting takes into consideration several factors such as raising capital to finance operations and certain liquidity ratios that the Group strives to achieve.
Surplus cash held to finance operating activities is invested in interest bearing current accounts, time deposits and other similar channels. These channels were chosen by reference to their appropriate maturities or liquidity to provide sufficient cash balances to the Group as determined by the abovementioned forecasts.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Our management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. As of December 31, 2024, an evaluation was performed under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures as of December 31, 2024 were effective.
(b) Management’s annual report on internal controls over financial reporting. Our management is responsible for establishing and maintaining adequate control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, our management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013).
On August 14, 2024, we announced that we completed the acquisition of The Social Proxy Ltd. We acquired all of the issued and outstanding share capital of The Social Proxy and The Social Proxy operates as wholly owned subsidiary of the Company. As permitted by the SEC Staff interpretive guidance for newly acquired businesses, the Company’s management excluded The Social Proxy from the evaluation of internal control over financial reporting as of December 31, 2024. Nevertheless, we integrated financial reporting controls related to the acquired business as of December 31, 2024. The Social Proxy represented 4.1% of the Company’s consolidated total assets as of December 31, 2024, while its revenues comprised 100% of the Company’s consolidated revenues for the year ended December 31, 2024.
Based on that evaluation, our management concludes our internal control over financial reporting was effective as of December 31, 2024.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurances with respect to the preparation and presentation of financial statements.
(c) Not applicable.
(d) Internal controls. There have been change in our internal control over financial reporting that occurred during the year ended December 31, 2024 which derived from the acquisition of The Social Proxy.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Osnat Hillel Fain, chairperson of our audit committee, is an audit committee financial expert, as defined by applicable SEC regulations, and is independent in accordance with applicable SEC regulations.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Conduct applicable to all directors and officers of our company, including our principal executive officer, principal financial officer, principal accounting officer or controller and other individuals performing similar functions. A copy of our Code of Conduct can be found on our website (http://www.xtlbio.com) and may also be obtained, without charge, upon a written request addressed to our investor relations department, XTL Biopharmaceuticals Ltd., 26 Ben-Gurion St., Ramat Gan 5112001, Israel.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Policy on Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee is responsible
for the oversight of the independent registered public accounting firm’s work. The audit committee’s policy is to pre-approve
all audit and non-audit services provided by our independent registered public accounting firm, Somekh Chaikin, a member firm of KPMG
International (“KPMG”), located in Tel Aviv, Israel, PCAOB ID No.
79
Principal Accountant Fees and Services
The following table presents the aggregate amount of fees for professional services rendered to the Company by our principal accountant, for the years ended December 31, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Audit fees (1) | 120 | 80 | ||||||
| Tax services (2) | 5 | 5 | ||||||
| Total | 125 | 85 | ||||||
| (1) | The audit fees for the year ended December 31, 2024 and 2023 were for professional services rendered for the audit of our annual consolidated financial statements and for review of interim consolidated financial information. |
| (2) | Tax fees are the aggregate fees for professional services rendered during the period for tax compliance and tax advice other than in connection with the audit. |
In the fiscal years ended December 31, 2024 and December 31, 2023 all of the services performed by our independent registered public accounting firm were pre-approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S REGISTERED ACCOUNTANT
Not applicable
ITEM 16G. CORPORATE GOVERNANCE
Under the Nasdaq corporate governance rules, foreign private issuers are exempt from many of the requirements if they instead elect to comply with home country practices and disclose where they have elected to do so. As noted above, we are currently in compliance with Nasdaq rules relating to the independence of our board of directors and our audit committee. Our board of directors and our audit committee has adopted a written charter for the audit committee setting forth the responsibilities of the audit committee as required by the SEC and Nasdaq. Also as noted above, we currently have a nomination committee to identify, review and recommend to the Board of Directors individuals believed to be qualified to become directors. We have adopted a written charter for the nomination committee, as required by Nasdaq. We currently have in place a compensation committee, as discussed in more detail above. We have adopted a written charter for the compensation committee.
The Company does not follow Nasdaq Rule 5635(d), which requires shareholder approval in order to enter into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares. We will follow Israeli law with respect to any requirement to obtain shareholder approval in connection with any private placements of equity securities.
The Company does not follow Nasdaq Rule 5635(c), which requires shareholder approval prior to an issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees or consultants. We will follow Israeli law with respect to any requirement to obtain shareholder approval in connection with such issuances.
In August 2005, our board of directors adopted a Code of Conduct that applies to all employees, directors and officers of our company, including our principal executive officer, principal financial officer, principal accounting officer or controller and other individuals performing similar functions. A copy of our Code of Conduct may be obtained, without charge, upon a written request addressed to our investor relations department, XTL Biopharmaceuticals Ltd., 26 Ben-Gurion St., Ramat Gan 5112001, Israel.
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ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We have
ITEM 16K. CYBERSECURITY
We have established policies
and processes for assessing, identifying, and managing material risk from cybersecurity threats, and have
We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our chief financial officer, to manage the risk assessment and mitigation process.
Our audit committee is responsible for cybersecurity oversight and monitoring risk. Management informs the audit committee of such risk by committee meetings.
As part of our overall risk management system, we monitor and test our safeguards and train our key consultants on these safeguards, in collaboration with IT and management. Personnel at all levels and departments are made aware of our cybersecurity policies through trainings.
We engage consultants, or
other third parties in connection with our risk assessment processes. These service providers assist us to design and implement our cybersecurity
policies and procedures, as well as to monitor and test our safeguards. We are in the process of requiring each
Prior to the acquisition of The Social Proxy the need to oversee cybersecurity risks was minimal as the majority of the company’s operations conducted internally. Following the acquisition of The Social Proxy, our Board of Directors has taken an active roll in overseeing cybersecurity posture of the newly integrated business.
In parallel to actions taken by the board to strengthen the company’s cybersecurity risks protection, the Board of Directors appointed a new Chief Executive Officer with significant experience and expertise in cybersecurity defense. He starts to execute an in depth cybersecurity protection program. designed to meet the expanded risk landscape introduced by the acquisition.
This program is subject to active oversight by a designated Board Committee, which is responsible for regularly reviewing the effectiveness of the company’s cybersecurity strategy and ensuring alignment with evolving business needs.
The cybersecurity program encompasses the following key components:
| ● | Risk assessment findings and mitigation plans; |
| ● | Incident response protocols and outcomes of any material cybersecurity incidents; |
| ● | Compliance with applicable cybersecurity laws and regulations; |
| ● | Investment in cybersecurity infrastructure and technology; |
| ● | Training and awareness programs for employees. |
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PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to furnish financial statements and related information specified in Item 18.
ITEM 18. FINANCIAL STATEMENTS
XTL BIOPHARMACEUTICALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024
INDEX
| Page | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Financial Statements - in U.S. dollars: | |
| Statements of Financial Position | F-4 |
| Statements of Comprehensive Income (Loss) | F-5 |
| Statements of Changes in Equity | F-6- F-7 |
| Statements of Cash Flows | F-8 - F-9 |
| Notes to Consolidated Financial Statements | F-10- F-45 |
- - - - - - - - - - - -
F-1
Report of Independent Registered Public Accounting Firm
Somekh Chaikin
17 Ha’arba’a Street, PO Box 609
KPMG Millennium Tower
Tel Aviv 6100601, Israel
+972 3 684 8000
To the Shareholders and Board of Directors
XTL Biopharmaceuticals Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of XTL Biopharmaceuticals Ltd. and its subsidiary (hereinafter – “the Company”) as of December 31, 2024 and 2023, the related consolidated statements of comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with IFRS Accounting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards).
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the consolidated financial statements, since inception, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1B. 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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
KPMG Somekh Chaikin, an Israeli partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the acquisition date fair value of the Social Proxy intangible assets
As discussed in Notes 1a and 5 to the consolidated financial statements, on August 14, 2024, the Company acquired The Social Proxy Ltd. “Social Proxy”. The acquisition was accounted for as a business combination. As a result of the transaction, the Company recorded customer relationships, brand name, and developed technology intangible assets (collectively referred to as “intangible assets”). The acquisition date fair value of these assets was $3,601 thousand. The fair value of the customer relationships and developed technology intangible assets were estimated using the multi-period excess earnings method approach. The fair value of the brand name intangible asset was estimated using the relief-from-royalty method approach.
We identified the evaluation of the acquisition date fair value of the Social Proxy intangible assets as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the key assumptions used to estimate the fair value of such assets including forecasted revenues and related growth rates, forecasted earnings before interest and taxes “EBIT” margins for the acquired business, and tradename royalty rates, as well as the Company’s discount rates used to estimate the fair value of the developed technology and brand name intangible assets. Changes in these assumptions could have had a significant effect on the Company’s estimate of fair value. Additionally, specialized skills and knowledge were needed to evaluate the discount rates used.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls over the Company’s acquisition date fair value estimation process, including controls over the development of the key assumptions noted above. We evaluated the forecasted revenue growth rates and EBIT margins by comparing the growth assumptions to publicly available peer data and industry reports. We compared forecasted revenue and EBIT to the Social Proxy’s historical actual results and the Company’s trade name royalty rates to publicly available data for comparable trade name licensing transactions. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the Company’s discount rates by comparing them against ranges that were independently developed using publicly available market data for comparable entities for the developed technology and brand name intangible assets.
| /s/ | |
| Somekh Chaikin | |
| Member Firm of KPMG International |
We have served as the Company’s auditor since 2022.
April 30, 2025
F-3
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
| December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Note | U.S. dollars in thousands | |||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash and cash equivalents | 6 | |||||||||
| Marketable securities – InterCure Ltd. | 7 | |||||||||
| Trade receivable (net of allowance for credit losses of $ | 5 | |||||||||
| Prepaid expenses and other current assets | 8 | |||||||||
| NON-CURRENT ASSETS: | ||||||||||
| Fixed assets, net | 5 | |||||||||
| Intangible assets, net | 5,9 | |||||||||
| Goodwill | 5 | |||||||||
| Long-term bank deposit | ||||||||||
| Total assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Loans and credit from banking corporations | 10 | |||||||||
| Accounts payable | 11 | |||||||||
| Warrants | 12 | |||||||||
| NON-CURRENT LIABILITIES: | ||||||||||
| Warrants | 12 | |||||||||
| Deferred tax liability, net | 5,21 | |||||||||
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | 13, 14 | |||||||||
| Share capital - ordinary shares of NIS | ||||||||||
| Additional paid in capital | ||||||||||
| Reserve from transactions with non-controlling interests | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Total equity | ||||||||||
| Total liabilities and equity | ||||||||||
| Noam Band | Shlomo Shalev | Itay Weinstein | ||
| Chief Executive Officer | Chairman of the Board | Chief Financial Officer |
Date of approval of the financial statements by the Company’s Board of Directors: April 30, 2025.
The accompanying notes are an integral part of the consolidated financial statements.
F-4
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
| Year ended December 31, | ||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||
| Note | U.S. dollars in thousands (except per share data) | |||||||||||||
| Revenues | 16 | |||||||||||||
| Cost of service | 17 | ( | ) | |||||||||||
| Gross profit | ||||||||||||||
| Research and development expenses | 18 | ( | ) | ( | ) | ( | ) | |||||||
| Sales and Marketing expenses | 19 | ( | ) | |||||||||||
| General and administrative expenses | 20 | ( | ) | ( | ) | ( | ) | |||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of financial instruments | 12 | |||||||||||||
| Change in fair value of marketable securities | 7 | ( | ) | ( | ) | |||||||||
| Other finance income | ||||||||||||||
| Other finance expenses | ( | ) | ( | ) | ( | ) | ||||||||
| Finance income (expenses), net | 21 | ( | ) | ( | ) | |||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes benefit | 22 | |||||||||||||
| Total comprehensive loss for the year | ( | ) | ( | ) | ( | ) | ||||||||
| Basic loss per share (in U.S. dollars): | 24 | ( | ) | ( | ) | ( | ) | |||||||
| Diluted loss per share (in U.S. dollars): | 24 | ( | ) | ( | ) | ( | ) | |||||||
| Weighted average number of issued ordinary shares | ||||||||||||||
| Diluted weighted average number of ordinary shares | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-5
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| Attributable to equity holders of the Company | ||||||||||||||||||||
| Share capital | Additional paid in capital | Accumulated deficit | Reserve from transactions with non- controlling interests | Total equity | ||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Balance as of January 1, 2024 | ( | ) | ||||||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||||||
| Issuance of shares and warrants, net (refer to Note 13c) | ( | ) | ||||||||||||||||||
| Issuance of shares and warrants as part of the Social Proxy transaction (refer to Note 5) | ( | ) | ||||||||||||||||||
| Share-based payment | ||||||||||||||||||||
| Balance as of December 31, 2024 | ( | ) | ||||||||||||||||||
| Attributable to equity holders of the Company | ||||||||||||||||||||
Share capital | Additional paid in capital | Accumulated deficit | Reserve from transactions with non- controlling interests | Total equity | ||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Balance as of January 1, 2023 | ( | ) | ||||||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||||||
| Share-based payment | ||||||||||||||||||||
| Balance as of December 31, 2023 | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Cont.) |
| Attributable to equity holders of the Company | ||||||||||||||||||||
Share capital | Additional paid in capital | Accumulated deficit | Reserve from transactions with non- controlling interests | Total equity | ||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Balance as of January 1, 2022 | ( | ) | ||||||||||||||||||
| loss for the year | ( | ) | ( | ) | ||||||||||||||||
| Share-based payment | ||||||||||||||||||||
| Balance as of December 31, 2022 | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Loss for the year | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities (a) | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of fixed assets | ( | ) | ||||||||||
| Interest from bank deposit | ||||||||||||
| Investment in long-term deposits | ( | ) | ||||||||||
| Acquisition of subsidiary, consolidated for the first time (see Note 5) | ( | ) | ||||||||||
| Loan provided to subsidiary prior to acquisition | ( | ) | ||||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||||||
| Cash flows from financing activities: | ||||||||||||
| Loan repayment | ( | ) | ||||||||||
| Issuance of shares and warrants | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Decrease in cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||
| Losses from exchange rate differences on cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||
| Cash and cash equivalents at beginning of year | ||||||||||||
| Cash and cash equivalents at end of year | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-8
| XTL BIOPHARMACEUTICALS LTD. |
| CONSOLIDATED STATEMENT OF CASH FLOWS (Cont.) |
| Year ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Note | U.S. dollars in thousands | ||||||||||||||||
| (a) | Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Income and expenses not involving operating cash flows: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Change in deferred taxes | ( | ) | |||||||||||||||
| Revaluation of marketable securities | 7 | ( | ) | ||||||||||||||
| Revaluation of warrants | ( | ) | ( | ) | |||||||||||||
| Share-based payment expense | 14 | ||||||||||||||||
| Finance expense | |||||||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | |||||||||||
| ( | ) | ||||||||||||||||
| Changes in operating asset and liability items: | |||||||||||||||||
| Decrease (increase) in prepaid expenses and other current assets | ( | ) | |||||||||||||||
| Decrease in trade receivables | |||||||||||||||||
| Increase (decrease) in accounts payable | ( | ) | |||||||||||||||
| ( | ) | ||||||||||||||||
| ( | ) | ||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-9
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 1: | GENERAL |
| a. | A general description of the Company and its activity: |
XTL Biopharmaceuticals Ltd. (the “Company”) was established as a biopharmaceutical company engaged in the acquisition and development of pharmaceutical drugs for the treatment of autoimmune diseases. The Company was incorporated under the Israeli Companies Law on March 9, 1993. The registered office of the Company is located at 26 Ben-Gurion Street, Ramat Gan, Israel.
The Company’s American Depository Shares (“ADSs”) are listed for trading on the Nasdaq Capital Market (“Nasdaq”) and its ordinary shares are traded on the Tel-Aviv Stock Exchange (“TASE”).
During 2024 the Company has expanded
into the data collection industry after completing in August 2024 the acquisition of
As of December 31, 2024, the Company has two wholly-owned subsidiaries: Xtepo Ltd. (“Xtepo”) and the Social Proxy, both were incorporated in Israel.
The Company, Xtepo and Social Proxy are heretofore referred to as “the Group”.
In March 2025, the Company entered into a definitive exclusive sublicense agreement for its novel synthetic peptide, hCDR1 with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”), see also Note 9.
| b. | Going concern: |
Since inception, the Company has incurred
significant losses and negative cash flows from operations and has an accumulated deficit of $
The Company’s management expects that the Company will continue to generate losses and negative cash flows from operations for the foreseeable future. Based on current expected level of operating expenditures, the Company’s cash resources as at December 31, 2024 shall not be sufficient to fund the Company’s operations for a period of at least 12 months from the end of the reporting period of these consolidated financial statements, assuming that the Company will continue its web data plan in accordance with the original pipeline and without delaying or slowing down the progress of its plans. As a result, there is significant doubt about the Company’s ability to continue as a going concern.
Management’s plans include securing sufficient financing through the sale of additional equity securities, debt or capital inflows. Additional funds may not be available when the Company needs them, on terms that are acceptable to it, or at all. If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to cease operations.
The financial statements include no adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate as a going concern.
F-10
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 1: | GENERAL (Cont.) |
| c. | In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign against Hamas. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization), Israel’s southern border with the Gaza Strip (with the Hamas terrorist organization) and on other fronts from various extremist groups in region, such as the Houthis in Yemen and various rebel militia groups in Syria and Iraq. Further, on April 13, 2024, and on October 1, 2024, Iran launched a series of drone and missile strikes against Israel. As of December 31, 2024, a ceasefire agreement has been reached between Israel the Hezbollah terror organization in Lebanon. To date the Company’s operations and financial results have not been materially affected. Since the war broke out in October 2023, the Company’s operations have not been adversely affected by this situation. However, the intensity and duration of Israel’s current war against Hamas and Hezbollah is difficult to predict at this stage, as are such war’s economic implications on its business and operations and on Israel’s economy in general. If the ceasefire declared collapses or a new war commences or hostilities expand to other fronts, its operations may be adversely affected. |
| d. | Definitions: |
“Related party” - as the term is defined in IAS 24, “Related Party Disclosures” (“IAS 24”).
| e. | Approval of financial statements: |
These financial statements were approved by the Company’s Board of Directors (“BoD”) on April 30, 2025.
F-11
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 2: | BASIS OF PREPARATION |
| a. | Statement of Compliance: |
The consolidated financial statements of the Company (the “Financial Statements”) have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards” or “IFRS”).
| b. | Basis of measurement: |
The Financial Statements have been prepared under the historical cost convention, except for financial assets and liabilities measured at fair value.
| c. | Use of judgments and estimates: |
The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Group’s management to exercise its judgment in the process of applying the Group’s accounting policies. Actual results could significantly differ from the estimates and assumptions used by the Group’s management.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions:
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 addressed below.
Intangible assets - one intangible asset is not yet available for use and therefore not amortized. Impairment in respect of each intangible asset is tested at least every year. In addition, discretion is exercised as to whether there is an indication to examine impairment more frequently.
Goodwill is reviewed for impairment once a year and whenever there are indicators of a possible impairment, in accordance with the provisions of IAS 36, Impairment of Assets. Goodwill is tested for impairment by comparing the fair value of the reporting unit with it carrying value.
Warrants - In accordance with International Accounting Standard 32: “Financial Instruments: Presentation”, warrants allotted to investors with an exercise price differ from Company’s functional currency are a “financial liability”. As the aforementioned liability is a non-equity derivative financial instrument, it is classified in accordance with International Accounting Standard 32 “Financial Instruments: Presentation ” as a financial liability at fair value through profit or loss, which is measured at its fair value using Black-Scholes model at each date of the balance sheet, with changes in the fair value carried to “revaluation of warrants to purchase ADS’s” in the statements of comprehensive income (loss).
The Company’s management is required to estimate, among others, different parameters included in the computation of the fair value of the warrants such as risk-free interest rate, expected volatility and dividend yield.
F-12
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 2: | BASIS OF PREPARATION (Cont.) |
Share-based payments - in evaluating the amount of expenses of share-based payment that will be recognized, the Group’s management is required to estimate, among others, different parameters included in the computation of the fair value of the options and the number of options that will vest.
| d. | Translation of balances and transactions in foreign currency: |
| 1. | Functional currency and presentation currency: |
Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “Functional Currency”). The consolidated financial statements are presented in U.S. dollars, which is the Functional Currency of each of the Group’s entities and the Company’s presentation currency and have been rounded to the nearest thousand.
Below are the exchange rate of the U.S. dollar in relation to the NIS:
| Exchange rate of | ||||
| U.S. $ 1 | ||||
| As of | NIS | |||
| December 31, 2024 | ||||
| December 31, 2023 | ||||
| 2. | Transactions and balances: |
Transactions in a currency other than the Functional Currency (“Foreign Currency”) are translated into the Functional Currency using the exchange rates at the dates of the transactions. After initial recognition, monetary assets and liabilities denominated in Foreign Currency are translated at the end of each reporting period into the Functional Currency at the exchange rate at that date.
Exchange differences are recognized in the statement of comprehensive income (loss) in the line-item finance income (expenses), net. Non-monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the transaction.
| e. | Initial application of new standards, amendments to standards and interpretations: |
| 1. | Amendment to IAS 1, Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current and subsequent amendment: Non-Current Liabilities with Covenants. |
The Amendment replaces certain requirements for classifying liabilities as current or non-current. According to the Amendment, a liability will be classified as non-current when the entity has the right to defer settlement for at least 12 months after the reporting period, and it “has substance” and is in existence at the end of the reporting period.
F-13
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 2: | BASIS OF PREPARATION (Cont.) |
According to the Amendment, as published in October 2022, covenants with which the entity must comply after the reporting date, do not affect classification of the liability as current or non-current. Additionally, the Amendment adds disclosure requirements for liabilities subject to covenants within 12 months after the reporting date, such as disclosure regarding the nature of the covenants, the date they need to be complied with and facts and circumstances that indicate the entity may have difficulty complying with the covenants. Furthermore, the Amendment clarifies that the conversion option of a liability will affect its classification as current or non-current, other than when the conversion option is recognized as equity.
The Amendment is effective for reporting periods beginning on or after January 1, 2024. The Amendment is applicable retrospectively, including an amendment to comparative data.
Application of the Amendment did not have a material effect on the financial statements.
| 2. | IFRS 18, Presentation and Disclosure in Financial Statements. |
IFRS 18 will replace IAS 1 Presentation of Financial Statements and applies for annual reporting periods beginning on or after 1 January 2027. The new standard introduces the following key new requirements:
| ● | Entities are required to classify all income and expenses into five categories in the statement of profit or loss, namely the operating, investing, financing, discontinued operations and income tax categories. Entities are also required to present a newly-defined operating profit subtotal. Entities’ net profit will not change. | |
| ● | Management-defined performance measures (MPMs) are disclosed in a Single note in the financial statements. | |
| ● | Enhanced guidance is provided on how to group information in the financial statements. |
In addition, all entities are required to use the operating profit subtotal as the starting point for the statement of cash flows when presenting operating cash flows under the indirect method.
The Group is still in the process of assessing the impact of the new standard, particularly with respect to the structure of the Group’s statement of profit or loss, the statement of cash flows and the additional disclosures required for MPMs. The Group is also assessing the impact on how information is grouped in the financial statements, including for items currently labelled as Other.
F-14
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 2: | BASIS OF PREPARATION (Cont.) |
| 3. | Amendments to IFRS 9 Financial Instruments: |
On May 30, 2024, IASB has issued amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures, which clarifies the classification of financial assets with environmental, social and corporate governance (ESG) and similar features, derecognition of financial liability settled through electronic payment systems and also introduces additional disclosure requirements to enhance transparency for investors regarding investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contingent features. The effective date for adoption of this amendment is annual reporting periods beginning on or after January 1, 2026, although early adoption is permitted. The Company is yet to evaluate the impact of the amendment. The Company does not expect early adoption of this standard.
| NOTE 3: | MATERIAL ACCOUNTING POLICIES |
The accounting policies have been consistently applied to all the years presented, unless otherwise stated.
| a. | Business combination: |
The Group implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control.
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred including any amounts recognized in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the Group in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed.
The Group accounts for business combinations under the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group measures the fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, in business combination transactions. For information on details on fair value measurement in acquisition of subsidiaries, see Note 5 regarding business combinations.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
F-15
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 3: | MATERIAL ACCOUNTING POLICIES (Cont.) |
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured, and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control is lost. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
| b. | Intangible assets: |
| 1. | Unamortized intangible assets (licenses and patent rights): |
These assets are reviewed for impairment once a year and whenever there are indicators of a possible impairment, in accordance with the provisions of IAS 36, Impairment of Assets (see also Note 9). The amortization of an asset on a straight-line basis over its useful life begins when the development procedure is completed, and the asset is available for use.
| 2. | Amortized intangible assets (technology, customer list and brand): |
Annual amortization rates:
| % | ||||
| Developed technology | ||||
| Customer list | ||||
| Brand | ||||
| 3. | Research and development: |
Research expenditures are recognized as expenses when incurred.
F-16
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 3: | MATERIAL ACCOUNTING POLICIES (Cont.) |
| c. | Impairment of non-financial assets: |
Goodwill, and intangible assets which are not yet available for use are not amortized and impairment in their respect is tested at least every year. Depreciable assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (reporting units).
Non-financial assets that sustained impairment are reviewed for possible reversal of the impairment at each date of the statement of financial position. An impairment is tested at least every year. In addition, discretion is exercised as to whether there is an indication to examine impairment more frequently.
| d. | Investments and other financial assets: |
The Group classifies its equity investments as financial assets at fair value through profit or loss (FVPL).
| e. | Revenue recognition:
The Company’s revenues are comprised of one category: licensing cloud-enabled software subscriptions.
The Company recognizes revenue in accordance with IFRS 15, “Revenue from Contracts with Customers” (“the Standard”). A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Revenues from licensing cloud-enabled software subscriptions include subscription fees from customers accessing the Company’s enterprise cloud services. Cloud services allow customers to use the Company’s software without taking possession of the software. Revenue is recognized ratably over the contract term. Substantially all of the Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions.
The Company recorded an allowance for doubtful
debts in the amounts of $ |
F-17
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 3: | MATERIAL ACCOUNTING POLICIES (Cont.) |
| f. | Share-based payment: |
The Group operates a share-based payment plan for employees, directors, officers and other service providers who render services that are settled with the Group’s equity instruments. In this framework, the Company grants employees, directors, officers and other service providers, from time to time, and, at its discretion, options to purchase shares of the Company. The fair value of options granted is measured according to the Black-Scholes model as of the date of grant (the date of the Company’s Board of Directors’ decision unless shareholders’ approval is required) and recognized as an expense in the statement of comprehensive income (loss) and correspondingly carried to equity. The total amount recognized as an expense over the vesting term of the options (the term over which all pre-established vesting conditions are expected to be satisfied) is determined by reference to the fair value of the options granted at grant date.
At each reporting date, the Company revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive income (loss) with a corresponding adjustment in equity.
When options are exercised, the Company issues new shares. The proceeds net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
| g. | Earning (loss) per share: |
Basic loss per share is calculated by dividing the earnings attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.
For the diluted earnings per share calculation, the weighted average number of shares outstanding during the year is adjusted for the average number of shares and ordinary shares that are potentially issuable in connection with service-provider share-based payment and warrants, using the treasury stock method. If the inclusion of potentially issuable shares would decrease loss per share, the potentially issuable shares are excluded from the weighted average number of shares outstanding used to calculate diluted earnings per share.
| h. | Issuance of warrants: |
The exercise price of the warrants issued at the Social Proxy Transaction is in NIS (different than the functional currency) and therefore these warrants are classified as a liability. The warrants issued at the fund-raising have a cashless exercise mechanism and therefore, in accordance with International Accounting Standard 32: “Financial Instruments: Presentation”, are also a financial liability.
The Company has initially recognized them at fair value as of the date of issuance (measured through third-party appraiser, using a Black-Scholes model and Black-Scholes-Merton Digital/Binary call option model).
The warrants are carried at fair value. On each reporting period, the changes in their fair value are recognized in profit or loss.
F-18
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 4: | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
| a. | Financial risk management: |
| 1. | Financial risk factors: |
The Group’s activities expose it to a variety of financial risks: market risks and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
Risk management is carried out by the Group’s management under policies approved by the Board. The Group’s treasury identifies, evaluates and defines financial risks. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk and investment of excess liquidity.
| a. | Market risks: |
Foreign currency exchange rate risk:
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures with respect to the NIS. Foreign exchange risk arises from assets and liabilities denominated in currency that is other than the functional currency.
The Group treasury’s risk management policy is to hold NIS-denominated cash and cash equivalents in the amount of the anticipated NIS-denominated liabilities for six to twelve consecutive months from time to time and this in line with the directives of the Company’s Board.
As of December 31, 2024, had the Group’s
functional currency strengthened by
F-19
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 4: | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont.) |
Equity securities price risk:
The group’s exposure to equity securities price risk arises from investments held by the group and classified in the balance sheet at fair value through profit or loss (currently only the investment in the shares of InterCure Ltd).
| b. | Liquidity risk: |
Since its inception, the Company has incurred significant losses and negative cash flows from operations. As a result, the Company’s current cash resources might not be sufficient to fund the Company’s obligations for a period of at least 12 months from the end of the reporting period.
Management plans to mitigate the liquidity risk by securing sufficient financing through the sale of additional equity securities, debt or capital inflows. Additional funds may not be available when the Company needs them, on terms that are acceptable to it, or at all (see note 1b).
| 2. | Capital management: |
The Group’s objectives when managing capital are to ensure the Group’s ability to continue as a going concern in order to provide returns on investments for shareholders and benefits for other interested parties and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may take a variety of measures such as issue new shares or sell assets to reduce liabilities.
| b. | Financial instruments by category: |
The financial asset of the group is classified in one category: measured subsequently at fair value through profit or loss.
As of December 31, 2024, all financial liabilities were classified in one of two categories: Trade and other account payables, measured at amortized cost, and warrants measured at fair value through profit or loss.
As of December 31, 2023, all financial liabilities were classified in one category: Trade and other account payables, measured at amortized cost.
F-20
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 4: | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont.) |
| c. |
| Warrants | ||||
| U.S. dollars in thousands | ||||
| Balance as of December 31, 2021 | ||||
| Revaluation during the year | ( | ) | ||
| Exercises during the year | ||||
| Balance as of December 31, 2022 | ||||
| Revaluation during the year | ||||
| Balance as of December 31, 2023 | ||||
| Issuance during the year | ||||
| Revaluation during the year | ( | ) | ||
| Balance as of December 31, 2024 | ||||
Warrant sensitivity analysis:
| December 31, 2024 | ||||||||
| Increase | Decrease | |||||||
| U.S. dollars in thousands | ||||||||
| Warrants issued at the Social Proxy Transaction: | ||||||||
| Volatility ( | ( | ) | ||||||
| Discount rate ( | ( | ) | ||||||
| Warrants issued at the fund-raising: | ||||||||
| Volatility ( | ( | ) | ||||||
See also note 12.
| NOTE 5: | SUBSIDIARIES |
The Company has two wholly-owned subsidiaries: Xtepo and Social Proxy.
| a. | Xtepo is a private company established in Israel on November 9, 2009. In August 2010, a share exchange transaction was completed between Xtepo and the Company. |
| b. | On August 14, 2024, as part of the Company’s strategy to expand its assets portfolio with high potential
assets, the Company completed the acquisition of |
F-21
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 5: | SUBSIDIARIES (Cont.) |
As was amended on November 11, 2024,
the Transaction was in exchange for the issuance by the Company to the shareholders of the Social Proxy, by way of a private placement,
of
During the year ended December 31,
2024, the Company incurred approximately $
The results of operations of Social
Proxy have been included in the consolidated financial statements since the acquisition date of August 14, 2024. Social Proxy revenues
and net loss included in the Company’s consolidated statement of comprehensive income (loss) from August 14, 2024, through December
31, 2024, were $
If the acquisition had occurred on
January 1, 2024, management estimates that consolidated revenue would have been $
The Company accounted the acquisition as a Business Combination.
Under the purchase price allocation, the Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities.
F-22
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 5: | SUBSIDIARIES (Cont.) |
The table below summarizes the fair value of assets acquired and liabilities as of the acquisition date:
| August 14, 2024 | ||||
| U.S. dollars in thousands | ||||
| Cash and cash equivalents | ||||
| Trade receivables | ||||
| Fixed assets, net | ||||
| Accounts payable | ( | ) | ||
| Loans | ( | ) | ||
| Intangible assets | ||||
| Goodwill | ||||
| Deferred taxes liabilities, net | ( | ) | ||
| Cash consideration | ||||
| Fair value of issued shares (*) | ||||
| Fair value of issued warrants (see Note 12) | ||||
(*)
The intangible assets as of the closing date of the acquisition included:
| U.S. dollars in thousands | ||||
| Developed technology | ||||
| Customer relationships | ||||
| Brand name | ||||
Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized based on their estimated revenue producing life span.
F-23
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 5: | SUBSIDIARIES (Cont.) |
| c. | Valuation of intangible assets involves multiple assumptions. The key assumptions are described below. |
Developed technology acquired primarily consists of existing technology related to a unique ethical, IP based, proxy and data extraction platform for AI & BI Applications at scale. The technology was valued using the multi-period excess earnings method, under the income approach. Using this approach, the estimated fair values were calculated using mainly forecasted future revenue and EBIT margin in order to project cash flows from specific products, discounted to their net present values at an appropriate risk-adjusted rate of return.
The Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to Social Proxy’s existing customers. Customer relationships were valued using the multi-period excess earnings method, under the income approach. Using this approach, the estimated fair values were calculated using mainly forecasted future revenue and EBIT margins in order to project cash flows from specific customers, discounted to their net present values at an appropriate risk-adjusted rate of return.
The Brand name relates to the estimated fair value of future cash flows related to the Social Proxy brand. The brand was valued by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the brand name.
| d. | On March 27, 2024, the Company entered into
a loan agreement with the Social Proxy. According to the loan agreement, on March 27, 2024, the Company provided the Social Proxy with
a loan of US$ |
| NOTE 6: | CASH AND CASH EQUIVALENTS |
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Cash in banks | ||||||||
| Bank deposits with original maturities of three months or less* | ||||||||
| * |
F-24
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 6: | CASH AND CASH EQUIVALENTS (Cont.) |
The currencies in which the cash and cash equivalents are denominated or linked to are:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| U.S. dollars | ||||||||
| NIS (not linked to the Israeli CPI) | ||||||||
| NOTE 7: | MARKETABLE SECURITIES – InterCure Ltd |
| a. | All marketable securities held by the Company constitute Level 1 financial instruments, as defined in IFRS 13 - “Fair Value Measurement”. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. |
| b. | The entire investment in marketable securities is classified as a financial asset at fair value through profit or loss. As of December 31, 2024 and 2023 the Company holds approximately |
| c. |
| December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Fair value opening balance | ||||||||||||
| Changes in fair value during the year | ( | ) | ( | ) | ||||||||
| Fair value closing balance | ||||||||||||
During January 2025 through March 2025
(after the balance sheet date), the Company sold
F-25
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 8: | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Composition:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Government authorities (*) | ||||||||
| (*) |
The carrying amount of government authorities is a reasonable approximation of the fair value because the effect of discounting is immaterial.
| NOTE 9: | INTANGIBLE ASSETS |
| a. | On January 7, 2014, the Company signed a licensing agreement with Yeda, as amended on September 6, 2015, to develop hCDR1, a Phase II-ready asset for the treatment of Systemic Lupus Erythematosus (“SLE”). The license from Yeda also included all clinical data of the phase 1 and phase 2A conducted in the hCDR1. The terms of the licensing agreement include, among other things, expense reimbursement for patent expenses payable in six installments, certain milestone payments to Yeda, low single-digit royalties based on net sales, and additional customary royalties to the Office of the Israel innovation authority. |
Under the license agreement, the Company
is required to make milestone payments of up to $
Under the license agreement, the Company
is also required to meet certain development milestones including the delivery of a trial protocol to Yeda by January 1, 2016 (which it
delivered), receipt of investment of at least $
F-26
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 9: | INTANGIBLE ASSETS (Cont.) |
The term of the license agreement is
the later of the date of expiry of the last of the licensed patents or the expiry of a continuous period of
The license agreement may also be terminated
by Yeda upon 45 days prior written notice if either the Company fails to meet certain development milestones or commercial sale shall
have commenced and there shall be a period of 6 months of no sales, subject to certain exceptions. Yeda shall also be entitled to terminate
the license agreement if the Company were to commence legal action against Yeda challenging the validity of any of the licensed patents,
and the Company was unsuccessful in such challenge, in which event the Company would be required to pay Yeda liquidated damages of $
As of December 31, 2024, all expense
reimbursement for patent expenses to Yeda in the amount of $
Accordingly, the license agreement may be terminated by Yeda upon 45 days prior written notice. To this date the Company and Yeda have held discussions regarding further amendment to the payment scheme under the license agreement (see agreement with Biossil below).
The Company reviews the hCDR1 asset for impairment once a year on December 31 or more frequently if events or changes in circumstances indicate that there is an impairment.
If the carrying amount exceeds their recoverable amount, the assets are reduced to their recoverable amount.
This asset is not ready for usage (the development was paused before finishing) and therefore has not been amortized yet.
In order to measure the recoverable amount of the hCDR1 asset, on December 31, 2023 and 2022 the Company management deducted the fair value of its other assets and liabilities from the amount representing its market value. The resulting fair value attributable to the hCDR1 asset was higher than the book value of the hCDR1 asset and therefore no impairment was recorded in the Company’s financial statements as of December 31, 2023 and 2022.
F-27
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 9: | INTANGIBLE ASSETS (Cont.) |
On October 1, 2024, the Company signed a letter of intent for the sublicense of hCDR1. On February 12, 2025 (after the balance sheet date), the Company entered into a definitive Exclusive Sublicense Agreement with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”), for sublicense of its novel synthetic peptide, hCDR1, see Note 24. Yeda was informed by the Company and by Biossil about the Exclusive Sublicense Agreement and has agreed to its execution. . Thus, from such date we are no longer actively involved with the development of hCDR1 or with the development of any other drug candidate.
As of December 31, 2024, the Company engaged third party appraiser to evaluate the consideration under the license agreement above as part of Company’s impairment analysis.
The third party appraiser used an Income Approach, utilizing the Discounted Cash Flow (“DCF”) using the following main assumptions - forecasted future revenue, the time required to achieve the targets in the agreement, discounting factor of the sales, phase transition rate (according to Black-Scholes-Merton Digital Call model) and cumulative transition rate until receipt of regulatory approval of the product.
As the fair value of the consideration was higher than asset’s book value, the Company reached to a conclusion that no impairment required as of such date.
There were no changes or movements
in 2024, 2023 and 2022 and the balance remained $
| b. | Intangible assets acquired as a result of subsidiary acquisition |
On August 14, 2024, the Company completed
the acquisition of
| c. |
| hCDR1 | Developed technology | Customer List | Brand | Total | ||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Balance as of January 1, 2024 | ||||||||||||||||||||
| Recognitions during the year | ||||||||||||||||||||
| Amortization during the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance as of December 31, 2024 | ||||||||||||||||||||
Amortization of developed technology is recognized as cost of service, amortization of customer list is recorded as selling and marketing expenses and amortization of a brand is recorded as selling and marketing expenses in the statements of comprehensive income (loss).
As of December 31, 2024, the Company engaged third party appraiser to perform a quantitative assessment of the goodwill recognized as part of Company’s impairment analysis. The third party appraiser used Income Approach, utilizing the Discounted Cash Flow (“DCF”) using the following assumptions - forecasted revenue, level of future expenditures discounted to their present value.
The estimated fair value of the web proxy solutions cash generating unit exceeded its estimated carrying amount and as such the Company reached to a conclusion that no impairment required as of such date.
F-28
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 10: |
LOANS AND CREDIT FROM BANKING CORPORATIONS |
Composition:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Short-term loan (*) | ||||||||
| Credit from banking corporations | ||||||||
| (*) |
| NOTE 11: | ACCOUNTS PAYABLE |
| a. |
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Trade payables | ||||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Employees and related | ||||||||
| Other payables | ||||||||
The carrying amount of accounts payable is a reasonable approximation of their fair value because the effect of discounting is immaterial.
F-29
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 11: | ACCOUNTS PAYABLE (Cont.) |
| b. |
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| U.S. dollars | ||||||||
| NIS (not linked to the Israeli CPI) | ||||||||
| NOTE 12: | WARRANTS |
On August 14, 2024, the Company raised
through a private placement gross funds amounting to $
On August 14, 2024, as part of the
Social Proxy Transaction, the Company issued the previous owners
IFRS 13 “Fair Value Measurement”, (“IFRS 13”), defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
IFRS 13 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. IFRS 13 establishes three levels of inputs that may be used to measure fair value.
| Level 1 - | quoted prices in active markets for identical assets or liabilities; |
| Level 2 - | inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or |
F-30
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 12: | WARRANTS (Cont.) |
| Level 3 - | unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
If, at inception of a contract, the
valuation cannot be supported by observable market data, any gain or loss determined by the valuation methodology is not recognized in
the income statement but is deferred on the balance sheet and is commonly known as a ‘day-one gain or loss’. This deferred
gain or loss is recognized in the income statement over the life of the contract until substantially all the remaining contractual cash
flows can be valued using observable market data at which point any remaining deferred gain or loss is recognized in the income statement.
Changes in valuation subsequent to the initial valuation at inception of a contract are recognized immediately in the income statement.
As of August 14, 2024 and December 31, 2024, the deferred loss amounted to $
The Company accounted for the warrants issued with a cashless exercise mechanism and exercise price different from Company’s functional currency as a non-current liability according to provisions of IAS 32. The Company measures the warrants at fair value by using a Black-Scholes model.
The warrants are measured in each reporting period. Changes in the fair value are recognized in the Company’s statement of comprehensive income (loss) as financial income or expense, as appropriate. The warrants are classified as level 3, see also Note 4.
The Company used the following assumptions to estimate the warrants issued at the fund-raising:
| December 31, 2024 | August 14, 2024 | |||||||
| Risk-free interest rate (1) | % | % | ||||||
| Expected volatility (2) | % | % | ||||||
| Expected life (in years) (3) | ||||||||
| Dividend yield (4) | % | % | ||||||
The Company used the following assumptions to estimate the warrants issued at the Social Proxy Transaction:
| December 31, 2024 |
August 14, 2024 |
|||||||
| Risk-free interest rate (1) | % | % | ||||||
| Expected volatility (2) | % | % | ||||||
| Expected life (in years) (5) | ||||||||
| Dividend yield (4) | % | % | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
In 2024, the Company recorded finance
income of $
F-31
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 12: | WARRANTS (Cont.) |
Outstanding warrants:
The table below summarizes the outstanding warrants as of December 31, 2024 -
| Number of shares exercisable | Issuance date | Exercise price (per warrant) | Expiration date | |||||||||
| $ | ||||||||||||
| NIS | ||||||||||||
| NOTE 13: | SHARE CAPITAL, RESERVES AND ACCUMULATED DEFICIT |
| a. | The Company’s Ordinary shares of NIS |
Ordinary shares confer upon their holders voting rights and right to participate in the shareholders’ meeting, right to receive dividends and the right to participate in the excess of assets upon liquidation of the Company.
| b. | The Company’s authorized share capital is |
| c. | On August 14, 2024, the Company issued
The consideration received from the issuance
of different financial instruments in a single transaction is attributed initially to financial liabilities that are measured at each
period at fair value through profit or loss |
| d. | On August 14, 2024, the Company issued |
F-32
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 14: | SHARE-BASED PAYMENT |
On August 29, 2011, the Company’s
Board of Directors approved the adoption of an employee share option plan for the grant of options exercisable into shares of the Company,
in accordance with section 102 to the Israeli Tax Ordinance (the “2011 Plan”) which ended after
As of December 31, 2024, the remaining
number of options available for grant under the 2011 Plan is
On March 2, 2023, the Company’s
shareholders approved the grant of options exercisable into
On March 14, 2023, Company’s
Board of directors approved retroactively to extend the expiration date of the 2011 plan by additional
On March 17, 2024, the Company’s
board of directors approved the grant of
F-33
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 14: | SHARE-BASED PAYMENT (Cont.) |
Movements in the number of share options and their related weighted average exercise prices (in dollars) during the years ended December 31, 2024, 2023 and 2022 are as follows:
| Year ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||
| Number of options | Weighted average exercise price (USD) | Number of options | Weighted average exercise price (USD) | Number of options | Weighted average exercise price (USD) | |||||||||||||||||||
| Outstanding at beginning of year | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Expired | ( | ) | ||||||||||||||||||||||
| Outstanding at end of year | ||||||||||||||||||||||||
| Exercisable at end of year | ||||||||||||||||||||||||
Below is information about the exercise price (in dollars) and the remaining contractual life (in years) for options outstanding at end of year:
| December 31, | ||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||
| Options outstanding at end of year | Range of exercise prices (USD) | Weighted average remaining contractual life | Options outstanding at end of year | Range of exercise prices (USD) | Weighted average remaining contractual life | |||||||||||||||||
F-34
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 14: | SHARE-BASED PAYMENT (Cont.) |
| December 31, 2022 | ||||||||||
| Options outstanding at end of year | Range of exercise prices (USD) | Weighted average remaining contractual life | ||||||||
Share based expenses recognized in
the Company’s statements of comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022 for grant of options
to employees and service providers were $
| Options outstanding | Position | Grant date (*) | Exercise price in NIS | Fair value USD in | Vesting schedule | |||||||||||
| (*) |
F-35
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 14: | SHARE-BASED PAYMENT (Cont.) |
The fair value for options granted in 2024 is estimated at the date of grant using a Black-Scholes model with the following weighted average assumptions:
| March 17, 2024 | April 30, 2024 | |||||||
| Dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest | % | % | ||||||
| Expected life (years) | ||||||||
We have calculated the volatility based on the Company’s historical volatility. The share price was set according to the Company’s share market value.
The fair value for options granted in 2023 is estimated at the date of grant using a Black-Scholes model with the following weighted average assumptions:
| March 2, 2023 | ||||
| Dividend yield | % | |||
| Expected volatility | % | |||
| Risk-free interest | % | |||
| Expected life (years) | ||||
We have calculated the volatility based on the Company’s historical volatility. The share price was set according to the Company’s share market value.
No options were granted in 2022.
F-36
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 15: | SEGMENT REPORTING |
The Company’s reporting structure is comprised of the following strategic operating segments: development of pharmaceutical drugs for the treatment of autoimmune diseases and web data collection solutions. The Company believes this structure aligns its external reporting presentation with how it currently manages and views its business internally. The CODM is the Chief Executive Officer of XTL. The CODM uses revenues and expenses to evaluate the performance of each business segment, and then leverages this information to decide where to allocate resources and assess how well each segment is performing financially, considering factors like revenue, and significant expenses specific to that segment.
The following table presents a disaggregation of revenue and other financial information, for the periods indicated:
| Year ended December 31, 2024 | ||||||||||||
| Development of pharmaceutical drugs for the treatment of autoimmune diseases | Web data collection solutions | Total | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Revenues | ||||||||||||
| Cost of service | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| Sales and Marketing expenses | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Intangible assets amortization | - | ( | ) | ( | ) | |||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value of financial instruments | ||||||||||||
| Change in fair value of marketable securities | ||||||||||||
| Other finance income | ||||||||||||
| Other finance expenses | ( | ) | ||||||||||
| Finance income, net | ||||||||||||
| Income taxes | ||||||||||||
| Total comprehensive loss for the year | ( | ) | ||||||||||
In the years 2023 and 2022 The Company had only one segment - development of pharmaceutical drugs for the treatment of autoimmune diseases.
F-37
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 15: | SEGMENT REPORTING (Cont.) |
The Group has disclosed these amounts for each reportable segment because they are either included in the segment measure of profit or loss reviewed by the CODM or otherwise regularly provided to the CODM. The Group applied judgement and considered a number of factors, including the core principle of IFRS8 Operating Segments, to determine the material items of income and expense to disclose for each reportable segment.
| NOTE 16: | REVENUES AND COST OF SERVICES |
All revenues are provided by Social Proxy. Social Proxy revenues derive from one stream – web data collection platform.
| NOTE 17: | COST OF SERVICE |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
Hosting, carriers and subcontractors | ||||||||||||
| Amortization | ||||||||||||
| NOTE 18: | RESEARCH AND DEVELOPMENT EXPENSES |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Salaries and expenses relating to employees | ||||||||||||
| Service providers and other expenses | ||||||||||||
F-38
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 19: | SALES AND MARKETING EXPENSES |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Salaries and expenses relating to employees and service providers | ||||||||||||
| Advertising | ||||||||||||
| Amortization | ||||||||||||
| Other | ||||||||||||
| NOTE 20: | GENERAL AND ADMINISTRATIVE EXPENSES |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Salaries, management fees and expenses relating to service providers | ||||||||||||
| Share based payment expense | ||||||||||||
| Patents and fees | ||||||||||||
| Directors’ fees | ||||||||||||
| Investor relations and travel | ||||||||||||
| Rent and office maintenance | ||||||||||||
| Insurance | ||||||||||||
| Professional services | ||||||||||||
| Other | ||||||||||||
F-39
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 21: | FINANCE INCOME (EXPENSES), NET |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Finance expenses: | ||||||||||||
| Revaluation of marketable securities | ( | ) | ( | ) | ||||||||
| Bank account management fees and commissions | ( | ) | ( | ) | ( | ) | ||||||
| Exchange rate differences | ( | ) | ( | ) | ( | ) | ||||||
| Issuance costs | ( | ) | ||||||||||
| Interest expenses | ( | ) | ||||||||||
| Total finance expenses | ( | ) | ( | ) | ( | ) | ||||||
| Finance income: | ||||||||||||
| Revaluation of warrants to purchase ADS’s | ||||||||||||
| Revaluation of marketable securities | ||||||||||||
| Interest income | ||||||||||||
| Total finance income | ||||||||||||
| Finance income (expenses), net | ( | ) | ( | ) | ||||||||
| NOTE 22: | TAXES ON INCOME |
| a. | Tax rates applicable to the Company: |
Since the tax year 2018, the taxable
income of the Company and XTEPO is subject to a corporate tax rate of
Benefits granted to a Preferred Enterprise
include reduced tax rates. As part of the Economic Efficiency Law (Legislative Amendments for Accomplishment of Budgetary Targets for
Budget Years 2017-2018), 5777-2016, the tax rate is
Company’s management believe
the Company’s subsidiary Social Proxy will be entitled to beneficial tax rate of
Social Proxy Inc and Social Proxy LDA
are subject to a corporate tax rate of
F-40
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 22: | TAXES ON INCOME (Cont.) |
| b. | Tax income: |
Income taxes benefit for the year 2024 derives from the Change in deferred tax liability. No tax income (expenses) were recorded in 2023 and 2022.
| c. | The Company’s carryforward tax losses as of December 31, 2024, totaled approximately $ |
| d. |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands (except per share data) | ||||||||||||
| Current tax expense (income) | ||||||||||||
| Current year | ||||||||||||
| Deferred tax expense (income) | ||||||||||||
| Creation and reversal of temporary differences | ( | ) | ||||||||||
| Income tax benefit | ( | ) | ||||||||||
F-41
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 22: | TAXES ON INCOME (Cont.) |
| e. |
| Intangible assets | Net operating loss carryforward | Total | ||||||||||
| Balance of deferred tax asset (liability) as at January 1, 2024 | ||||||||||||
| Business combinations (see Note 5) | ( | ) | ( | ) | ||||||||
| Changes recognized in profit or loss | ||||||||||||
| Balance of deferred tax asset (liability) as at December 31, 2024 | ( | ) | ( | ) | ||||||||
| f. | The main reconciling items between the “theoretical” tax expense, assuming that all the income were taxed at the regular tax rate applicable to companies in Israel ( |
| e. | Tax assessments: |
The Company and Xtepo filed self-assessments that are deemed final through the 2019 tax year.
Social Proxy did not receive tax assessments since inception.
| h. | Unrecognized deferred taxes: |
As of December 31, 2024 and 2023, the
Company’s had a deferred tax liability of approximately $
| NOTE 23: | TRANSACTIONS AND BALANCES WITH RELATED PARTIES |
The Company’s key management personnel who are included, along with other factors, in the definition of related party, as above in IAS 24, includes directors, members of the executive committee and InterCure Ltd.
Compensation to key management personnel:
The compensation to key management personnel for employee services provided to the Company is shown below:
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Management fees, directors, and consulting fees | ||||||||||||
| Share-based payments | ||||||||||||
| Number of persons | ||||||||||||
F-42
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 23: | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.) |
The Company pays to an accounting firm
of which the company’s CFO is a Partner (“accounting firm”), a monthly fee of NIS
In addition, as of December 31, 2024
and 2023, the Company’s balances with key management personnel and the accounting firm, totaled approximately $
For further information regarding share-based payment to related parties, see also Note 14.
InterCure Ltd.:
As of December 31, 2024 and 2023, the
Company’s share in the shares of InterCure Ltd. was
The Company’s investment in the shares of InterCure Ltd. is presented as Marketable securities.
As of December 31, 2024 and 2023, the
Company’s balances of InterCure Ltd.’s shares total approximately $
The Company subleased an office from
Canndoc Ltd., which is a subsidiary of InterCure Ltd, during 2023 and 2022. The Company recorded rent expenses of approximately $
One of Company’s related party participated in the fund-raising occurred in August 2024, see Note 13c.
F-43
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 24: | LOSS PER SHARE |
Basic loss per share
The calculation of basic earnings per share (EPS) is based on the following profit (loss) attributable to shareholders and weighted-average number of ordinary shares outstanding.
Loss attributed to ordinary shareholders (basic)
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Total comprehensive loss for the year | ( | ) | ( | ) | ( | ) | ||||||
Weighted-average number of ordinary shares (basic)
| 2024 | 2023 | 2022 | ||||||||||
| Number of shares | ||||||||||||
| Issued ordinary shares at January 1 | ||||||||||||
| Issued August 14, 2024, due to fundraising | ||||||||||||
| Issued August 14, 2024, due to The Social Proxy Transaction | ||||||||||||
| Weighted average number of ordinary shares (basic) | ||||||||||||
Diluted loss per share
The calculation of diluted EPS is based on the following loss attributable to shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.
Loss attributed to ordinary shareholders (diluted)
| 2024 | 2023 | 2022 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Total comprehensive loss for the year (basic) | ( | ) | ( | ) | ( | ) | ||||||
| Warrant revaluation income | ( | ) | ||||||||||
| ( | ) | ( | ) | ( | ) | |||||||
Weighted-average number of ordinary shares (diluted)
F-44
| XTL BIOPHARMACEUTICALS LTD. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 25: | EARNINGS (LOSS) PER SHARE |
| 2024 | 2023 | 2022 | ||||||||||
| Number of shares | ||||||||||||
| Weighted-average number of ordinary shares (basic) | ||||||||||||
| Effect of warrants | ||||||||||||
| Weighted average number of ordinary shares (diluted) | ||||||||||||
In 2024,
The average market value of the Company’s shares for calculating the dilutive effect of share options and warrants was based on quoted market prices for the year during which the options were outstanding.
| NOTE 26: | SUBSEQUENT EVENTS |
| a. | On February 12, 2025, the Company entered into a definitive Exclusive Sublicense Agreement (the “Agreement”) with Biossil Inc., a company incorporated under the laws of Canada (“Biossil”). |
Pursuant to the Agreement, the Company
will grant Biossil, for the term of the Agreement, a royalty-free, exclusive, worldwide perpetual sublicense, with the right to sublicense
through multiple tiers, to its novel synthetic peptide, hCDR1, including the patent applications and provisional applications and the
resulting patents listed in the Agreement and all know-how including all clinical and pre-clinical data related to the product called
Edratide (the “Product”), trademarks, trade names, logos and labelling owned or controlled by the Company or its affiliates
that is necessary or useful for the research, development, manufacture and/or commercialization of the Product. In consideration for granting
the rights under the Agreement the Company will be entitled to cumulative payments of up to approximately $
| b. | During January 2025 through April 27, 2025, the Company sold |
| c. | On April 7, 2025, the Company announced that Mr. Noam Band was appointed the Chief Executive Officer of the Company, and that Mr. Band replaces Shlomo Shalev who will continue to serve as the Chairman of the Company’s Board of Directors. In accordance with the Israeli Companies Law, Mr. Band’s compensation is subject to shareholder approval. |
F-45
ITEM 19. EXHIBITS
The following exhibits are filed as part of this annual report:
82
| 12.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,* | |
| 12.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 13.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 99.7 | Clawback Policy (13) | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Certain confidential information contained in this exhibit was omitted. |
| (1) | Incorporated by reference from the registration statement on F-6 filed with the Securities and Exchange Commission on November 28, 2007, as it may be amended or restated. |
| (2) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on March 23, 2007. |
| (3) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on April 6, 2009. |
| (4) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on May 31, 2011. |
| (5) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on April 2, 2014. |
| (6) | Incorporated by reference from the registration statement on Form F-1 filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on December 31, 2015. |
| (7) | Incorporated by reference from the current report on Form 6-K filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on February 22, 2017. |
| (8) | Incorporated by reference from the current report on Form 6-K filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on March 9, 2017. |
| (9) | Incorporated by reference from the registration statement on Form 20-F filed with the Securities and Exchange Commission on August 10, 2005. |
| (10) | Incorporated by reference from the registration statement on Form F-1/A filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on February 1, 2018. |
| (11) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on March 15, 2021. |
| (12) | Incorporated by reference from the current report on Form 6-K filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on June 5, 2024. |
| (13) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on April 30, 2024. |
83
SIGNATURES
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.
| XTL BIOPHARMACEUTICALS LTD. | ||
| (Registrant) | ||
| Date: April 30, 2025 | Signature: | /s/ Noam Band |
| Noam Band | ||
| Chief Executive Officer | ||
84